The Indian banking sector has been jolted by a Supreme Court ruling that struck down JSW Steel’s Rs 19,700-crore resolution plan for Bhushan Power and Steel Ltd (BPSL), throwing one of the country’s largest insolvency cases into fresh turmoil. The court, in its May 2 judgment, ordered BPSL’s liquidation, citing violations in the payment structure and implementation delays.
The verdict has massive implications for banks, especially public sector lenders, which now risk losing the bulk of their recoverable dues. Banks collectively have a Rs 31,300 crore exposure to BPSL, with expected recoveries under the now-scrapped plan estimated at around Rs 12,400 crore.
Which banks are most exposed?
The State Bank of India has the largest exposure at Rs 9,800 crore, with a previously estimated recovery of Rs 3,930 crore—equivalent to 0.9% of its net worth. PNB, Canara Bank, Union Bank, and Indian Bank are also staring at significant unrealized recoveries ranging from Rs 1,000 crore to Rs 2,500 crore.
Private lenders such as Axis Bank, J&K Bank, and Karur Vysya Bank, though with lower exposure, also stand to lose a sizable share of dues.
Why did SC strike down the plan?
According to a CNBC-TV18 report, the court found that JSW Steel had not complied with the Insolvency and Bankruptcy Code (IBC) by using a combination of equity and optionally convertible debentures (OCDs) instead of pure equity. The delay in implementation also violated IBC timelines, further undermining the resolution’s legal standing.
Legal overhang continues
JSW Steel had gradually increased its stake in BPSL starting in 2021, but the deal remained entangled in legal proceedings, including a high-profile Rs 47,204-crore fraud case flagged by the Enforcement Directorate. While the Delhi High Court quashed those charges earlier this year, the Supreme Court’s recent order brings fresh complications.
What lies ahead?
Liquidation proceedings could severely dent recovery expectations, with banks bracing for steeper haircuts. Experts say there’s still room for alternate legal remedies or a fresh resolution proposal, but until then, the fate of Rs 31,000 crore in bank dues hangs in the balance.