Enthused by successful conclusion of Bhushan Steel case, the finance ministry expects banks to write back more than Rs1 trillion after the resolution of all 12 non-performing asset (NPA) cases referred to insolvency proceedings by the Reserve Bank of India (RBI) it its first list.
Last week, Tata Group acquired controlling stake of 72.65% in the debt-ridden Bhushan Steel Ltd for around Rs36,000 crore will help in cleansing the banking system as well as boost lenders profitability.
The remaining 11 NPA cases which are in the pipeline will easily bring to the table over Rs1 trillion and the amount coming from resolution under the Insolvency and Bankruptcy Code (IBC) will directly add to the bottomline and help in reduction of NPAs of the public sector banks, a senior finance ministry official told PTI.
Last year in June, RBI’s internal advisory committee (IAC) identified 12 accounts, each having more than Rs5,000 crore of outstanding loans and accounting for 25% of total NPAs of banks. Following the RBI’s advisory, banks referred Bhushan Steel Ltd, Bhushan Power & Steel Ltd, Essar Steel Ltd, Jaypee Infratech Ltd, Lanco Infratech Ltd, Monnet Ispat & Energy Ltd, Jyoti Structures Ltd, Electrosteel Steels Ltd, Amtek Auto Ltd, Era Infra Engineering Ltd, Alok Industries Ltd and ABG Shipyard Ltd to NCLT. These accounts together have total outstanding loan of Rs1.75 trillion.
The Kolkata bench of the National Company Law Tribunal (NCLT) has already approved Vedanta Resources’s resolution plan for acquisition of Electrosteel Steels last month.
Besides, the NCLT last month also asked the lenders of Bhushan Power & Steel to consider the bid submitted by UK-based Liberty House for the debt-ridden company.
Bhushan Power and Steel owes close to Rs48,000 crore to banks and was referred to the NCLT by Punjab National Bank in June last year.
Last week, Bamnipal Steel Ltd (BNPL), a wholly-owned subsidiary of Tata Steel, has acquired 72.65% stake in Bhushan Steel by paying around Rs36,400 crore, of which Rs35,200 crore will be paid to financial creditors. The buy-out is expected to bring relief in the form of capital boost to PNB that was one of the lenders to the debt-ridden company, the bank said in a statement.
PNB in a statement said the bank had the second highest exposure to Bhushan Steel and will benefit greatly from this acquisition. PNB officials say that the ledger outstanding to Bhushan Steel was Rs3,857.49 crore while Rs1,542.99 crore were earmarked for provisioning.
With this resolution, PNB’s NPA will fall by Rs3,857.49 crore. While the bank will recover Rs3,050 crore of the outstanding amount it will also be able to write off Rs807.49 crore from the provision it had held for this NPA.
The resolution will also have a direct impact on the bank’s bottom-line this quarter.
Officials say that this may have a positive effect on the bank’s profitability to the tune of Rs735.50 crore. On top of this, lenders including PNB will continue to own 12% in the acquired entity giving them the opportunity to cash out later when the valuation of the company goes up.
With a current market capitalization of Rs598 crore at the rate of Rs27.75 per share for Bhushan Steel Ltd., the share for lenders that stands at nearly 12%, works out to be Rs72 crore.
Another state-owned lender Bank of India (BoI) said it would be able to realise around Rs1,993 crore from the first successful NCLT resolution of Bhushan Steel.
Source: Livemint, May 20,2018