Resolution of Bhushan Steel positive for banks: Moody's

Sale of debt-laden Bhushan Steel, one of the largest non-performing assets (NPAs) with the country's banks, is positive. It will help improve banks’ asset quality metrics and set a precedent for resolution of other NPAs in steel, Moody's Investors Service said.

On Wednesday, Tata Steel announced it had emerged as the highest bidder to acquire a controlling stake in the Neeraj Singhal-promoted company. It did not disclose the purchase price or other terms and conditions. Media reports, however, dropped clear hints that the purchase price could result in a haircut (write-off) of around 25 per cent for the lenders to Odisha-based Bhushan Steel, Moody's reported. The Reserve Bank of India has asked banks to provide a minimum of 50 per cent of their respective loan amounts by March 2018 for all the cases referred to the National Company Law Tribunal for insolvency resolution. A haircut of less than this cover will result in a writeback for the banks and improve their profitability, observed Moody's.

“In addition, depending on exposure of individual banks to the account, we expect banks’ proforma on nonperforming loan ratios, as of December 2017, to improve by 50-80 basis points, as the exposure will be converted into a standard asset,” Moody's stated. Bhushan Steel is one of 12 large NPAs held by Indian banks that went to the NCLT for resolution, on an RBI order.