The Supreme Court’s verdict on Friday declaring JSW Steel’s resolution plan for Bhushan Power and Steel “illegal” and ordering the company’s liquidation is a setback to lenders.
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.