Debt relief: Supreme Court asks RBI to address power companies’ woes

Even as the Centre and the RBI show reluctance to widen the ambit of post-pandemic loan relief to borrowers and banks seem disinclined to artificially suppress their stressed assets, the Supreme Court is still exploring if hard-hit industrial sectors could be given further succour. The apex court on Thursday asked RBI to respond to the power producers’ demands for various benefits, including restructuring of their loans, under the recent central bank circular on debt recast.

Senior counsel Abhishek Manu Singhvi, appearing for the Association of Power Producers, made it clear that he was not seeking liquidity injections or any fiscal or other specific relief. “The power sector being an essential and abused segment just needs tweaking of the RBI circular to make it inclusionary so that the sector could avail the benefits of the scheme,” he said. Singhvi further said power sector NPAs have been the result of non-payment consumers (discoms). Stating that the generating companies, which are suffering the most, he said the total debt has risen to Rs 1.2 lakh crore.

The apex court bench comprising justices Ashok Bhushan, R Subhash Reddy and MR Shah also directed power producers to submit their suggestions to RBI. It also asked the Centre and RBI to file short submissions/suggestions and posted the matter for further hearing next week.

The power producers said that banks are not proceeding to recover loans but then they want to recover guarantees. While moratorium applies to the principal loan, banks are taking coercive steps on guarantees and other aspects, Singhvi said, on their behalf, adding it’s a “subterfuge happening”.

“A larger part of the borrowings cannot be restructured due to certain exclusions. A large amount of borrowing is from LIC and alternate investment funds, FPIs, and foreign private banks. Allow us restructuring of loans from these lenders. Moreover, the RBI circular provides for restructuring at the instance of the lender and not the borrower which defeats the purpose of the circular. These loopholes need to be rectified by RBI. It needs to revisit the circular and make these changes,” he added.

The RBI scheme that covers 26 sectors, including power, is modelled on the Kamath Committee proposals.

The power producers had moved the apex court, urging it to direct the Union government to instruct lending institutions to not charge interest on interest accrued during the moratorium period. Since the compound interest relief unveiled by the government is only for loans up to Rs 2 crore, power companies have hardly benefited.

The power companies also want to extend the moratorium period on interest and principal for an additional six months, ending March 31, 2021, and requested the court to direct the government to provide specific guidance to banks to convert the accumulated interest on term loan and working capital over the one year deferment period into a funded interest term loan (FITL) which shall be repayable in equal monthly instalments over the balance tenure of the loan.

During the hearing, Justice Shah asked the central government why credit card users should be entitled to the benefit of compound interest waiver under the RBI loan moratorium scheme as they were not borrowers availing loans but only using the card to purchase goods. The observation came after the Solicitor General Tushar Mehta told the judges that even credit card users would receive ex-gratia payments.

The RBI informed the top court that it had asked all banks, financial and non-banking financial institutions to take “necessary actions” to ensure that the amount is given to eligible borrowers within the stipulated time. Mehta also submitted that the finance ministry had issued a scheme as per which lending institutions would credit this amount to the accounts of borrowers. However, the government said that the banking sector cannot bear any further financial strain. “This is a fiscal policy matter and the government is on top of it,” Mehta said.