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Some Asset Reconstruction Companies too may be affected as they had taken over some of the banks’ exposure to BPSL.
With the Supreme Court rejecting the ₹19,350-crore Resolution Plan of JSW Steel for Bhushan Power and Steel Ltd (BPSL), banks are staring at a hit to their balance sheet.
Bankers’ fear that if the successful resolution applicant/SRA (JSW Steel) exercises the clawback clause, requiring banks to pay back the aforementioned resolution amount, their institutions’ balance sheets may take a hit to that extent in the second quarter (Q2FY26).
If push comes to shove in this case, banks would rather seek RBI permission to dip into their reserves to pay the acquirer than allow their profit & loss (P&L) to take a hit, say experts.
Some Asset Reconstruction Companies too may be affected as they had taken over some of the banks’ exposure to BPSL.
The Supreme Court, last Friday, quashed and set aside judgments and orders passed by the National Company Law Tribunal (on September 5, 2019) and the NCLAT (on February 17, 2020) allowing JSW Steel to acquire BPSL.
The apex court also said the Resolution Plan of JSW as approved by the Committee of Creditors (CoC) stands rejected.
BPSL was among 12 big accounts, which constituted about 25 per cent of total non-performing assets in the country, identified by RBI in June 2017 for resolution.
Banking expert V Viswanathan said: “BPSL was part of the “dirty dozen” identified by RBI for immediate admission under Insolvency and Bankruptcy Code (IBC).
Dip into reserves
“So entire provision was already made by banks in their books when they proceeded under IBC. Since financial creditors including banks would have accounted the entire amount the money received from JSW as income, (since written off already) they have to either debit their P&L and pay or dip into the reserves after RBI approval. They may prefer the latter.”
The issue of delay in JSW Steel making upfront payment to the lenders was highlighted in the case. The resolution plan required the steel maker to make the payment in 30 days. But it stretched beyond 540 days, argued the advocate appearing for the Appellants Ex-Promoters/Guarantors of the Corporate Debtor-BPSL.
The advocate for the CoC, observed that as per the understanding of the lenders of BPSL, at the time of plan implementation, the SRA infused only ₹100 crore as share capital towards equity contribution, and the delay of remaining ₹8,450 crore by way of convertible debentures was due to the uncertainty created because of the attachment of assets of BPSL by the Directorate of Enforcement in October 2019.
The refund obligation was created on the lenders in the event of Appeals before this Court succeed, he added.
“The judgment is a setback for banks. In all probability, JSW will file a review petition in collaboration with banks. The NCLT, NCLAT and the entire IBC mechanism needs to be strengthened to prevent such mishaps.
Double whammy
“While JSW can approach the Supreme Court to review the order to get a respite, what is clear is that banks might face a double whammy. This also underscores the importance of procedural integrity and not getting swayed by big names possibly under pressure to recover dues,” said a senior banker.
Published on May 5, 2025
This article first appeared on The Hindu Business Line
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