RBI seeks corrective plan on Bhushan Steel loans

Under CAP, the Joint Lenders Forum (JLF) will explore various options to resolve the stress in the account.

The Reserve Bank of India (RBI) has put the Rs 40,000 crore exposure of banks in Bhushan Steel under the corrective action plan (CAP) for stressed loans.

There are three options — including bringing new investor, restructuring the account and recovery of loans — under CAP for stressed assets. “We’re waiting for the RBI to work out/ approve the suitable formula under CAP. The RBI will decide the strategy,” said the chairman of a leading PSU bank.

However, the Bhushan Steel account for the banks is yet to become a non-performing asset. This is the first ever account in the banking industry to be put under CAP after the RBI has devised such mechanism in its recently prepared ‘Framework for Revitalising Distressed Assets in the Economy’. Banks had initially talked about bringing an external agency to run the company’s operations and conducting a forensic audit. With banks staring at a massive default of Rs 40,000 crore, the RBI doesn’t want to take chances. It has the potential to send bad loan figures of banks to new peaks.

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Meanwhile, Bhushan stock plunged another 5 per cent to Rs 118.15 on the BSE on Monday even as independent director VK Mehrotra quit from the board. Last week, lenders decided to bring three directors on the company board following the arrest of its vice-chairman and MD Neeraj Singal by the CBI in an alleged cash-for-loan scam involving Syndicate Bank chairman SK Jain.

Under CAP, the Joint Lenders Forum (JLF) will explore various options to resolve the stress in the account. The intention is not to encourage a particular resolution option — like restructuring or recovery — but to arrive at an early and feasible solution to preserve the economic value of the underlying assets as well as the lenders’ loans.