Economy

KEY POINTS

·         Recently, the Supreme Court has ordered a stay on the implementation of RBI's February 12 circular dealing with insolvency proceedings.

·         The RBI's circular is part of a revised RBI framework for resolution of stressed assets in the economy.

·         It mandates insolvency proceedings under the new Insolvency and Bankruptcy Code (IBC) for a debt servicing default beyond 180 days.

·         It also asks banks to recognise loans as non-performing even if repayment was delayed by just one day.

·         The Allahabad High Court thus earlier refused to grant relief to troubled power companies facing action from the RBI.

·         But the SC has ordered that insolvency proceedings should not commence against the defaulting power companies.

Concerns

·         The troubles of power companies can be traced to structural issues such as the

1.       absence of meaningful price reforms

2.      unreliable fuel supply

3.      unsustainable finances of public sector power distribution companies

·         So, banks are unlikely to make much money out of the stressed assets until these structural problems are addressed.

·         Certainly, policymakers, and not courts, would have to take charge and resolve these issues.

·         So the Court’s decision to intervene will do very little good in the long run to either stressed power companies or their lenders.

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