Bank’s NPA war! Bhushan Steel parks Rs 36,400 crore debt with lenders, IBC on track

The Tata Steel acquisition of debt-laden Bhushan Steel comes as a success story for the Reserve Bank of India (RBI) and government who are busy tackling banking systems one key problem massive stressed assets through Insolvency & Bankruptcy Code (IBC). The resolution of bank’s NPA crisis has been going for quite some time now, and among many measures IBC is believed to be the game changer in solving the crisis. Coming to Bhushan Steel this company was the largest defaulter in RBI’s first list for IBC before NCLT.

On Friday, Tata Steel announced that they have successfully completed acquisition of controlling stake of 72.65% in Bhushan Steel in accordance with the approved Resolution Plan under the  corporate Insolvency Resolution Process (CIRP) of IBC.

Tata Steel highlighted that, the admitted CIRP cost and employee dues have been paid, as required under IBC. Further, settlement of the amounts equivalent to Rs 35, 200 crore towards financial creditors of BSL is being undertaken as per the terms of resolution plan and corresponding transaction documents.

Further, Rs 1,200 crore will be paid to the operational creditors of BSL over a period of 12 months as per their admitted claims and terms of approved resolution plan.

Post announcement on Friday, the share price of Bhushan Steel soared by 4.93% to Rs 27.65 per piece on BSE. However, Tata Steel share price ended on a negative note to Rs 591.50 per piece down by 3.04%.

Following this development,  Finance Minister Piyush Goyal tweeted saying, “Congrats to PM @narendramodi ji & @arunjaitley ji for a historic breakthrough in resolving legacy issues of Banks. Lenders recovered almost entire principal loan of Bhushan Steel through Rs 36,400 cr transparent bid by Tata Steel and also got 12% stake in the company.”

This does reflect the sign of recovery in NPA crisis via IBC as it RBI and government’s important tool currently.

Even the Economic Survey 2018 said the new Insolvency and Bankruptcy code (IBC) was helping improve the health of banking sector despite the fact that the banks', especially public sector banks (PSBs), asset quality remained stressed in the current financial year.

Among the first list of RBI, now focus will shift to other defaulters. The top five defaulters were - Bhushan Steel, Essar Steel, Lanco Infratech, Bhushan Power & Steel and Alok Industries as they had debt of Rs 57,200 crore, Rs 51,700 crore, Rs 49,100 crore, Rs 47,800 crore and  Rs 30,200 crore respectively, as per JM Financials.

Recently a total of 20 banks have so far announced their results and this includes 11 private and 9 public sector banks.

As per data of Care Ratings, NPAs for the combined set of banks have increased to 8.32% in March 2018 from 7.17% in March 2017. Overall NPAs increased from Rs 2.61 lakh crore in March 2017 to Rs 3.46 lakh crore in March 2018, which is an increase of 32.7%. Total advances on the other hand increased at a lower rate of 14.4%.