Essar Steel insolvency case | Banks to see profitable Q3

Lenders expect payment to be in by December 31; recovery to directly go into profit and loss account

November 15, 2019 11:20 pm | Updated November 16, 2019 12:05 am IST - Mumbai

Banks have an exposure of about ₹50,000 crore to Essar Steel.

Banks have an exposure of about ₹50,000 crore to Essar Steel.

Profitability of banks is set to get a major boost in the current quarter, with the Supreme Court on Friday paving the way for the acquisition of Essar Steel by ArcelorMittal. Banks have an exposure of about ₹50,000 crore to Essar Steel.

The Supreme Court on Friday accepted ArcelorMittal’s offer to pay an aggregate ₹42,000 crore as an upfront amount to the secured financial creditors of bankrupt Essar Steel.

Some of the bankers said, according to the original resolution plan, ArcelorMittal will have five days to pay the creditors. “In any case, the payment will definitely come by December 31. So, this will boost the profitability of the banks for the Oct.-Dec. period,” said a senior official of a public sector bank. Banks have already provided 100% for the loans given to the steelmaker. As a result, the recovery from this account will directly go into the profit and loss account, which will improve the profit.


State Bank of India will be one of the biggest beneficiaries which will get around ₹12,000 crore. “This much-awaited judgment also settles to rest numerous points of law under the Insolvency and Bankruptcy Code which were tested in various courts. This should significantly reduce the scope for long drawn litigations under IBC and would eventually lead to faster resolutions of stressed assets,” SBI Chairman Rajnish Kumar said.

“The Supreme Court has upheld that the ultimate discretion on distribution of funds is with the Committee of Creditors. It has held that the secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid. It has been held that the CoC can distribute among the secured financial creditors as per their commercial wisdom as CoC is not restricted from classifying creditors as financial, operational, secured or unsecured,” he said.


Edelweiss ARC, which has the second-highest exposure to the steel company, said the CoC’s power to decide the resolution cannot be taken away. “Everyone was very clear that this was required,” R.K. Bansal, CEO, Edelweiss ARC, said. “Basically, CoC has the decision- making power — how the resolution plan and how the distribution will happen. CoC’s power to decide the resolution cannot be taken away,” he said. Bank stocks reacted positively, with SBI’s share price rising 5.2%, PNB’s 2.65%, IDBI Bank’s 3.3%, while Canara Bank’s share closed 2.5% higher.

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