The Supreme Court’s decision declaring JSW Steel’s resolution plan for Bhushan Power and Steel illegal and ordering the company’s liquidation has put bankers in a quandary. Lenders fear they may now have to make provisions for the amount already recovered through the resolution process. According to brokerage estimates, banks had recovered Rs 16,900 crore from the resolution of Bhushan Power and Steel.
“The decision is a setback for banks. We will study the decision and try to understand its implications,” said a senior bank official of a public sector bank.
Bankers said there might be more appeals by affected parties challenging this decision. The Supreme Court on Friday set aside the resolution plan submitted by JSW Steel for Bhushan Steel and Power, holding it illegal and in violation of the Insolvency and Bankruptcy Code (IBC). The SC said the committee of creditors was found to have approved JSW’s resolution plan without proper application of its commercial wisdom.
Banks are expected to see significantly-lower recoveries through liquidation as compared to recoveries under the resolution plan.
“We have yet to get hold of the Supreme Court order, more clarity will emerge about our future course of action only after going through the order,” said another bank official.
Among lenders, public sector banks will be hit harder than private peers as they have larger exposure to Bhushan Power and Steel.
According to brokerages, State Bank of India has recovered nearly Rs 3,900 crore while Punjab National Bank has made Rs 2,400-crore recovery. Canara Bank has recovered Rs1500 crore, Union Bank of India has recovered Rs 1200 crore and Indian Bank has recovered Rs 1,000 crore through the resolution plan.
Bhushan Power & Steel was one of the 12 companies shortlisted by the Reserve Bank of India in 2017 for insolvency proceedings. Bhushan Power owed its lenders more than Rs 47,000 crore and over Rs 780 crore to operational creditors.