Photographer: Udit Kulshrestha/Bloomberg

India's RBI Said to Order Lenders to Take 12 Debtors to Court

  • Essar Steel, Bhushan Steel referred to insolvency courts
  • Government gave RBI new powers to help it clean up bad loans

Steel manufacturers, power and construction companies dominate a list of borrowers that Indian banks have been ordered to refer to the nation’s insolvency courts over bad loans totaling about 2 trillion rupees ($31 billion), people familiar with the matter said.

The list, drawn up by the Reserve Bank of India, includes Essar Steel India Ltd., Bhushan Steel Ltd. and Electrosteel Steels Ltd., which together account for a quarter of the debt, the people said, asking not to be named as the information isn’t public.

Other companies on the list are power generators Monnet Ispat & Energy Ltd., Bhushan Power & Steel Ltd. and Jyoti Structures Ltd., construction firms Lanco Infratech Ltd., Jaypee Infratech Ltd. and Era Infra Engineering Ltd., as well as Amtek Auto Ltd., Alok Industries Ltd., and ABG Shipyard Ltd., according to the people.

The RBI didn’t respond immediately to calls and an email seeking comment. Electrosteel Chief Financial Officer Ashutosh Agarwal, Bhushan Steel Chief Financial Officer Nittin Johari, Monnet Ispat Managing Director Sandeep Jajodia, ABG Shipyard CFO Hasmukh Daftary, and a Mumbai-based spokesman for Essar Steel didn’t answer calls to their office and mobile phones. Bhushan Power & Steel Chairman and Managing Director Sanjay Singal didn’t answer a call to his office phone. There was no immediate response to calls and emails to the corporate head offices of Lanco Infratech, Era Infra, Amtek Auto, Jaypee Infratech, Jyoti Structures and Alok Industries.

CNBC-TV 18 reported the list of company names earlier.

Last month, Prime Minister Narendra Modi’s government gave new powers to the RBI in an effort to clean up the country’s bad-debt mess, which has left banks struggling with $180 billion of nonperforming loans. The government amended the Banking Regulation Act to enable the RBI to order lenders to initiate insolvency proceedings against defaulters and to create committees to advise banks on recovering their loans.

Earlier this week, the RBI ordered the banks to use the insolvency courts to find a solution for 12 of the debtors, though it didn’t name the institutions on its list.

Lenders to the 12 borrowers will convene meetings of the so-called Joint Lenders’ Forum over the next two weeks to decide how to proceed with the court action, the people said.

Earlier in the decade, many Indian steel and construction companies borrowed to fund expansion at a time when the economy was expanding at 9 percent to 10 percent a year. Loans turned sour as that growth slowed, weakening demand for steel used in construction projects.

Banks had so far filed just 18 cases under the Insolvency and Bankruptcy Act, which was passed by India’s parliament last year, according to a note by analysts at Credit Suisse Group AG. The delay in getting verdicts has deterred lenders from taking more cases to the insolvency court.

— With assistance by Anurag Kotoky, Bhuma Shrivastava, Dhwani Pandya, and Swansy Afonso

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