The Allahabad high court had ordered lenders to avoid acting against power producers after they sought relief against RBI’s new stress resolution norms In a relief to power producers, the Supreme Court on Tuesday refused to stop Allahabad high court from hearing a clutch of petitions against Reserve Bank of India’s 12 February circular. The central bank had sought clubbing of such cases at various high courts including in Allahabad. The verdict was delivered by a two-judge bench headed by justice Rohinton F. Nariman, which will hear RBI’s plea on 28 August to transfer the case from the high court to the apex court, Bloomberg reported. The Allahabad high court had earlier ordered lenders to avoid acting against power producers after they sought relief against RBI’s new stress resolution norms. RBI in its 12 February circular tightened norms for settling bad debt by setting timelines for resolving non-performing assets. It allowed lenders to initiate insolvency proceedings against defaulting corporates. Although banks were given several options to arrive at a resolution plan, they had 180 days to do so. The central bank also introduced the concept of a one-day default under which banks have to identify incipient stress even when repayments are overdue by a day. Power is one of the highly stressed sectors with close to ?1 trillion of loans having turned sour or recast. A report on the impact of RBI’s stressed asset rules, tabled in the Parliament on Tuesday, said about 66 gigawatt capacity of independent power producers is under various degrees of financial stress. This includes 54.8GW of coal-based power (44 assets), 6.83GW of gas-based power (nine assets) and 4.57GW of hydropower (13 assets). Experts say that referring bulk of power projects to the bankruptcy court would lead to hefty haircuts for lenders since several producers do not have adequate power purchase agreements. “The 12 February circular was a step towards having the banking sector in recognizing stressed assets at an earlier stage. An earlier recognition could help banks to have a lower haircut on such exposures,” said Karthik Srinivasan, head of financial sector ratings at Icra. The standing committee on energy in a report on Tuesday noted that new guidelines of the central bank will only deepen the crisis of the electricity sector as its “leitmotif is distinct, peculiar and sector specific without any generic underpinning with other sectors of the economy”. The committee added that RBI substituted the previous guidelines with a harmonized and simplified generic framework for resolution of stressed assets following the enactment of the Insolvency and Bankruptcy Code (IBC). “Although the new guidelines have been termed as harmonized and simplified generic framework, yet they are far from being so,” it added. The Independent Power Producers Association of India told the committee that sub-optimal bids for power projects is thwarting the resolution process. They said there are no bidders in the system and forcing to sell under the circular or National Corporate Law Tribunal will end up having a big sacrifice of public money without any benefit to the economy or the electricity sector as the new promoter will have the same problem.