Lenders to Bhushan Power and Steel on Friday agreed to resort to the Insolvency and Bankruptcy Code, bankers familiar with the development said. The decision of the joint lenders’ forum (JLF) follows a directive by Reserve Bank of India (RBI) on June 13 to banks asking them to refer a dozen troubled companies — with a combined debt of close to Rs2.4 lakh crore — to the National Company Law Tribunal (NCLT). Bankers were given a fortnight from the notification to move the tribunal. Among the other companies that have been refereed to the NCLT are Essar Steel, Bhushan Steel, Electrosteel Steels, Jyoti Structures, Lanco Infratech, Monnet Ispat and JP Infratech.
The 12 accounts identified by the central bank are those to which banks have an exposure of more than Rs5,000 crore, more than 60% of which has been recognised as non-performing assets (NPAs). Once these cases are with the NCLT, the lenders need to set up a committee of creditors that will come up with a plan on how the asset will be tackled. If the committee is unable to find a solution within 180 days — this can be extended to 270 days — the borrowing entity will go into liquidation. According to the company’s annual report of FY14 (latest available), 41 banks, including seven foreign banks, have lent to the company. Capitaline data showed that the company reported a net loss of Rs 2,433 crore in FY16 on revenues of Rs 8,491 crore. Its gross debt stood at Rs 37,248 in FY16, up from Rs 33,785 crore in the previous fiscal.
New Delhi-based Bhushan Power and Steel is privately held with promoters owning 94.4% shares and rest owned by foreign institutional investors. The company has plants located at five locations in northern and eastern India and began operations in 1970 as a manufacturer of door hinges. In 2011, the Brij Bhushan Singhal business group split into two with the father and younger son Neeraj Singhal managing the listed Bhushan Steel and the elder son put in charge of the unlisted entity. In early May, the President had approved an ordinance amending the Banking Regulation Act, 1949, giving more powers to the RBI to deal with NPAs. Earlier, the Union Cabinet had approved a proposal to amend Section 35 of the BR Act. The extent of the NPA problem can be gauged from the fact that around Rs 10 lakh crore of loans are either non-performing or stressed; this is roughly 12% of total loans. According to Capitaline data, the total bad loans of 37 banks stood at Rs 7.1 lakh crore in FY17, up 25% from last year.