Bank stocks cheer SC verdict on ArcelorMittal's acquisition of Essar steel

Most bank stocks went up after the Supreme Court on Friday cleared the decks for ArcelorMittal to take over Essar Steel following nearly 800 days of legal battle.

While Corporation Bank gained the most, up 17 per cent in Friday’s trade, State Bank of India (SBI), IDBI Bank, Punjab National Bank, and Canara Bank rose 2.5-5 per cent.

Not only will a significant amount stuck in resolution for long be freed up, experts say the Supreme Court reiterating the primacy of the committee of creditors (COC) may strengthen the position of banks in negotiating resolutions. This, according to Rakesh Sharma of Elara Capital, is the strongest message of the verdict.

Siddharth Purohit of SMC Institutional Equities said: “The verdict was long overdue and allays investors’ anxieties on the outcome of the resolution. Banks will have higher recoveries than before and this creates a precedent for upcoming resolutions.” For banks, this means taking out of provisioning nearly Rs 50,000 crore. 

Kajal Gandhi of ICICI Securities expects a beneficial outcome for state-owned banks, given that their exposure to Essar Steel is pegged at Rs 20,000-25,000 crore.

Gandhi said this would also help the banks in making provisions for other stressed accounts and boosting their capital adequacy.

In a manner that sets a precedent for the resolution process, analysts at JP Morgan say the two long-standing cases — Bhushan Power and Steel and Alok Industries — too should be settled soon.

“The verdict is a positive for SBI and ICICI Bank specifically, given the large amount of provision write-backs likely for these two banks. SBI had guided for Rs 16,000 crore of write-back from the resolution of three accounts (Essar Steel, Bhushan Power and Alok Industries). ICICI Bank’s credit cost guidance of 1.2-1.3 per cent also baked in a resolution of Essar Steel. This verdict should allow the bank to achieve the target in FY20,” add the analysts.