The Supreme Court’s decision to liquidate Bhushan Power and Steel is likely to have an impact on the company’s lenders, led by State Bank of India (SBI) and Punjab National Bank (PNB), and the insolvency process.
The SC order has cast a shadow on other bankruptcy cases as the total admitted claims under the Insolvency and Bankruptcy Code (IBC) stood at Rs 10.46 lakh crore as of March 2024, with financial creditors’ claims amounting to Rs 9.46 lakh crore. The big worry among bankers is that bidders for companies under IBC will be cautious and their interest in such firms could wane in the wake of the order.
Bhushan Steel owes over Rs 47,000 crore to lenders, and JSW Steel’s proposal to pay Rs 19,700 crore to financial creditors would have resulted in a haircut of nearly 58 per cent. However, with the company going into liquidation, banks are unlikely to recover much, potentially leading to further losses.
“When a company is liquidated, its assets are sold to settle debts, often at distressed prices, leaving less money for banks. This could result in significant losses for lenders, who have already taken a huge haircut. The unwinding of this transaction is expected to have far-reaching consequences for the banking sector,” said an official of a nationalised bank.
However, a senior bank official with a nationalised bank said banks are studying the SC order. “There could be some appeals against the SC verdict. There’s a possibility that JSW might also appeal against the order,” he said. He said there’s a possibility that liquidation could bring in reasonable money to the creditors as the plant was making profits. The plant made a profit of Rs 11 crore in third quarter of FY25, loss of Rs 93 crore in Q2 of FY25 and a profit of Rs 300 crore in Q1.
Bhushan Steel was among the 12 major non-performing assets (NPAs) listed by the RBI in 2017 for insolvency resolution under the IBC.
The liquidation, which came under JSW in 2021, will significantly impact major banks, including SBI and PNB, which led the Committee of Creditors (CoC) in the case. SBI, the largest lender to Bhushan Power with admitted claims of Rs 9,825 crore, would have recovered over Rs 4,000 crore under the resolution plan.
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Other banks with significant exposure included PNB (Rs 7,355 crore including claims from OBC and United Bank of India), Canara Bank (Rs 3,991 crore including claims from Syndicate Bank), Union Bank of India
Rs 3,497 crore (including Andhra Bank and Corporation Bank), Indian Bank (Rs 3,083 crore including claims from ex Allahabad Bank) and Bank of Baroda (Rs 2,606 crore).
The IBC process clocked the highest ever resolutions in fiscal 2024, with 269 cases getting the National Company Law Tribunal (NCLT) nod for resolution plans, a 42 per cent growth over 189 in fiscal 2023, rating firm Crisil said.
Of the 269 cases, 88 per cent are from the backlog of earlier years’ admissions. This has been driven by greater investor interest in turnaround of stressed assets as seen in the resolution plan submissions. Appointment of new NCLT members has also aided in higher number of resolution cases, it said.
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Crisil said the moderation in recovery rates and stretched timelines played spoilsport, though. The year saw resolution plans with recovery rates of 27 per cent of admitted claims, lower than 36 per cent realised in fiscal 2023. Resolution timelines stretched to 850 days compared with 825 days in the previous fiscal, Crisil said.