The Congress party has expressed concern over State Bank of India’s (SBI) decision to convert its outstanding debt in Supreme Infrastructure India Ltd (SIIL) into equity. Congress General Secretary for Communications, Jairam Ramesh took to social media platform X to call on the Reserve Bank of India (RBI) to investigate the matter.
Ramesh shared a media report revealing that SBI would assume a dual role in restructuring SIIL’s debt, transitioning from the primary creditor to an equity stakeholder. He described this move as "extraordinary", pointing out that SBI, along with other lenders, had accepted a 93.45% reduction (haircut) on the debt, a step that sets a concerning precedent in India's corporate debt landscape.
“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 shares via X.
Outlining the potential risks, he suggested that this decision could encourage other defaulting companies to seek similar arrangements, allowing them to retain control despite major defaults. He also questioned the effectiveness of India's insolvency resolution framework and raised concerns about public sector banks prioritising the interests of defaulting borrowers over the recovery of public funds.
“It raises questions about the effectiveness of India's insolvency resolution framework and the role of public sector banks in managing distressed assets. The SBI appears to be aligning itself with the interests of the defaulting borrower (SIIL) rather than prioritising the recovery of public funds,” Ramesh shares via X.
Ramesh urged the RBI to intervene, stressing the need for strict discipline in debt resolution by public sector banks. He emphasised this unusual restructuring calls for regulatory scrutiny to prevent the creation of moral hazards within the financial system. “The unusual nature of this debt restructuring and equity investment calls for immediate regulatory scrutiny. The Reserve Bank of India (RBI) needs to step in and examine SBI's decision-making process in this matter,” the post adds.
