Lenders May Make Provisions to Return Recovered Money

Friday's Supreme Court ruling, which deemed JSW Steel's resolution plan for Bhushan Power and Steel "illegal" and mandated the company's liquidation, presents a challenge for lenders.

- ANUPREKSHA JAIN, ABHIJIT LELE & SUBRATA PANDA

Banks will have to make provisions for the amounts recovered because the funds have to be returned, said bankers Business Standard spoke to.

According to lawyers handling the Insolvency and Bankruptcy Code (IBC), financial creditors typically provide an undertaking to the resolution professional of the corporate debtor, agreeing to return the recoveries made through resolution if discrepancies in the resolution plan arise later. "If this is the final order, banks have to start making new provisions starting from this quarter because the money has to be returned. This will reflect on the banks' profit and loss statement. We are waiting for clarity from the court," said a senior executive with a state-owned bank that had an exposure to Bhushan Power and Steel and recovered money from the resolution. He added at this stage it was difficult to assess the impact of this.

JSW Steel completed the acquisition of Bhushan Power and Steel in March 2021, making it the largest steelmaker in the country.