I have no doubt that Action Against Mallya, promoter Of Kingfisher Will Shake all crorepati and Arabpati Defaulters of banks. This will send shocking and alerting message to all defaulters of banks who are though rich and capable to repay the dues but wilfully avoiding repayment of bank loan. I hope this is a good message for bankers .Habit of borrowers of treating bank loan as charity and treating bank case against defaulters as safety will now stop. All bankers will feel relaxed to some extent if person like Mallya is booked to task and money is recovered.
Clamp down on Mallya is just the beginning: More Kingfishers will fly out of the nest-Firstbiz
The harsh steps banks have taken to get their money back from Vijay Mallya-owned, now defunct Kingfisher Airlines was something waiting to happen. With an estimated Rs 7,000 crore exposure, Kingfisher is arguably the largest case of bad loans for Indian banks, at this point.
There have been several rounds of negotiations banks conducted with the grounded airline’s ill-fated emperor in the last few years to work out a possible solution to the Kingfisher mess, none of which worked out.
The decision of Kolkata-based United Bank of India (UBI) to tag Mallya as a wilful defaulter is the harshest step a bank can take upon any borrower, since it virtually ostracises the company and its promoters from the financial system and even disqualifies the promoters from holding executive role in any other firms.
The matter doesn’t end there. Following UBI, other lenders, including State Bank of India (SBI) are planning similar steps, including levelling charges of criminality against Mallya, seeking the intervention of investigating agencies in the case.
Beyond Mallya and Kingfisher, the banks’ action on Kingfisher has major significance in the banking system since it could encourage banks to seek similar recourse to recover money from other companies, where their money is at stake.
That will be particularly so, when there is immense pressure on state-run banks (which control 70 percent of assets in the banking system) to cut the bad debt.
In the face of recurring cases of bribe-for-loan scams, it has become clear that criminality is indeed a major reason for the current pile of stressed loans.
There are several other cases, where criminality can be cited as a reason for stress.
Winsome Diamonds is one such, where the CBI has begun a probe to the working of the company after it allegedly defaulted Rs 6,500 crore worth of loans to a host of banks, making it equal in size to Kingfisher. The company claims that the default has occurred following non-payment of dues by its trading partners in the Middle East. But the banks haven’t bought that excuse and have slapped legal notices against the firm.
Another one is that of Deccan Chronicle Holdings Ltd (DCHL), where the CBI is investigating alleged cheating and fraud. According to some of the bankers to DCHL, part of the reason the company faced the crisis was diversions of funds to expansion plans of the group, which was not stated to the lenders at the time of taking the loan.
Another major case banks will have to deal with, the fate of which is still uncertain, is that of Bhushan Steel, which has about Rs 40,000 crore loan to some 51 banks.
The firm is facing a crisis after its vice chairman Neeraj Singhal was arrested on serious charges of bribery in the Syndicate Bank loan scam. Singhal allegedly bribed Jain to seek undeserving credit facilities from the bank that kept its loans standard.
Even though the loan is at present standard, bankers fear that any possible slippages in the loan can have huge impact on the banks in the consortium.
But beyond Bhushan, one other critical factor linked to the Syndicate Bank scam is the role of middleman Pawan Bansal and his firm Altius Finserv Private Limited, which will have much wider implications for banks.
Besides Syndicate, his firm has facilitated loans to other firms as well, which are being investigated by CBI sleuths. According to a report in the DNA, the CBI has recovered documents to prove that Bansal has facilitated loans from UCO Bank to Era Infra (Rs 600 crore), Tayal Group (Rs 500 crore) and Arshiya International (Rs 1,300 crore).
That apart, Bansal has also facilitated loans from Bank of Maharashtra to these firms. This include Rs 200 crore to Era Infra, Rs 400 crore to SEL Manufacturing and Rs 200 crore to Shiv Vani Group.
Now, take a closer look at these cases. Almost, all these loans are under the stressed category in the books of banks and have been moved to the corporate debt restructuring (CDR). Some of these cases have been approved by banks for recasts and the process has already begun.
By definition, CDR is a facility, where banks relax the loan repayment terms for companies, which face genuine stress. This is done through reduction in interest rates, elongation of repayment terms and offering a moratorium.
If these loans originated through bribes, there is a possibility that, in the first place, these firms didn’t deserve the bank funding through genuine channels. Not surprising that all these loans have turned stress and is under restructuring. Banks need to take a look on whether these cases deserved loan recasts.
In the case of Tayal group, the group was in the news in connection with the erstwhile Bank of Rajasthan case. According to Securities and Exchange Board of India, Tayals, promoters of the bank, fraudulently hiked their shareholding in the bank through a series of off market transactions. Again, the middleman worked to get the deal done.
Indian banks are already reeling under the pain of stressed assets. The amount of bad debt of 40-listed banks in the country stood at Rs 2.5 lakh crore in the banking system as of end June.
Among the banks with high level of gross non-performing assets (NPAs) are United Bank of India (10.49 percent), Central Bank of India (6.15 percent), Andhra Bank (5.98 percent) and Indian Overseas Bank (5.84 percent).
Besides the bad loans, a huge chunk of loans are being restructured, which is estimated to be between Rs 5 lakh crore to Rs 6 lakh crore. A sizeable chunk of such loans could turn bad too in the absence of significant economic revival.
Banking system is the backbone and a proxy to the economy, hence damages caused to it can have serious ramifications on the overall economic stability as well.
If the banking system is determined to find the actual root causes of the bad debt pile and tackle criminality with iron hands, a significant portion of the problems associated with bad loans can be resolved effectively.
Many more Kingfishers will fly out of the nest then.
http://firstbiz.firstpost.com/corporate/clamp-down-on-mallya-is-just-the-beginning-more-kingfishers-will-fly-out-of-the-nest-96853.html
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