Banks stare at reversal of BPSL gains as Supreme Court ruling hits JSW deal

The recent decline has led to a 10 percent drop in the JSW Steel stock price.

The Supreme Court’s order directing the liquidation of Bhushan Power and Steel Ltd (BPSL) and cancelling JSW Steel’s Rs 19,350 crore acquisition could significantly disrupt Indian banks that had earlier recognised gains from its resolution. If the order stands, financial creditors who received recovery proceeds from JSW Steel’s acquisition of BPSL in FY21 will now have to return those funds, threatening to unwind a key component of past recoveries, a report by Citi Research stated.

Banks had accounted for recoveries amounting to Rs 19,328 crore (Rs 193.3 billion), which had offered temporary relief to their balance sheets. But as Citi Research data shows, this relief may now be short-lived.

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The State Bank of India, the country’s largest public sector lender, had booked a recovery of Rs 4,028 crore, equivalent to 0.9 percent of its net worth. Punjab National Bank, with Rs 3,032 crore in recoveries, faces a larger hit at 2.4 percent of its net worth. Indian Overseas Bank could be the most affected proportionately—its Rs 737 crore recovery stands at 2.5 percent of net worth.

Other major lenders such as Canara Bank (Rs 1,648 crore, 1.7 percent of NW), Indian Bank (Rs 1,265 crore, 1.9 percent), and Union Bank of India (Rs 1,434 crore, 1.3 percent) also face a material reversal. Even mid-sized players like Bank of Maharashtra and UCO Bank had booked over Rs 500 crore and Rs 415 crore in recoveries, respectively, making this a system-wide concern.

The Citi Research shows a total of Rs 47,142 crore in net claims were admitted across banks, of which Rs 19,328 crore was accounted as recovered. If these have to be reversed, the move could not only impact earnings in the coming quarters but also dent investor confidence around the quality of past recoveries.

The matter was pursued by BPSL’s operational creditors, who challenged the approval of the resolution plan on the grounds that their claims were unfairly treated and key procedural lapses had gone unaddressed. Their petition prompted a deeper judicial review of the handling of the case by the resolution professional (RP) and the Committee of Creditors (CoC).

The Supreme Court’s May 2 ruling has cast a harsh spotlight on procedural and legal lapses in one of the most prominent insolvency resolutions under the IBC. In its order, the court flagged missed timelines, inadequate oversight by creditors, and the questionable use of promoter-linked entities in a resolution plan that was allowed to proceed despite multiple regulatory breaches.

JSW Steel had acquired a 49 percent stake in Bhushan Power and Steel (BPSL) through the insolvency process in 2021, securing access to a 2.75 million tonne per annum steel plant in Odisha. By October that year, it had raised its stake to 83 percent, deepening its operational control over the asset.

Shares of JSW Steel closed at Rs 955, lower by 2 percent from the last close and extending decline for a fourth session in a row. The recent decline has led to a 10 percent drop in the JSW Steel stock price.

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