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PSU Banks Rally After Supreme Court’s Verdict on Essar Steel, SBI up 5%

To recall, Essar Steel owes about Rs 49,000 crore to a dozen of banks. SBI has the highest exposure of over Rs 15,000 crore. Others exposed to the company include ICICI Bank, IDBI Bank and Syndicate Bank.

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Updated:November 15, 2019, 12:47 PM IST
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PSU Banks Rally After Supreme Court’s Verdict on Essar Steel, SBI up 5%
The logo of Essar group is seen at its headquarters in Mumbai. (Representative image: Reuters)

Shares of public sector banks (PSU banks) rallied on Friday, i.e. 15 November, after the Supreme Court delivered its verdict in Essar Steel case, saying the ultimate discretion on distribution of funds is with the Committee of Creditors (CoC) which only consists of banks.

The Nifty PSU Bank index climbed as high as 5% during the day. At 12:20 pm, the index was up 3.7% at 2,466.85. Major gainers included Central Bank of India (up 9%), Bank of India (up 5.7%), State Bank of India (up 5.4%), Syndicate Bank (up 4%), Canara Bank (up 3.8%), Oriental Bank of Commerce (up 3.8%), Punjab National Bank (up 3.5%), Union Bank (up 3%), Indian Bank (up 2.4%), Bank of Baroda (up 2.1%), Jammu and Kashmir Bank (up 1.6%) and Allahabad Bank (up 1%).

The apex court held that it is the banks’ decision to maximise the value of the corporate debtor, while adding that the CoC should balance the interests of all stakeholders.

In its ruling, the Supreme Court said, “The ultimate discretion on distribution is with CoC (Committee of Creditors). NCLT (National Company Law Tribunal) cannot interfere with the commercial decisions taken by the CoC. If NCLT finds legal parameters not met, then it can send back to CoC.”

To recall, Essar Steel owes about Rs 49,000 crore to a dozen of banks. SBI has the highest exposure of over Rs 15,000 crore. Others exposed to the company include ICICI Bank, IDBI Bank and Syndicate Bank.

Mrutyunjay Mahapatra, MD and CEO at Syndicate Bank told, CNBC-TV18: “I must welcome this judgement. IBC (Insolvency and Bankruptcy Code) being an evolving framework, this ruling will go a long way in setting precedence. It is a large resolution and will help the economy to prosper. Balance sheets of banks will be cleaner, very good decision.”

“The judgement is like a breath of fresh air, and of economic freedom. This is one of the most important, if not the most important, judgement in the history of bankrupcty law,” Ashwin Bishnoi, Partner in the Corporate and Commercial Practice Group in law firm Khaitan and Co, told Moneycontrol.

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