SBI sale of debt in Essar Steel not to stall IBC process

State Bank of India has decided to sell its loans in Essar Steel as it could see a spurt in provisioning for bad loans and erosion in capital base if the steel makers insolvency process gets delayed further, sources said.

The SBIs decision, however, will not stall the Insolvency and Bankruptcy Code (IBC) process as the new entity will join the committee of creditors, they clarified.

SBI, which is the largest creditor having total exposure of ₹15,431.44 crore in Essar Steel, has invited expression of interest (EoI) from banks, asset reconstruction companies, and financial institutions for the proposed sale of its debt.

The lender has put the reserve price for the recovery of bad loans from Essar Steel India at ₹9,587.64 crore, according to the EoI.

Although the matter is before the National Company Law Tribunal Ahmedabad bench, the delay in the process of resolution was the main reason for SBI opting for sale of its debt outside the IBC process.

The delay in resolution will hurt the balance sheet of the SBI, sources said, adding if the case is not settled during this quarter the bank will witness erosion in capital base as it will have to fully provide for, sources said.

In September last year, SBI had withdrawn the process of sale of debt of Essar Steel to asset reconstruction companies (ARCs) after NCLAT asked lenders of the debt-ridden firm to consider the second round bid of Numetal and mining baron Anil Agarwal-led Vedanta.

Essar Steel, which runs a 10-million-tonne steel mill in Gujarat, owes more than ₹49,000 crore to over two dozen banks led by SBI and has been under bankruptcy proceedings.

As per the resolution plan submitted by ArcelorMittal, ₹42,000 crore will be paid to the secured lenders, while an additional ₹8,000 crore will be pumped into the company as working capital.

ArcelorMittal's offer to take over the bankrupt Essar Steel was accepted by the committee of creditors (CoC).

Essar Steel Asia Holding, the holding company of Essar Steel that was controlled by the Ruias, had also proposed to the CoC, led by SBI, to pay an upfront ₹54,389 crore to retake the management of Essar Steel.