A cashier counts Indian one hundred-rupee banknotes at an Oriental Bank of Commerce branch in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)

Finance Ministry Expects Banks To Recover Over Rs 1 Lakh Crore With Resolution Of 12 Major NPAs

Enthused by successful conclusion of the Bhushan Steel Ltd. case, the finance ministry expects banks to get back more than Rs 1 lakh crore after the resolution of all 12 non-performing assets referred to insolvency proceedings by the Reserve Bank of India in its first list.

Last week, Tata Steel Ltd. acquired a controlling stake of 72.65 percent in the debt-ridden Bhushan Steel for around Rs 36,000 crore.

The remaining 11 NPA cases which are in the pipeline will easily bring to the table over Rs 1 lakh crore and the amount coming from resolution under the Insolvency and Bankruptcy Code will directly add to the bottom line and help in reducing bad loans of public sector banks, a senior finance ninistry official told PTI.

Last year in June, RBI's internal advisory committee identified 12 accounts, each having more than Rs 5,000 crore of outstanding loans and accounting for 25 percent of total non-performing assets of banks.

Also read: Insolvency And Bankruptcy Code: One-Year Report Card

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 Rs 1.75 lakh crore.

The Kolkata Bench of the National Company Law Tribunal has already approved Vedanta Resources's resolution plan for acquisition of Electrosteel Steels last month.

Also read: India Tribunal Halts Vedanta's Takeover Process for Electrosteel

Besides, the NCLT last month also asked the lenders of Bhushan Power & Steel to consider the bid submitted by U.K.-based Liberty House for the debt-ridden company. Bhushan Power and Steel owes close to Rs 48,000 crore to banks and was referred to the NCLT by Punjab National Bank in June last year.

Bhushan Steel Resolution

Last week, Bamnipal Steel Ltd., a wholly owned subsidiary of Tata Steel, acquired 72.65 percent stake in Bhushan Steel by paying around Rs 36,400 crore, of which Rs 35,200 crore will be paid to financial creditors.

The buyout is expected to bring relief in the form of a capital boost to PNB that was one of the leading lenders to the debt-ridden company, the bank said in a statement.

PNB had the second highest exposure to Bhushan Steel and will benefit greatly from this acquisition. The ledger outstanding to Bhushan Steel was Rs 3,857.49 crore while Rs 1,542.99 crore were earmarked for provisioning, PNB sources told PTI.

With this resolution, PNB's NPA will fall by Rs 3,857.49 crore. While the bank will recover Rs 3,050 crore of the outstanding amount it will also be able to write off Rs 807.49 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.

Sources say that this may have a positive effect on the bank's profitability to the tune of Rs 735.50 crore. On top of this, lenders including PNB will continue to own 12 percent in the acquired entity giving them the opportunity to cash out later when the valuation of the company goes up.

With a current market capitalisation of Rs 598 crore at the rate of Rs 27.75 per share for Bhushan Steel, the share for lenders that stands at nearly 12 percent, works out to be Rs 72 crore.

Another state-owned lender Bank of India said it would be able to realise around Rs 1993 crore from the first successful NCLT resolution of Bhushan Steel.