Under CBI probe, Bhushan Steel faces crackdown by lenders

The creditors of Bhushan Steel Ltd will take steps including an audit to ensure the steelmaker, whose managing director is implicated in a bribery case, will be able to pay around Rs36,500 crore it owes its creditors.

The lenders, which include the country's biggest bank State Bank of India, will also appoint three directors to Bhushan Steel's board, according to a statement from Punjab National Bank, which leads a group of lenders to Bhushan Steel.

The Central Bureau of Investigation (CBI) this month detained Bhushan Steel's managing director over allegations of offering to bribe Sudhir Kumar Jain, chairman and managing director of Syndicate Bank, in exchange for loans. Jain has also been detained.

The family-run Bhushan Steel has denied any wrongdoing and said it has so far been able to service loans. Lenders found Bhushan Steel's operations "satisfactory", according to a statement.

However, as a "corrective action plan" the banks would appoint a top auditor to conduct a "forensic audit" of Bhushan, and another to monitor its cash flow on a daily basis.

The lenders will also appoint an engineering firm to monitor the operations of Bhushan and projects under expansion.

Nittin Johari, finance chief of Bhushan Steel, did not immediately respond to calls seeking comment.

An RBI appointed committee in May called corruption in state banks a major public policy concern. The committee has recommended the government cut its stake in these banks to below 50 per cent.

Bhushan Steel last week reported a Rs140 crore loss for the three months to June, its third straight quarterly loss. Its net profit plunged to $10 million in the year to March 2014 from $171 million two years ago, while net debt jumped to $5.86 billion from $3.49 billion, according to a company presentation.

The company's net debt was nearly 13 times its operating profit for the year ended March, compared with nearly seven times two years earlier.