Bhushan Power order puts Rs 34,000 cr bank fund at risk

The Supreme Court order rejecting JSW Steel’s Rs 19,800 crore resolution plan and liquidating Bhushan Power & Steel Ltd (BPSL) has put at risk around Rs 34,000 crore of banks exposure to the latter.

The banks will have to pay back the entire Rs 19,350 crore they had received from the JSW group, and will have to fully provide for that in the June quarter. BPSL had owed Rs 48,523 crore to the lenders, most public sector banks led by the State Bank. The court order also puts a big question mark on the fate of the Rs 10,800 crore JSW had borrowed to fund the acquisition along with a Rs 4,000 crore term loan that JPSL had raised to run the company after the ownership changed hands.

The development comes as banks are already facing squeezed margins —as lending rates are falling and will likely fall more in the coming months but deposit prices remain highly elevated and will remain so for some more quarters.

Under the IBC scheme, lenders are legally bound to return the money received from the winning bidder if the resolution plan gets rejected later, a public sector banker told TNIE. Another banker said that banks will also have to set aside more funds if the liquidation value is lower than the now failed IBC resolution value. During the insolvency process, valuers had arrived at a liquidation value of Rs 9,700 crore.

None of the nearly a dozen lenders, who are mostly public sector banks, have officially commented on the development except saying they are studying the detailed order.

The bankers with exposure to the crippled company are mostly state-run lenders with State Bank of India having had an exposure of Rs 9,800 crore and had received Rs 3,930 crore in likely payback from JSW Steel under the resolution plan, followed by Punjab National Bank with Rs 6,100 crore of exposure and a likely recovery of Rs 2,440 crore, according to analysis by brokerages.

Among leading lenders, Axis Bank and Karur Vysya Bank are the only private sector lenders with exposures of Rs 900 crore and recovery of Rs 350 crore and Rs 400 crore and Rs 140 crore.

The other major lenders include Canara Bank (Rs 3,700 crore & Rs 1,490 crore), Union Bank of India (Rs 3,200 crore & Rs 1,280 crore); Bank of Baroda (Rs 2,600 crore & Rs 1,050 crore); Indian Bank (Rs 2,600 crore & Rs 1,060 crore); Indian Overseas Bank (Rs 1,000 crore & Rs 420 crore); Jammu & Kashmir Bank (Rs 400 crore & Rs 170 crore), and IDBI Bank with Rs 600 crore  and Rs 230 crore in payback.

In a surprise order that has serious ramifications for the insolvency resolution process and questions the collective commercial wisdom of lenders, a Supreme Court bench of justices Bela Trivedi and Satish Chandra Sharma had last Friday set aside the IBC resolution of Bhushan Power & Steel and also ordered its liquidation saying JSW Steel, the lenders, the resolution professional  Mahender Kumar Khandelwal as well the NCLT and NCLAT did not follow the IBC provisions and thus the entire deal was illegal.