The Congress on Tuesday questioned the State Bank of India’s decision to convert its outstanding debt into equity in Supreme Infrastructure India Limited (SIIL), which has declared bankruptcy. The party urged the Reserve Bank of India (RBI) to examine SBI’s decision-making process in this matter.
Congress general secretary in-charge communications Jairam Ramesh shared on X a media report, which claimed that the SBI will take a dual role in the debt restructuring of defaulter SIIL with the country’s largest public sector bank transitioning from being SIIL’s primary creditor to becoming an equity stakeholder.
“In an extraordinary move, the SBI has decided to convert its outstanding debt into equity in Supreme Infrastructure India Limited (SIIL), a firm that declared bankruptcy. The lendors, including SBI, took a 93.45% haircut on the debt,” Ramesh said on X.
“This arrangement creates a dangerous precedent in India’s corporate debt landscape. It encourages other defaulting companies to seek similar deals, where they can retain control and value even after significant defaults,” the Congress general secretary said.
It raises questions about the effectiveness of India’s insolvency resolution framework and the role of public sector banks in managing distressed assets, Ramesh said.
The SBI appears to be aligning itself with the interests of the defaulting borrower (SIIL) rather than prioritizing the recovery of public funds, he said.
Ramesh stressed that there is a pressing need to ensure that public sector banks maintain strict discipline in their approach to debt resolution and avoid creating moral hazards in the financial system.
The unusual nature of this debt restructuring and equity investment calls for immediate regulatory scrutiny, he said.
“The Reserve Bank of India (RBI) needs to step in and examine SBI’s decision-making process in this matter,” Ramesh said.
The SIIL defaulted on Rs 1,023.42 crore in loans. SBI will invest Rs 24.33 crore in SIIL’s preferential allotment acquiring 28,55,771 shares at Rs 85.23 per share. This investment will give SBI approximately a 2.49% stake in the restructured company.
It was said that this development marks a significant shift in India’s corporate debt resolution as SBI transitions from being SIIL’s primary creditor to becoming an equity stakeholder. SIIL’s total bank outstanding stood at Rs 7,093 crore including Rs 2,200 crore in principal debt and Rs 4,893 crore in funded interest term loans and unapplied interest.
Creditors agreed to settle for Rs 464 crore, which is a substantial reduction of 93.45% from the original debt. This settlement amount was approved by 92% of financial creditors. The company has filed a plea with the National Company Law Tribunal (NCLT) seeking approval for the restructuring plan.
SBI’s decision to take an equity stake in a company that has defaulted on its loans raises several questions. There are concerns about the bank’s risk assessment process particularly when using public funds to invest in a distressed company. The move may face regulatory scrutiny and SBI will need to justify its investment strategy to shareholders and regulatory bodies.
SBI’s dual role as creditor and shareholder could lead to conflicts of interest in future decision-making processes regarding SIIL. The bank’s willingness to write off a substantial portion of the debt and invest in equity suggests a betting approach on SIIL’s long-term recovery potential.
