Major recovery for SBI, ICICI from Essar verdict

Mumbai: The recent Supreme Court’s landmark judgement on Essar Steel case will see healthy recoveries for several banks, including State Bank of India (SBI), ICICI Bank, Axis Bank, Bank of Baroda and Punjab National Bank, which would boost their Q3 earnings.

Several financial creditors had a high provision cover of almost 100 per cent on their exposure to the steel company. Essar Steel has been a bad loan for the banking sector since March 2016, hence, most of the loan recovery will flow through their profit and loss provision write-backs and recoveries from written-off accounts.

The Supreme Court of India (SC) had pronounced last week that the resolution of Essar Steel would proceed as per the proposed resolution plan of October 2018. The SC stated that the ultimate right of distribution of claims lies with the Committee of creditors (CoC).

Essar steel was one of 12 systemically large NPAs the RBI had directed banks to refer to NCLT in August 2017. Financial creditors had an exposure of Rs 49,500 crore, while operational creditors’ exposure was Rs 19,700 crore.

It means that in the case of Essar Steel’s exposure to the system, secured financial creditors would have a recovery amounting to 89.8 per cent on the admitted claim of Rs 45,559 crore.

“As per the October 2018 resolution plan, secured financial creditors will recover 92 per cent of their exposure of Rs 42,000 crore to Essar Steel while operational and unsecured creditors make very low recoveries of 2 to 4 per cent,” said Sameer Bhise, Analyst at JM Financial.

“Significant non-performing loan recoveries are to be made by ICICI, Axis, SBI and we remain constructive on these names. Healthy recoveries are also expected for Bank of Baroda, Canara Bank and Punjab National Bank,” added Bhise.

SBI has the highest exposure to Essar Steel and would, thus, benefit the most from this ruling.  SBI’s admitted claims by the Resolution Profess-ional stood at Rs 13,220.91 crore, and the CoC allocation stood at Rs 11,872 crore, SBI which translates to 89.8 per cent recovery. Essar Steel account was fully written off by SBI.

ICICI Bank’s admitted claims is around Rs 2,290 crore while the CoC approved Rs 2,100 crore and assets sold to Edelweiss ARC was at Rs 1,700 crore with CoC approving Rs 1,560 crore. On the NCLT list 1, which inludes Essar, the bank has made more than 90 per cent of the provisioning.