Essar Steel India Ltd.: Essar Steel lenders to recover over 90% of Rs 42,000 crore

Mumbai: The Supreme Court’s verdict will see banks recover almost 92% of the ₹42,000-crore Essar Steel owed them, while operational creditors will get ₹1196 crore, boosting the outlook for December quarter earnings for the banks and pushing faster resolutions of multiple other bankruptcy cases in the country.

Banks, that have made provision covers as high as 50-100% in this case, can not only bump up their provision coverage ratios but also consider provision writebacks to boost profits.

“It’s a triple bonanza for banks, not only am I getting bumper recovery, but there will be a 100% provision writeback in this case,” said Mrityunjay Mahapatra, MD, Syndicate Bank. “In fact, if the new owner wants loans to run the company, my exposure of over ₹1000 crore gets redeployed as fresh business.”

Almost 830 days after the Essar Steel case was ordered by the Reserve Bank of India to be sent to insolvency courts, the Supreme Court paved the way for steel magnate Laxmi Mittal’s flagship ArcelorMittal to acquire the domestic steel maker.

The Supreme Court also set aside the order of the bankruptcy appellate tribunal that sought to give proportionate rights to secured and unsecured creditors over the sale proceeds and declared the primacy of the committee of creditors in a bankruptcy case.

“The introduction of an interim framework for resolution of financial service providers under the IBC is a timely and important step for resolution of financial service providers permitting interplay between regulators, creditors and the NCLT for appropriate actions,” said Vishwanathan, partner, Cyril Amarchand Mangaldas.

State Bank of India has an exposure of ₹13131 crore towards Essar Steel, Edelweiss Asset Reconstruction Company has the accumulated loans totalling to ₹8266 crore, Canara Bank is owed ₹3798 crore while Punjab National Bank has ₹2,913 crore dues. LIC-backed IDBI Bank also has an exposure of ₹2481 crore, while private lender ICICI Bank is owed ₹2,294 crore. Union Bank of India, Bank of India, Corporation Bank and Syndicate Bank are also sitting on dues running into thousands of crores.

As far as the approved distribution from the Committee of Creditors is concerned, SBI is set to get the largest pie at ₹12161 crore, followed by Canara Bank at ₹3493 crore and IDBI Bank at ₹2282 crore. Edelweiss ARC will also get a major share at over ₹7600 crore. Other lenders like PNB is set to recover ₹2700 crore while Deutsche Bank will get ₹2603 crore from the final proceeds.