Indian banks risk adding $25bn bad debt on court move

Bloomberg

A year after India’s central bank tightened the screws on companies delaying debt payments, the nation’s Supreme Court is poised to begin hearing arguments on whether the regulator’s diktat applies across industries.
Hanging in the balance is the fate of more than $25 billion of loans to power producers. They are among parties contesting the central bank directive that forced lenders recognize loans as soured if dues are delayed even by a day and to approach bankruptcy courts if a restructuring isn’t agreed to within 180 days. The top court in September halted proceedings against power, sugar and shipping companies after they challenged the Reserve Bank of India’s rules.
The central bank circular last year, which scrapped previous methods for recasting bad loans, rattled companies and lenders alike. The power sector was among the hardest hit with the government identifying as stressed 34 plants with outstanding debt of about 1.8 trillion rupees. If the RBI directive is upheld, many of these would immediately be pushed into insolvency court with lenders forced to dial-up provisions. The top court has said the case will be on top of its agenda and a judgment is expected once arguments conclude over next few weeks.

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