Syndicate Bank case puts Bhushan Steel’s Rs40,000 cr debt to 51 lenders at risk

The arrest of Syndicate Bank CMD S K Jain in a bribery case (See: Syndicate Bank CMD booked in Rs50 lakh bribery case) is forcing 51 banks in the country, including the State Bank of India and Punjab National Bank, who together have exposure of Rs40,000 crore in Bhushan Steel Ltd, to assume management control of the private steel maker.

SK Jain, chairman and managing director of state-run Syndicate Bank, is in the dock for allegedly accepting a bribe for allowing a higher credit limit for the company in violation of Reserve Bank of India (RBI) guidelines. Jain has been arrested and RBI started scrutinising the accounts of the bank since then.

It has also led to the arrest of Bhushan Steel's managing director and vice chairman Neeraj Singhal by the Central Bureau of Investigation (CBI).

With Singhal's arrest, creditor banks are now considering engaging the services of a management agency to look after the day-to-day operations of the company so as not to jeopardize their Rs40,000-crore loan exposure.

State Bank of India chairperson Arundhati Bhattacharya said on Friday that the banks were looking for an agency to monitor the loan. SBI, as lead banker to Bhushan Steel, has an exposure of Rs6,000 crore.

Fifty-one banks forming two consortiums - a term loan consortium led by Punjab National Bank and the working capital consortium led by State Bank of India - have lent a total of Rs40,000 crore to Bhushan Steel.

''We will be calling a consortium meeting shortly. The suggestions that we (SBI) have made, and which have been accepted by the banks that we have talked to, is that we will try to bring in a management agency, which will oversee the day-to-day running of the unit,'' Bhattacharya said.

However, at a press meet to announce SBI's financial results, she said the Bhushan Steel loan was a standard asset.

''This is a very good quality asset. It is currently running properly. We don't want, therefore, for it to get into any kind of trouble and create trouble for our exposure.''

Bhushan Steel is India's third-largest secondary steel producer, with a production capacity of about two million tonnes per annum.

''If this (proposal to engage a management agency) receives the consortium lenders' approval, then we will definitely be taking this up with the company's board to see that we put in place such an agency,'' said Bhattacharya.

The SBI chief did not expect any objection from the company's management in complying with lenders' stipulations. She also cited an instance when the company took steps to ensure safety following an accident at one of the company's plants.

''So, even in this case, I don't really think that the borrower will have any objections and we would like to put in place a management agency to ensure that the day-to-day transactions or operations are not interrupted,'' said the SBI chief.