Congress Criticizes SBI's Debt-to-Equity Conversion in SIIL

The Congress party criticized SBI's decision to convert its debt into equity in Supreme Infrastructure India Limited (SIIL), urging RBI to scrutinize this move. They argue it sets a risky precedent in India's corporate debt landscape, potentially undermining public fund recovery and the insolvency resolution framework.

On Tuesday, the Congress party voiced strong objections to the State Bank of India's (SBI) decision to convert its outstanding debt into equity in Supreme Infrastructure India Limited (SIIL), urging the Reserve Bank of India (RBI) to investigate the decision-making process.

Jairam Ramesh, Congress general secretary in-charge of communications, cited a media report indicating that SBI will assume a dual role in debt restructuring for SIIL, shifting from creditor to equity stakeholder.

'In an extraordinary move, SBI has decided to convert its outstanding debt into equity in SIIL, a debtor firm that declared bankruptcy. Lenders, including SBI, have taken a staggering 93.45% haircut on the debt,' Ramesh noted on X.

Ramesh cautioned that this maneuver sets a troubling precedent in India's corporate debt landscape, suggesting it might embolden other defaulters to pursue similar arrangements, thereby retaining control despite significant defaults.

This situation raises concerns about the robustness of India's insolvency resolution framework and the role of public sector banks in handling distressed assets, Ramesh added.

He accused SBI of siding with the defaulting borrower (SIIL) over public fund recovery priorities.

Ramesh emphasized the necessity for public sector banks to uphold stringent discipline in debt resolutions, lest they encourage moral hazards within the financial system.

Given the unusual nature of this debt restructuring and equity conversion, immediate regulatory oversight is essential, he argued.

'The RBI needs to step in and scrutinize SBI's decision-making in this case,' Ramesh urged.

(With inputs from agencies.)