With JSW Steel-Bhushan deal scrapped banks may have to take a hit to their balance sheets
Banks Face Major Hit as Supreme Court Scraps ₹19,350-Crore JSW Steel-Bhushan Power Deal
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Supreme Court’s Decisive Ruling
In a significant development that has sent shockwaves through India’s banking sector, the Supreme Court has rejected JSW Steel’s ₹19,350-crore Resolution Plan for Bhushan Power and Steel Ltd (BPSL). The ruling effectively quashes previous judgments by both the National Company Law Tribunal (September 5, 2019) and the NCLAT (February 17, 2020).
Impact on Banking Sector
Critical Financial Concerns
- Banks may face significant balance sheet impact in Q2FY26
- Potential requirement to refund the resolution amount
- Asset Reconstruction Companies also at risk
- Banks considering reserves utilization with RBI permission
“If push comes to shove in this case, banks would rather seek RBI permission to dip into their reserves to pay the acquirer than allow their profit & loss (P&L) to take a hit,” note industry experts.
Historical Context
BPSL was among the “dirty dozen” – 12 major accounts identified by RBI in June 2017 for immediate resolution, representing approximately 25% of India’s total non-performing assets at the time. The case highlights the ongoing challenges in India’s corporate debt resolution process.
Key Timeline
- June 2017: RBI identifies BPSL among 12 major NPAs
- September 2019: NCLT approves resolution
- February 2020: NCLAT confirms decision
- May 2025: Supreme Court quashes previous orders
Implementation Challenges
The case revealed significant issues in the implementation process:
- Delayed upfront payment beyond the stipulated 30-day period
- Only ₹100 crore initial share capital infusion
- ₹8,450 crore pending in convertible debentures
- Complications from Enforcement Directorate’s asset attachment
Path Forward
Potential Next Steps
- Likely review petition by JSW Steel and banks
- Need for strengthening NCLT and NCLAT mechanisms
- Possible regulatory reforms in resolution process
- Enhanced focus on procedural integrity
“The judgment is a setback for banks. This also underscores the importance of procedural integrity and not getting swayed by big names possibly under pressure to recover dues,” emphasized a senior banker.
As the banking sector grapples with this significant setback, the case serves as a crucial reminder of the importance of procedural compliance in corporate resolution processes. The coming months will be critical as banks and financial institutions navigate the implications of this landmark ruling while seeking potential remedies through legal channels.
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