The government should address the troubles of the power sector, but not at the cost of Insolvency and bankruptcy code (IBC). Discuss in the light of the recent RBI circular and Allahabad High court judgement. (200 words)
Refer – The Hindu
Enrich the answer from other sources, if the question demands.
IAS Parliament 6 years
KEY POINTS
· The recent RBI circular requires banks to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days.
· Failing this would result in insolvency proceedings being invoked against the defaulter.
· Power sector is one of the most financially stressed ones.
· But, power producers, government and even the lenders, mostly public sector banks were not keen on implementing the RBI circular.
· They argue that the power sector’s problems had more to do with external factors such as
a) fuel shortages due to cancellation of coal block allotments or lack of supply linkages
b) absence of power purchase agreements signed by State discoms
c) cost overruns due to delayed clearances
· Hence, the Centre called for regulatory relief for the power sector and sought an extension of the deadline for the sector.
· But, Allahabad High Court has decided rightly to deny interim relief to power companies from the RBI’s circular.
· Because, it is RBI's discretion to decide whether any particular sector deserves regulatory exceptions or not.
· Any intervention by the High Court would entertain obfuscation of the RBI’s regulatory powers or of the sanctity of the Insolvency and Bankruptcy Code.
· Granting any relief would have led to pleas for exemption from other sectors too.
· The government should display greater urgency in tackling systemic issues in different sectors, but there should be no deviation from the IBC path it has embarked on to fix the banking stress, that is hurting the entire economy.
