Loan moratorium case: Indian energy sector players want Supreme Court to “close” loopholes in RBI restructuring plan

  • The Supreme Court of India asked the power industry and other parties to submit any suggestions they may have to the Reserve Bank of India and the Ministry of Finance before the next hearing, which is likely to be held next week.
  • Senior Lawyer Abhishek Manu singhvi, representing the electricity sector, said the RBI’s restructuring plan has created loopholes that exclude its customers from aid.
  • Singhvi also pointed the finger at the banks for not having carried out the recovery of the loans but rather for seeking to recover collateral.

The Reserve Bank of India’s restructuring plan may have been a relief to many, but electricity players are not happy to have been left out. Senior lawyer Abhishek Manu Singhvi asked the Supreme Court to “plug” the so-called loophole.

“The RBI circular dated October 6 created inadvertent exclusions,” Singhvi told the court during today’s loan moratorium hearing, which ultimately took place after being postponed for three. times due to the unavailability of Solicitor General Tushar Mehta.

The Supreme Court has asked power producers and all other parties to submit their suggestions to the RBI and the Ministry of Finance before the next hearing, likely scheduled for next week.

Why do power producers face a problem?
The problem, according to Singhvi, is that power producers have huge arrears, which result from unpaid contributions. This was true even before the COVID-19 pandemic hit. The total debt of the sector is currently around 1.2 lakh crore.

He argued that a large number of loans – most of them by the Life Insurance Corporation of India (LIC) – cannot be restructured due to certain exclusions. Singhvi also pointed the finger at the banks for not having carried out the recovery of the loans but rather for seeking to recover collateral.

“The benefits of restructuring should be allowed at an opt-in or opt-out stage. Here, the center says that restructuring can only be initiated at the request of the lender. Minor adjustments are needed. The RBI must review the circular and make these changes ”, he declared in front of the bench of the Supreme Court directed by the judge MR Shah.

The electricity sector during COVID-19
Some of the problems plaguing the sector include the lack of meaningful price reforms, unreliable fuel supply, and the unsustainable level of subsidy offered by public sector electricity distribution companies.

Electricity distribution is the weakest link in the Indian energy sector value chain, and it was already facing a slowdown in demand last year. The COVID-19 pandemic has only exacerbated the problem, with demand dropping 19% at the end of the June quarter.

However,
Swiss creditThe latest report from, points out that the electricity sector has seen improvement over the past three months compared to when the outbreak initially occurred. The number of utilities with an interest coverage rate of less than 1% fell from 11 to 8 between the first and second quarters of fiscal 2021.

Even though Mehta tried to convince the judiciary that no further intervention is necessary, the Supreme Court asked the central government and the RBI to respond to the suggestions presented by the judiciary today. He also rejected petitions where the petitioners were satisfied with the waiver of compound interest.

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