Bhushan Steel gets a life as banks fear hit to books-Indian Express-13.03.2015
By: Pallavi Ail and Pranav Nambiar
Bankers to the highly-leveraged and loss-making Bhushan Steel have opted to lend a little over Rs 7,000 crore more to the firm rather than recast the company’s debt via the corporate debt restructuring (CDR) cell.
A joint lenders’ forum (JLF) — a platform where lenders decide on the course of action on exposure that is likely to become non-performing — has decided that it will allow Bhushan Steel to draw a line of credit of R7,000 that it had sanctioned earlier.
The steelmaker already owes banks approximately R35,000 crore and has reported losses for the last five quarters. In the three months to December 2014, it posted a loss of R454 crore on revenues of R2,345 crore.
One public sector banker explained to FE that the move had been prompted by worries of higher provisioning expenses that banks would need to make if the exposure is classified as ‘restructured’. “We estimate that upwards of 10% of the loan value will have to be provided for if we decide to restructure the loan,” the banker added.
The bigger worry is that banks would have had to take an NPV (net present value) hit. When a loan is restructured,
banks must provide for 100% of the sacrifice amount — the difference between the NPV of future interest income based on the current base prime lending rate (BPLR) and the lower interest charged (as part of the restructuring scheme) discounted by the current BPLR.
Post April 2015, Reserve Bank of India (RBI) rules require a restructured asset to be classified as non-performing. While restructured loans require to be provisioned for at 5% of the loan amount, non-performing assets have to provided for at 15%.
According to a hypothecation deed reviewed by FE dated March 2, 2015, Bhushan Steel had requested for additional working capital from a 23-bank consortium led by Punjab National Bank. Of these, nine have approved a loan amount of R7,000 crore while the remaining have approved the loan but are yet to sanction it. “We are in discussion with banks for realignment of the debt profile as per present RBI guidelines and there has not been any proposal for restructuring of debt pending with banks,” Nitin Johari, CFO, Bhushan Steel, said.
The consortium of lenders will soon meet to consider whether the exposure to Bhushan Steel can be refinanced under the 5:25 scheme. Under this term, loans provided to long-term infrastructure projects will be evaluated for refinancing every five years, ensuring viability of the projects and with the need for restructuring minimised.
The Delhi-based company has been in the spotlight since August 2014 when its vice-chairman and managing director was arrested in an alleged case of bribery involving Syndicate Bank. The company had later sought shareholder approval to raise $1 billion through securities..
State to write off some farmers’ loans-Hindustan Times 13.03.2015
In a move to curb farmer suicides across Maharashtra, the state cabinet announced on Thursday that it will write off loans of up to Rs5 lakh per farmer, borrowed from registered money-lenders.
The decision will help more than four lakh farmers, but will cost the state around Rs300 crore.
In December last year, the state government announced waiving the loans after it found most farmer suicides were because of outstanding loans and harassment by private money lenders. But it hit a roadblock after the administration pointed out certain technical glitches – such as loans taken for weddings. The state then undertook a survey to identify farmers who had taken such loans.
The results of the survey notwithstanding, the cabinet on Thursday decided to set aside the norms and pay off the loans of most farmers.
A cabinet minister said the government was also considering lodging cases against unregistered lenders to free the farmers from their harassment.
The opposition had targeted the state government earlier in the day for not following up on the assurance, even three months after the announcement.
In another development at the budget session on Thursday, the state government said it is looking at starting a new fund that could provide relief to distressed farmers.
The announcement was made by agriculture and revenue minister Eknath Khadse in the Councli, a day after he told the Assembly the Centre and state will not be able to give funds for farmers hit by unseasonal rain.
Khadse said the government was planning a body similar to the National Disaster Response Fund (NDRF) for the state. “Currently, Maharashtra is in a poor financial state and has not been able to provide financial aid to farmers. However, we are considering setting up a Maharashtra Disaster Response Fund (MDRF), on the lines of the NDRF,” Khadse said. During his announcement however, Khadse did a U-turn about the Centre’s refusal to provide aid: “The Centre had told us to submit a joint proposal. We are awaiting a response, but we are hopeful that we will get more aid than the Centre has ever given in the past 25 years,” he said.
Wilful defaulters need not appear before bank committees-DNA
Vijaya Mallya and other wilful defaulters are no longer required to make a personal appearance before banks after Reserve Bank of India (RBI) disbanded the erstwhile Grievance Redressal Committee (GRC).
This means the wilful defaulter, who earlier had an option to appear with his team and explain his stand, does not have that option in the new structure.
The move follows the court row between Kingfisher and Kolkata-based United Bank of India, where the court had ruled in favour of the company quashing the decision of the lender.
RBI has now asked banks to set up two committees -- declaration committee headed by an executive director or deputy managing director, and a review committee headed by the chairman. Between these two committees, the wilful defaulter tag needs to be finalised.
A senior banker told dna, "We have approached the RBI for further fine tuning the legal binding of these committees so that companies do not approach courts for stay and delay the banks' decisions."
The issue all along had been about Mallya appearing before the GRC along with an external legal counsel which the bank opposed, saying the regulation permits only the borrower and internal members and no external members. Kingfisher then opposed the bank's GRC saying that the number of its members exceeded the regulatory requirement of three members.
The new declaration committee will be headed by an executive director or a deputy managing director and the review committee will be headed by chairman or CMD. According to the new structure, banks are now putting in place two committees.
The declaration committee checks the merits of the case, gives a showcase notice to defaulter giving him 15 days to explain his stand. Once his explanation is received, they can declare the borrower a wilful defaulter. The review committee, the highest decision making body in these cases, can review the case after examining all the legal angles and confirm the ruling of the declaration committee.
In December 2014, Calcutta High Court quashed the decisions of the identification committee of United Bank of India and the grievance redressal committee. The ruling was in favour of Kingfisher on technical grounds. The high court said the grievance redressal committee (which decides on whether or not a borrower is declared a wilful defaulter) was not constituted according to the regulatory guidelines. Therefore, the committee's decision to declare Kingfisher a wilful defaulter was defeated.
The technical flaw of the bank's grievance redressal committee was that it had four members instead of three -- chairman, a chief general manager and two general managers being a part of it. This is in excess of the number of three personnel prescribed in regulation 3(i) of the master circular on wilful defaulters, issued by the central bank.
The court ruled that the decision taken by the grievance redressal committee is null and void. Consequently, all steps taken by the bank subsequent to such so-called identification are also null and void. Significantly, the grievance redressal committee also comprised four members. "This is also in violation of regulation 3(iii) of the master circular issued by RBI," the court order said.
According to the master circular, a decision on whether or not to classify a borrower a wilful defaulter should be entrusted to an identification committee (a panel of higher functionaries, headed by the executive director and comprising two general managers or deputy general managers, as decided by the bank's board). It added if a borrower was identified as a wilful defaulter, she/he should be provided reasonable time (say, 15 days) for making a representation against the decision to the grievance redressal committee, headed by the chairman and comprising two other senior officials.
Editorial: Banking on forensics-Financial Express
Going by the large number of loan recasts over the last few years—R2.8 lakh crore since FY11—it is clear that there is more to the problem than merely a downturn in the economy. There is little doubt this would have hit companies, especially the smaller ones, since customers, including government agencies, tend to hold back payments in a slowdown. Many of the mid-sized and larger firms, similarly, would have been hit not just by slowing sales locally, but also the sharp deterioration in the exports market—more so in the case of projects specifically set up to cater to the booming market in countries like China.
Also, in the case of several power plants, the maths clearly went wrong due to either non-availability of coal or, equally important, the refusal of electricity regulators to raise tariffs to take into account rising electricity purchase costs. With the benefit of hindsight, however, the targets also come across as very ambitious, a factor that banks should have taken closer note of while appraising the loan proposals.
While it is, no doubt, hard to predict turns in commodity cycles, and forecasting the extent of the turn is even harder, banks needed to have ensured they had enough of a cushion in the collateral that they asked for. As the economy gets back on its feet and banks look ahead to a pick up in the credit cycle, after a couple of dull years, they must approach the business far more cautiously; it is probably better not to lend than to create an exposure to a promoter without the right credentials and a robust business model.
Indeed, bankers know best how painfully difficult it is to recover money from those who have no intention of paying back; they are also aware of how intractable the country’s legal system is and how skilfully errant promoters are able to dodge it. At least two large banks have special units that spearhead the recovery of bad debts. In a recent instance, after trying to recover around R4,200 crore from a company and conducting a forensic audit, banks have decided to file a complaint with the CBI alleging cheating and misappropriation of funds.
While it would be wholly inappropriate to paint all borrowers with the same brush, it makes sense for banks to conduct forensic audits for companies where it believes everything may not be kosher. While the Corporate Debt Restructuring (CDR) cell may want to have such audits done for all cases that are brought before it, banks for their part should perhaps initiate them for companies where they have even the smallest reason to believe everything may not be above board. Ushering in a culture of scrutiny and investigation cannot hurt and can act as a deterrent. To make the process more effective though, the courts need to act quickly.
A joint lenders’ forum (JLF) — a platform where lenders decide on the course of action on exposure that is likely to become non-performing — has decided that it will allow Bhushan Steel to draw a line of credit of R7,000 that it had sanctioned earlier.
The steelmaker already owes banks approximately R35,000 crore and has reported losses for the last five quarters. In the three months to December 2014, it posted a loss of R454 crore on revenues of R2,345 crore.
One public sector banker explained to FE that the move had been prompted by worries of higher provisioning expenses that banks would need to make if the exposure is classified as ‘restructured’. “We estimate that upwards of 10% of the loan value will have to be provided for if we decide to restructure the loan,” the banker added.
The bigger worry is that banks would have had to take an NPV (net present value) hit. When a loan is restructured,
banks must provide for 100% of the sacrifice amount — the difference between the NPV of future interest income based on the current base prime lending rate (BPLR) and the lower interest charged (as part of the restructuring scheme) discounted by the current BPLR.
Post April 2015, Reserve Bank of India (RBI) rules require a restructured asset to be classified as non-performing. While restructured loans require to be provisioned for at 5% of the loan amount, non-performing assets have to provided for at 15%.
According to a hypothecation deed reviewed by FE dated March 2, 2015, Bhushan Steel had requested for additional working capital from a 23-bank consortium led by Punjab National Bank. Of these, nine have approved a loan amount of R7,000 crore while the remaining have approved the loan but are yet to sanction it. “We are in discussion with banks for realignment of the debt profile as per present RBI guidelines and there has not been any proposal for restructuring of debt pending with banks,” Nitin Johari, CFO, Bhushan Steel, said.
The consortium of lenders will soon meet to consider whether the exposure to Bhushan Steel can be refinanced under the 5:25 scheme. Under this term, loans provided to long-term infrastructure projects will be evaluated for refinancing every five years, ensuring viability of the projects and with the need for restructuring minimised.
The Delhi-based company has been in the spotlight since August 2014 when its vice-chairman and managing director was arrested in an alleged case of bribery involving Syndicate Bank. The company had later sought shareholder approval to raise $1 billion through securities..
State to write off some farmers’ loans-Hindustan Times 13.03.2015
In a move to curb farmer suicides across Maharashtra, the state cabinet announced on Thursday that it will write off loans of up to Rs5 lakh per farmer, borrowed from registered money-lenders.
The decision will help more than four lakh farmers, but will cost the state around Rs300 crore.
In December last year, the state government announced waiving the loans after it found most farmer suicides were because of outstanding loans and harassment by private money lenders. But it hit a roadblock after the administration pointed out certain technical glitches – such as loans taken for weddings. The state then undertook a survey to identify farmers who had taken such loans.
The results of the survey notwithstanding, the cabinet on Thursday decided to set aside the norms and pay off the loans of most farmers.
A cabinet minister said the government was also considering lodging cases against unregistered lenders to free the farmers from their harassment.
The opposition had targeted the state government earlier in the day for not following up on the assurance, even three months after the announcement.
In another development at the budget session on Thursday, the state government said it is looking at starting a new fund that could provide relief to distressed farmers.
The announcement was made by agriculture and revenue minister Eknath Khadse in the Councli, a day after he told the Assembly the Centre and state will not be able to give funds for farmers hit by unseasonal rain.
Khadse said the government was planning a body similar to the National Disaster Response Fund (NDRF) for the state. “Currently, Maharashtra is in a poor financial state and has not been able to provide financial aid to farmers. However, we are considering setting up a Maharashtra Disaster Response Fund (MDRF), on the lines of the NDRF,” Khadse said. During his announcement however, Khadse did a U-turn about the Centre’s refusal to provide aid: “The Centre had told us to submit a joint proposal. We are awaiting a response, but we are hopeful that we will get more aid than the Centre has ever given in the past 25 years,” he said.
Wilful defaulters need not appear before bank committees-DNA
Vijaya Mallya and other wilful defaulters are no longer required to make a personal appearance before banks after Reserve Bank of India (RBI) disbanded the erstwhile Grievance Redressal Committee (GRC).
This means the wilful defaulter, who earlier had an option to appear with his team and explain his stand, does not have that option in the new structure.
The move follows the court row between Kingfisher and Kolkata-based United Bank of India, where the court had ruled in favour of the company quashing the decision of the lender.
RBI has now asked banks to set up two committees -- declaration committee headed by an executive director or deputy managing director, and a review committee headed by the chairman. Between these two committees, the wilful defaulter tag needs to be finalised.
A senior banker told dna, "We have approached the RBI for further fine tuning the legal binding of these committees so that companies do not approach courts for stay and delay the banks' decisions."
The issue all along had been about Mallya appearing before the GRC along with an external legal counsel which the bank opposed, saying the regulation permits only the borrower and internal members and no external members. Kingfisher then opposed the bank's GRC saying that the number of its members exceeded the regulatory requirement of three members.
The new declaration committee will be headed by an executive director or a deputy managing director and the review committee will be headed by chairman or CMD. According to the new structure, banks are now putting in place two committees.
The declaration committee checks the merits of the case, gives a showcase notice to defaulter giving him 15 days to explain his stand. Once his explanation is received, they can declare the borrower a wilful defaulter. The review committee, the highest decision making body in these cases, can review the case after examining all the legal angles and confirm the ruling of the declaration committee.
In December 2014, Calcutta High Court quashed the decisions of the identification committee of United Bank of India and the grievance redressal committee. The ruling was in favour of Kingfisher on technical grounds. The high court said the grievance redressal committee (which decides on whether or not a borrower is declared a wilful defaulter) was not constituted according to the regulatory guidelines. Therefore, the committee's decision to declare Kingfisher a wilful defaulter was defeated.
The technical flaw of the bank's grievance redressal committee was that it had four members instead of three -- chairman, a chief general manager and two general managers being a part of it. This is in excess of the number of three personnel prescribed in regulation 3(i) of the master circular on wilful defaulters, issued by the central bank.
The court ruled that the decision taken by the grievance redressal committee is null and void. Consequently, all steps taken by the bank subsequent to such so-called identification are also null and void. Significantly, the grievance redressal committee also comprised four members. "This is also in violation of regulation 3(iii) of the master circular issued by RBI," the court order said.
According to the master circular, a decision on whether or not to classify a borrower a wilful defaulter should be entrusted to an identification committee (a panel of higher functionaries, headed by the executive director and comprising two general managers or deputy general managers, as decided by the bank's board). It added if a borrower was identified as a wilful defaulter, she/he should be provided reasonable time (say, 15 days) for making a representation against the decision to the grievance redressal committee, headed by the chairman and comprising two other senior officials.
Editorial: Banking on forensics-Financial Express
Going by the large number of loan recasts over the last few years—R2.8 lakh crore since FY11—it is clear that there is more to the problem than merely a downturn in the economy. There is little doubt this would have hit companies, especially the smaller ones, since customers, including government agencies, tend to hold back payments in a slowdown. Many of the mid-sized and larger firms, similarly, would have been hit not just by slowing sales locally, but also the sharp deterioration in the exports market—more so in the case of projects specifically set up to cater to the booming market in countries like China.
Also, in the case of several power plants, the maths clearly went wrong due to either non-availability of coal or, equally important, the refusal of electricity regulators to raise tariffs to take into account rising electricity purchase costs. With the benefit of hindsight, however, the targets also come across as very ambitious, a factor that banks should have taken closer note of while appraising the loan proposals.
While it is, no doubt, hard to predict turns in commodity cycles, and forecasting the extent of the turn is even harder, banks needed to have ensured they had enough of a cushion in the collateral that they asked for. As the economy gets back on its feet and banks look ahead to a pick up in the credit cycle, after a couple of dull years, they must approach the business far more cautiously; it is probably better not to lend than to create an exposure to a promoter without the right credentials and a robust business model.
Indeed, bankers know best how painfully difficult it is to recover money from those who have no intention of paying back; they are also aware of how intractable the country’s legal system is and how skilfully errant promoters are able to dodge it. At least two large banks have special units that spearhead the recovery of bad debts. In a recent instance, after trying to recover around R4,200 crore from a company and conducting a forensic audit, banks have decided to file a complaint with the CBI alleging cheating and misappropriation of funds.
While it would be wholly inappropriate to paint all borrowers with the same brush, it makes sense for banks to conduct forensic audits for companies where it believes everything may not be kosher. While the Corporate Debt Restructuring (CDR) cell may want to have such audits done for all cases that are brought before it, banks for their part should perhaps initiate them for companies where they have even the smallest reason to believe everything may not be above board. Ushering in a culture of scrutiny and investigation cannot hurt and can act as a deterrent. To make the process more effective though, the courts need to act quickly.
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