New Delhi: The Supreme Court (SC) will on 28 November hear a challenge by power generation companies to the Reserve Bank of India’s (RBI) circular laying down the norms for resolving bad loans.

The matter was mentioned on Friday by former attorney general Mukul Rohtagi appearing for these companies before a bench headed by Justice Rohinton F. Nariman.

Allahabad High Court had on 27 August denied interim relief to power companies, which had challenged the RBI’s 12 February circular on bad loans.

The central bank, in its circular, tightened the norms for settling bad loans by allowing lenders to initiate insolvency proceedings against defaulters and also set timelines for resolving such loans.

Banks were given several options to arrive at a resolution plan but had to do so in 180 days.

RBI also introduced the concept of a one-day default, under which banks have to identify incipient stress even if repayments are overdue by just a day.

The court had asked the central government to decide and take action within 15 days, under Section 7 of the Reserve Bank of India Act.

It also asked the high-level empowered committee to decide on resolutions within two months in consultation with the central bank.

Section 7 of the RBI Act states that the Union government, in public interest, can give directions to the central bank from time to time.

The National Democratic Alliance (NDA) government had in July set up an empowered committee to resolve the problem of stressed power projects. The panel was headed by cabinet secretary P.K. Sinha, who was earlier India’s power secretary.

The country’s power sector has been one of the highly stressed sectors, with close to 1 trillion of loans having turned bad or been recast. Around 66 gigawatts (GW) of capacity is facing various degrees of financial stress, including 54.8GW of coal-based power (44 assets), 6.83GW of gas-based power (nine assets) and 4.57GW of hydropower (13 assets).

Lenders have an exposure of around 3 trillion to these assets, following slow electricity procurement over the last three-four years.

According to the RBI, total outstanding loans of scheduled commercial banks to the power sector, including renewables, stood at 5.65 trillion as of March 2018.