The banking regulator rarely makes allowances for specific sectors and that principle will extend to the power sector as well.

New Delhi: Dashing the hopes of 40,000 mw stressed power projects, a top government official on Tuesday said RBI is not in favour of any special forbearance for the sector that would have prevented the loans from being categorised as NPA, triggering a resolution process.

The banking regulator rarely makes allowances for specific sectors and that principle will extend to the power sector as well, power secretary Ajay Kumar Bhalla told BloombergQuint. RBI doesn’t look at sectoral issues and it’s for the ministry to look at those issues and find a solution, he added.

He was responding to qu­estions about power companies’ recent plea to the finance ministry and the RBI for relaxation of the one-day repayment delay norm that can turn the loan into NPAs, triggering banks to work out resolution plan for the stressed entity.

It has been argued that such a move would increase NPAs in the sector and bring running projects to a halt pushing several energy firms into liquidation.

Bhalla said the power ministry was trying to address stress in the sector by addressing the problem related to fuel linkage and lack of power purchase agreements (PPAs).

But with projects that are under stress due to aggressive tariff, bankers would first try to work out a resolution plan before the ministry took up issues such as change of ownership in PPAs, fuel supply agreement if it exists or availability of linkage.

The power sector is one of the largest contributors of stressed assets plaguing the financial system. Stressed power projects hold Rs 1.8 lakh crore in loans, which are yet to be classified as bad. Bankers say unless some co­llective resolution plan is worked out, loans will turn bad and recovery would be low.

Banks led by SBI are also looking at creation of an asset reconstruction company to help take over ownership of stressed assets and put it under a special purpose vehicle. State-owned firms like NTPC would then operate these SPV and returns generated would be used to pay off lenders.

Sources said power firms would be most affected am­ong sectors if one-day default norm were brought to operation. NPAs of banks due to power loans will rise and the sector may face fu­nds crunch due to this also and this will affect the revival of many power projects.

The finance ministry is keen that bankers’ request for increasing the default period for term-loans to 30 days from one-day, as stipulated by RBI in February, be considered by the regulator, sources said.

RBI stipulated in February that even a one-day delay in the repayment of term loans would be considered a default and banks have to report it to RBI.

With new RBI norms, the power sector will have an additional Rs 2 Lakh crore of NPAs. The association of power producers has also raised it with a parliamentary panel seeking direction for norm relaxation.

Power plants pay for coal in advance to Coal India, but it takes them 90-150 days to recover dues from state po­wer distribution companies.