Banks win Rs 40,000 crore back in one stroke; SBI set to recover this much from Essar Steel IBC punch

The Supreme Court on Friday upheld the rights of secured financial creditors and set aside NCLAT’s earlier order which had put operational creditors on with financial creditors.

The Supreme Court’s landmark judgement in Essar Steel case spells a major win for banks as they stand to recover upward of Rs 40,000 crore of NPAs in a single stroke — the money which otherwise was lost in all probability. The Supreme Court on Friday upheld the rights of secured financial creditors, and set aside NCLAT’s earlier order, which had put operational creditors on par with financial creditors. The Supreme Court has approved ArcelorMittal’s Rs 42,000 crore bid for acquiring debt-struck Essar Steel. Following the development, Essar Steel’s creditors will get their dues more than 800 days after the company was admitted to the NCLT (National Company Law Tribunal).

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Banks and financial institutions including SBI, Canara Bank, PNB, ICICI Bank and Edelweiss ARC are set to recover about Rs 22,026 crore. In all, the bankers stand to get around Rs 40,000 crore of the Rs 42,000 crore that Lakshmi Mittal-promoted ArcelorMittal will pay per the resolution plan, the Financial Express reported citing resolution professional SK Gupta. SBI alone is set to recover about Rs 12,161 crore. Notably, ArcelorMittal will invest Rs 8,000 crore in Essar Steel in addition to the payments of Rs 42,000 crore to lenders. This will make it India’s fourth-largest steel producer.

The success of Essar Steel case comes as a big boost to the government’s Insolvency and Bankruptcy Code to fight the NPA menace. The Ministry of Finance had expected banks to write back more than Rs 1 lakh crore after the resolution of all 12 NPA cases referred to insolvency proceedings by the RBI it its first list. Notably, Bhushan Steel was the largest account among RBI’s 12 big accounts identified for an immediate resolution. In the last two years, banks have managed to resolve seven of those cases and recover Rs 1.13 lakh crore. The total admitted claim in the seven cases was Rs 2.13 lakh crore.

Bhushan Steel Bhushan Power & Steel, Essar Steel, Jaypee Infratech, Lanco Infratech, Monnet Ispat & Energy, Jyoti Structures, Electrosteel Steels, Amtek Auto, Era Infra Engineering, Alok Industries Ltd and ABG Shipyard were the 12 large accounts referred to NCLT. These accounts together had total outstanding loan of Rs 1.75 lakh crore. In the previous fiscal year (FY19), the recovery under the IBC had been Rs 70,000 crore, twice than the figure recovered through the debt recovery tribunal, Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, and Lok Adalat in 2017-18, according to a CRISIL report.