REC’s Bad Loan Sale: A Defining Moment for India's Power Sector

State-owned REC Ltd is making a bold move to clean up its books by selling ₹2,848 crore in bad loans from Corporate Power Ltd (CPL), accepting a steep 98% haircut. This decision underscores the urgency of addressing stressed assets in India's power sector and signals a shift toward more aggressive financial restructuring.

Despite years of investment, power sector NPAs remain a challenge, with stalled projects and financial mismanagement leading to mounting losses. REC’s Swiss challenge auction, starting with an anchor bid of ₹58.65 crore, highlights the difficulties of recovering funds from distressed assets. If no higher bids emerge, this low recovery rate will set a tough precedent for future resolutions.

CPL’s 540 MW Jharkhand project, once promising, has faced years of financial distress, culminating in liquidation. A prior bid from Vedanta was rejected due to compliance issues, leaving REC with limited recovery options. This case underscores broader inefficiencies in India’s insolvency framework, raising concerns about investor confidence and the need for stronger regulatory interventions.

While REC’s move reduces immediate financial exposure, it also forces a reckoning with deeper structural issues. Strengthening oversight, improving due diligence, and streamlining resolution mechanisms will be key to preventing such crises in the future.

As India pushes for energy security and infrastructure growth, managing distressed assets efficiently is critical. This auction could redefine how NPAs are handled in the power sector, shaping future policies and investment strategies. At Peak Insight Consultants, we continue to monitor these shifts, providing insights into their long-term impact on India’s energy and financial landscape.