SBI-led lenders to offer prescription to Essar Steel, Bhushan Steel, Electrosteel; refer them to bankruptcy court
The three steel firms have to repay loans worth nearly Rs 1 lakh crore to the lenders.
- Jun 23, 2017,
- Updated Jun 23, 2017 1:33 PM IST
The process of cleaning up bad loans from the system received an impetus from the lenders on Thursday with banking behemoth State Bank of India being authorised to refer Essar Steel, Bhushan Steel and Electrosteel to the bankruptcy court, which may eventually lead to the merger of some of these firms to bring them back to health.
With SBI set to take lead in the process and act as a main negotiator, the position of banks has been strengthened, two bankers familiar with the move told The Economic Times.
The three steel firms have to repay loans worth nearly Rs 1 lakh crore to the lenders. The loans to these three firms are nearly half the loans of top 12 defaulters identified by the RBI which account for 25 per cent or Rs 2.5 lakh crore of the total bad loans in the system.
SBI had called the meeting of the joint lenders forum (JLF). It is the lead bank for all the three steel companies which have outstanding loans of Rs 45,000 crore to Essar Steel, Rs 47,000 crore to Bhushan Steel, and Rs 11,000 crore to Electrosteel Steels.
SBI will file applications at the National Company Law Tribunal by early next week for these three firms under the Insolvency and Bankruptcy Code, the ET report said.
After the tribunal admits applications, the lenders and the board of these companies will get 270 days to resolve the issue.
Restructuring of debt or a merger of the companies could be in offing.
The process would involve infusion of new capital into the company and the lenders could respond with easier loan terms.
The move will lead to the steel sector emerging strong in the long run, Jayanta Roy, senior vice-president at ICRA told ET.
Insolvency proceedings for stressed accounts may lead to consolidation in the steel sector. As a result, stronger steel players with healthy financial profile would have a chance to raise their market share by bidding for these assets at attractive valuations, said Roy.
Subsequently, the steel sector, facing a weak demand and an overcapacity situation would benefit in the long run, Roy added.
On June 13, the RBI identified 12 accounts for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of total NPAs of banks.
The banking sector is saddled with non-performing assets (NPAs) of over Rs 8 lakh crore, of which Rs 6 lakh crore is with public sector banks (PSBs).
These 12 accounts would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC), the RBI said. Banks are proceeding against Jyoti Structures and Lanco Infratech. The other big accounts include Amtek Auto, Bhushan Power, Jaypee Infratech, Monnet Ispat and Alok Industries.
The process of cleaning up bad loans from the system received an impetus from the lenders on Thursday with banking behemoth State Bank of India being authorised to refer Essar Steel, Bhushan Steel and Electrosteel to the bankruptcy court, which may eventually lead to the merger of some of these firms to bring them back to health.
With SBI set to take lead in the process and act as a main negotiator, the position of banks has been strengthened, two bankers familiar with the move told The Economic Times.
The three steel firms have to repay loans worth nearly Rs 1 lakh crore to the lenders. The loans to these three firms are nearly half the loans of top 12 defaulters identified by the RBI which account for 25 per cent or Rs 2.5 lakh crore of the total bad loans in the system.
SBI had called the meeting of the joint lenders forum (JLF). It is the lead bank for all the three steel companies which have outstanding loans of Rs 45,000 crore to Essar Steel, Rs 47,000 crore to Bhushan Steel, and Rs 11,000 crore to Electrosteel Steels.
SBI will file applications at the National Company Law Tribunal by early next week for these three firms under the Insolvency and Bankruptcy Code, the ET report said.
After the tribunal admits applications, the lenders and the board of these companies will get 270 days to resolve the issue.
Restructuring of debt or a merger of the companies could be in offing.
The process would involve infusion of new capital into the company and the lenders could respond with easier loan terms.
The move will lead to the steel sector emerging strong in the long run, Jayanta Roy, senior vice-president at ICRA told ET.
Insolvency proceedings for stressed accounts may lead to consolidation in the steel sector. As a result, stronger steel players with healthy financial profile would have a chance to raise their market share by bidding for these assets at attractive valuations, said Roy.
Subsequently, the steel sector, facing a weak demand and an overcapacity situation would benefit in the long run, Roy added.
On June 13, the RBI identified 12 accounts for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of total NPAs of banks.
The banking sector is saddled with non-performing assets (NPAs) of over Rs 8 lakh crore, of which Rs 6 lakh crore is with public sector banks (PSBs).
These 12 accounts would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC), the RBI said. Banks are proceeding against Jyoti Structures and Lanco Infratech. The other big accounts include Amtek Auto, Bhushan Power, Jaypee Infratech, Monnet Ispat and Alok Industries.