Essar Steel lender may sell loan to ARC in a bid to save debt-hit company

Lenders of Essar Steel, which has bad debts to the tune of nearly Rs 500 billion, are planning to offload some of the loans to an asset reconstruction company (ARC), as they face pressure to improve the status of their loan books before the end of the second quarter (Q2) of the current financial year (2018-19 or FY19).

Two bidders for the steel company, Numetal and ArcelorMittal India, are engaged in a prolonged court battle for the asset, prompting lenders to mull such an action.

Bankers said Essar Steel was a non-performing asset (NPA) for many quarters. Banks had made provisions in line with regulatory norms (over 60 per cent of the total debt).

Given the deal values for sale of steel assets under the National Company Law Tribunal process, the ARC offer — 70 per cent of the total debt — looked reasonable.

If lenders are able to sale their loans to the ARC this month, it will reduce their NPA volume substantially.

Money from the sale proceeds could be deployed for lending in the coming quarters, a senior public sector bank executive said.

“With slow credit growth, the interest income is also subdued,” said a banker. “We have a huge obligation to make provisions for bad loans. If bond yields harden further, the provision for erosion in value of bond may go up.”

Major lenders to Essar Steel are State Bank of India, ICICI Bank, Bank of India, IDBI Bank, and Punjab National Bank.

Some lenders have already sold a part of their loans to Essar Steel earlier.

Essar Steel