Indian commercial banks have decided to decline working capital requests from steel companies that have been referred for bankruptcy proceedings by the Reserve Bank of India, officials at two banks said on Tuesday, September 26.
The officials said that banks would not meet the short-term working capital requirements of these steel companies to keep their plants operational.
At least two steel companies referred to the National Company Law Tribunal for bankruptcy - Bhushan Steel and Essar Steel - have had their requests for working capital turned down, the officials said.
The commercial banks have been forced to take such a step as the newly-promulgated Insolvency and Bankruptcy Code did not permit the banks to forcibly take charge of sales revenues generated by defaulting companies and thereafter release fresh funds after the banks have secured part of the sales proceeds.
The officials said that, without any charge on the sales revenues of the defaulting and bankrupt steel companies, any new working capital loans to these companies would have to be categorized as fresh loans, which the banks were reluctant to do.