Tuesday, October 30, 2012

An Interesting Article of 2003 ON NPA in Bank


Rs 11,00,00,00,00,000: The Great Indian Bank Robbery  I
Samar Halarnkar and Ritu Sarin in New Delhi; Sucheta Dalal and George Mathew in Mumbai Posted: Dec 01, 2002 at 0000 hrs IST

This week, Parliament passed a new law to act against India Inc’s mountain of unpaid loans. But it can only work if the government shows the will to act against powerful defaulters who plead penury but live caviar lifestyles. If the govt doesn’t act now, expect to pay more for your home or car loans—even see your savings shrink.

Forgotten Harshad Mehta? Just as well. The scale of the scandal now threatening India’s economy is vastly greater than the 1994 stockmarket carnage. The numbers may seem unreal, but Rs 110,000 crore is actually a conservative government estimate of the unpaid loans—officially called non-performing assets (NPAs)—staining the books of India’s banks and financial institutions.

For vast swathes of corporate India, it’s been an era of financial plunder. That’s why Finance Minister Jaswant Singh calls NPAs ‘‘loot, and not debt.’’ And this week, when Parliament passed the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act allowing banks and FIs to seize defaulters’ assets, there was a strident demand by the Opposition to table the list of defaulters.

COMPANY TOTAL DEFAULT (Rs cr) MARDIA GROUP 1,450 LLOYDS GROUP 1,012 MODERN GROUP 846 PARASRAMPURIA GRP 705 CORE HEALTHCARE GRP 751 MAFATLAL GROUP 598 NOVA GROUP 527.5 PATHEJA GROUP 547 USHA ISPAT 391.7 INDIAN CHARGE CHROME LTD 493.3 ALTOS INDIA 437 JK GROUP 698 RAJINDER GROUP 620 MESCO GROUP 527.5 PRAKASH INDUSTRIES LTD 360 R S MARDIA H S RANKA (MODERN) VINAY RAI (USHA) MUKESH GUPTA (LLOYDS) ...AND OTHER PROBLEM CASES? ESSAR GROUP 7,184 MALVIKA STEEL (FOR 2000-01) 2,095 JINDAL VIJAYNAGAR STEEL 4,900 SPIC GROUP 3,284 SANGHI GROUP 1,582 CESC LTD 3,300 IG PETROCHEMICALS LTD 720 ISPAT INDUSTRIES LTD 6,369 ISPAT METALLICS LTD 1,688 SOURCES: Ministry of Finance, Reserve Bank of India, and financial institutions. NOTES: 1. The information is valid upto March 31, 2002, unless otherwise indicated. 2. The list is in no particular order. Some figures are estimates. 3. Companies in the first list are declared defaulters with debts converted to non-performing assets (NPAs) in the records of banks and financial institutions. Those in the second chart have not been declared defaulters—though some debts could harbour NPAs. 4. A debt is supposed to be classified as an NPA if agreed payments are not made within 180 days. The new law will reduce that to international norms: 90 days.

What the Government didn’t mention is that it has no reliable, consolidated list. The Finance Ministry’s list of defaulters, as of March 31, 2002, is still topped by Harshad Mehta at Rs 812 crore. The RBI does not reveal a defaulter’s identity unless a bank files a law suit. So many of the big fish, don’t show up on these hot lists. Some escape law suits. Other defaults are deliberately fogged by accounting practices: so defaults hide, for instance, as ‘‘projects under implementation.’’
To compile a list, The Sunday Express launched a nationwide investigation that took reporters from corporate offices in Mumbai and New Delhi to factories in Alwar, Rajasthan and Vatva, Gujarat. Given the fog of secrecy and arcane accounting practices that surround defaulters, it involved several background briefings from banks and financial institutions, Government officials and company managements.

The Great Indian Bank Robbery Edition II

This is the second piece in the whole story which will unfold on these pages in teh following weeks.

As you read this, the powerful defaulters are already at work, pulling strings to lean on financial institutions to go slow. And they are getting ready to mine the new loopholes of the new law: no clear definition of who’s a wilful defaulter; no prison sentences; nothing to stop a defaulter from taking over a privatised bank and paying off debts; and nothing to stop their private life of luxury.

If the spirit behind the new law doesn’t match the letter, if this mother of all bad loans continues to grow, it will squeeze the financial system. In time, it could mean paying more for your home or car loan, and getting less interest for your savings.

‘‘The lenders should first target the largest defaulters, who have the ability to pay but have shown no willingness to do so,’’ says UTI Chairman M. Damodaran. The Finance Minister has assured Parliament that the new law will be ‘‘enforced without fear or favour.’’
The message may not have reached some of his colleagues in Parliament.

That’s why Congress spokesman Kapil Sibal, appears for India’s worst officially listed defaulter, Ahmedabad’s Mardia Chemicals, which in five years hasn’t paid a paisa of its debt: Rs 1,404 crore and mounting. Sibal, who says he’s in favour of the new law, is fighting a suit that wants the Act struck down as ‘‘unconstitutional.’’

That’s why the Shiv Sena’s Balasaheb Vikhe Patil earlier this year asked IDBI and SBI to call meetings in Mumbai to restructure debts of the Lloyds Group. When contacted, Patil said: ‘‘I recommend people for many things, but I always say according to rules and regulations.’’

FM & EX-FMS: ALL AGREE (This is) loot, not debt... the provisions of the Act will be enforced without fear or favour. We’ll start with the bigger NPAs, and then move to the others Jaswant Singh, Finance minister If defaults continue, it will be the end of the financial system. Till now, everything was in favour of the borrowers. The lenders were being taken for a ride while the defaulting industrialists flourished Dr Manmohan Singh Former finance minister and RBI Governor This Act gives unreasonable discretion to the banks. What is also important at this stage is not to see who have been sent notices, but who have not been. Questions must be asked why these people have not been sent notices. P. Chidambaram Former finance minister

If enforcement falters and NPAs continue their rise, it could help send India towards the kind of financial crises that ravaged the tiger economies two years ago. But South Korea, Malaysia and Singapore were better off then than India is today.

The proportion of NPAs to total bank advances was about 7 per cent in those countries in September 2000. India’s figure, as of last year was 11 per cent, though Ministry of Finance (MoF) officials are quick to point out that NPAs of public sector banks, at least, dropped from 24.7 per cent in 1994 to 11.4 per cent in 2001.

The old laws were woefully inadequate. The government’s other major initiative in recovering NPAs—setting up Debt Recovery Tribunals (DRTs) in major cities—hasn’t really worked. There are 56,988 cases filed in the DRTs, involving Rs 1,08,665 crores. The amount recovered till March 2002 is a paltry Rs 4,736 crores.

Today, ten of the 16 large groups sent notices by the ICICI under the new law are now pleading for negotiated settlements. Some of the obdurate industrialists who scurried in with token payments: the Ispat Group, two companies of the Jindal group, the Lloyds Group, Ganesh Benzoplast and Kesar Enterprises.

But one reason why the cheque books are reappearing is because the defaulters hope to reschedule or restructure loans. After all, the same banks and FIs consistently obliged them with sweetheart deals for years by lowering interest rates, writing off some loans, converting debt to shares at dubiously low levels, or handing out new loans to repay old ones.

So the payments coming in are small—as low as Rs 50 lakh in some cases. Still, the chief of one institution sees it thus: ‘‘Many industrialists have forgotten how to take out their cheque books and sign cheques to us: that they are even making a small payment is a beginning.’’

The Great Indian Bank Robbery Edition III

This is the third piece for my readers. Appologise for not keeping my promise of daily post.

Please read on and provide your iputs as well:
How Defaulter No 1 worked overtime to stay at top

samar halarnkar & Sucheta Dalal Posted: Dec 02, 2002 at 0000 hrs IST

new delhi, december 1 For a bankrupt group, India’s largest defaulters aren’t doing too badly.
The workers of the Mardia group may be out of jobs. The loans the group can’t — or refuses to — pay run into hundreds of crores. But the flats and mansions of the Mardia family dot Ahmedabad, the latest just getting finishing touches in the tony Bopal area.

MARDIA GROUP Unpaid: Rs 1,450 cr “If a banker gives one rupee and asks for 1 lakh, I have to shut down’’ Rasiklal Mardia Over the last five years the Mardias have had the money to hire India’s best lawyers to fight their legal battles — chiefly to claim bankruptcy. Yet, tribunals and auditors have found them allegedly fudging accounts and siphoning funds. The one thing they haven’t done is to pay back any of the money they owe.

Once a struggling nobody, chairman Rasiklal Mardia, a Marwari, used his business acumen to capitalise on India’s great leap outward in the early 1990s. He made his fortune exporting chemicals to Europe, the US and Asia. But when the markets crashed and their loans came due, he’s said to have used that same acumen to juggle books, maintain their lifestyles — and keep one step ahead of their debtors.

The law is finally closing in. After a last-ditch wait over the last two weeks, a team of valuers, lawyers, security guards and a manager from the financial institution ICICI have taken over a closed Mardia Chemicals’ factory in Vatva, 20 minutes out of Ahmedabad.

It is the biggest seizure of an industrial asset in India, the first after the new law allowing lenders such powers was passed by Parliament last week. As one of India’s largest loan defaulters (in official records), the seizure is a test case for the new law, first floated as an ordinance in June to make it easier to recover bad debts.

The Vatva takeover was just the first step in a five-year legal struggle against the Mardias. The takeover team had taken all kinds of precautions — insuring the plant and equipment, even the lives of the security guards. If that sounds a bit much for a group that seems down and out, just remember that the Mardias thwarted each of its 21 debtors — state-owned, private and foreign — over the last five years by embroiling them in nearly 500 legal cases.

Bye bye for now. See you all soon.

Th eGreat Indian Bank Robbery Edition IV

The fourth instalment is being posted:
How textiles group took its banks to the cleaners

RITU SARIN & SUCHETA DALAL Posted: Dec 03, 2002 at 0000 hrs IST

NEW DELHI, MUMBAI, DECEMBER 2: For a long time, Hari Shankar Ranka’s life was one of those great Indian success stories.
When Lal Bahadur Shastri was exhorting India with the motto Jai Jawan, Jai Kisan, Ranka was a humble storekeeper with the original magnates, the Birlas.

He worked 16-hour days, he struck out on his own in the textile business. Through most of the 70s, the 80s and the early 1990s, the Modern Group flourished, setting up eight factories and five companies across Rajasthan and Gujarat. Indeed in the 1980s, Modern Suiting occupied billboards and the wardrobes of middle-class India.
The great Indian success story began to darken in 1997 when high project costs and unviable plants sparked off defaults, first to lending institutions and soon on repayment of public fixed deposits.

THE MODERN GROUP

Unpaid: Rs 842 crore “We are in touch with banks and FIs... we are hopeful that the issues will be solved amicably” — H.S. Ranka, Chairman

And today, through a combination of crashing markets, mismanagement, family squabbles and questionable business practices, the Modern Group’s five companies are a financial mess, despite sometimes overenthusiastic support from financial institutions.

Over the last three years the group unfolded a familiar defaulter litany of legal stalling, trying to simultaneously extract concessions from banks—and repaying no money, not even the interest. The group has been slapped notices for seizure of assets under the new ordinance issued in June and ratified by Parliament last week. But like Defaulter No 1, the Mardias, Ranka too has challenged the ordinance in court.

The Worli police station in Mumbai, where Ranka lives, has a long list of cases filed by desperate depositors. At one stage the Supreme Court intervened to dismiss the writ petition filed by the group to quash some 3000 criminal cases against him and son Kamal Ranka.

Who’s to blame? Here’s what Modern Syntex attributes its defaults since 1996 to: recession in the textile industry; slump in world demand, labour unrest, heavy rains and floods (in July 1999 at Baroda) and the “shocking earthquake” of January 2001. Oh yes, also some of the 34 lending institutions who apparently played their part in the downfall—by putting directors on the boards of Modern Syntex.

Today, Ranka steadfastly refuses to accept any blame. When contacted, he had this to say in a faxed statement: ‘‘It is our past experience that on earlier occasions information published relating to the group was not appreciated in the correct perspective.’’

A Marwari known for his frugal lifestyle, Ranka has had to swallow some of that pride over the last year. Under threat of the tough new law, he’s now started negotiations with banks, where he must often discuss his options with 30-something middle-rung bankers.

HOW THEY GOT THE MONEY

Through most of the 70s, the 80s and the early 1990s, the Modern Group flourished, setting up eight factories and five companies across Rajasthan and Gujarat. Indeed in the 1980s, Modern Suiting occupied billboards and the wardrobes of middle-class India.
WHAT THEY SAY ABOUT THE LAW: MORE CONTROL TO LENDERS

» The high level of NPAs has made funds locked up in unproductive assets that could have been released to other sectors. More importantly the “risk taking” of the lending community has been strongly impacted. Hemendra Kothari, Chairman, DSP Merrill Lynch Limited » The Act has a major flaw: it talks about assets of wilful defaulters being seized. The defaulters will take advantage and go to courts. This will also open up scope for discretion to be used by banks. Guru Das DasGupta, Rajya Sabha mp & General Secretary, AITUC » Most of the banks and FIs would benefit out of this ordinance being converted into an Act and would be able to reduce their NPAs. Kalpana Morparia, executive director, ICICI » I feel something should also be done about the old pending cases with debt recovery tribunals (DRTs). A substantial sum of NPAs are stuck there. S S Kohli, CMD, Punjab National Bank (PNB) » The Bill places secured lenders in a strong bargaining position from where they can control the debt recovery process, without having to rely on third parties. Sudhir Variyar, Director, Fitch Ratings

HOW THE MARDIAS WERE FOUND GUILTY...

Excerpts from the judgement delivered on 27 February 2002 by the Board for Industrial and Financial Reconstruction while rejecting a Mardia Chemicals’ application to be declared a sick industry:

‘‘The Bench noted that the promoters/management had systematically and deliberately siphoned away large funds from the company, which had resulted in the erosion of the networth of the company ... the company would not have become sick had there not been any diversion of funds. The company had failed to establish the bonafides of the purchase transactions even from the group concerns by conveniently stating that the concerned companies had since been wound up. The fire mentioned in which records of the company were destroyed were not reported to the BOD (Board of Directors) at the relevant time which raised serious doubts on such an occurrece. In our view, it is not possible to reconstruct company’s past balance sheets, which, ab initio, as unreliable. The promoters have approached the Board with unclean hands and deserve no protection. The reference filed by the company is, therefore, rejected as non maintanable. T.R.SRIDHARAN, P .P .CHAUHAN, MEMBERS, BIFR

Ranka’s companies (Modern Syntex, Modern Threads, Modern Insulators, Modern Terry Towels and Modern Denim) flourished during the stockmarket boom. They issued scores of fixed deposits and borrowed close to Rs 1,500 crore from 34 lending institutions. There was never a problem. The group had the best credit rating, AAA.
It was only in 1995, when the markets went bad that it began to unravel for Ranka. Still, according to most corporate observers, the Modern Group has been the subject of unusual benevolence by various financial institutions, especially the now beleagured IFCI, a big and, according to observers, an often ‘‘reckless’’ benefactor.
Modern Group firms were offered repeated rescue packages over the years although there were no signs of a turnaround. Investor associations have accused group companies of serious misstatements in project proposals and prospectus.

AND HOW THEY GOT AWAY
The Group got some of its first reprieves from its lenders. In October 2001, some of the lending institutions that were vexed with the Rankas for bad debts, almost decided to raise their stake in Modern Syntex by converting some loans to equity. That means the loans effectively get waived: in exchange institutions get a larger shareholding in the company.

This was part of a restructuring proposal that included the sale of Modern Denim. It was supposed to help the Rankas bring in funds for the rescue plan. Accordingly, a mandate was given to Jardine Fleming to find a buyer for the company, but no one wanted the plant. Modern Denim was declared sick after accumulating losses of Rs 150.17 crore for the year ending March 2000.

Meanwhile, Modern Syntex, which always claimed a turnaround was possible, restated its account and tried to declare itself a sick undertaking. In August 2001, its application was rejected by the BIFR. Unhappy with the order of the appeals tribunal, it went to the Rajasthan High Court. That order was dismissed too.
But the Rankas wouldn’t give up. They appealed to a division bench of the court and won a reprieve. The State Bank of Bikaner and Jaipur and the Union Bank even moved Debt Recovery Tribunals to get their money, but the group stymied action on that front under the Bombay Relief Undertakings (BRU) Act 1958, meant to protect labour by prohibiting action by creditors for a year.

It’s of course misused blatantly, as Modern Syntex and Modern Suitings did: both have been under BRU protection since 1999 and recently had the notification extended until February 14, 2003.

Despite the long rope that the group got from its bankers, it now accuses the lending institutions—in its court case—of not being as tough on other borrowers who “stand on the same footing”.
The big question is this: if the Group says it’s bankrupt, why does it fight institutions trying to take over its assets? Obviously, the Group still has assets worth fighting for.
(With George Mathew in Mumbai

Chor Machaaye Shor

Author: Samar Halarnkar

Source: The Indian Express

Date: 23/03/2003


·  Print
Posted: Mar 23, 2003 at 0000 hrs IST
"Lool, shall I fly down to Delhi and explain things to you?" that was Ravi Ruia, son of Sashi, chairman of the Essar Group of Companies. Ravi was suave, insistent and very persuasive. The Ruias cooperated fully in answering every question we put to them on why they were not paying back their humungous bank loans of about Rs 8,000 crore. What they were anxious to ensure was that the unpaid loans from their struggling oil and petroleum industries were not linked to their jet-set lifestyles.

Unfortunately, that was precisely what the series on unpaid loans-or non-performing assets, in officialese-was all about: showcasing industrialists who lived caviar lives but refused to pay back thousands of crores in public money. Meanwhile, Ritu Sarin, head of Express’ investigative team and a master of digging out uncomfortable facts, had wriggled her way into a Ruia guest house in New Delhi and found a heated swimming pool to add to the list of their sundry apartments abroad, fast cars and big loans.

‘‘Come on, what jet set? Going to London is hardly jet set, and if you’re going to write about the helipad on our rooftop, that’s not been used for years,’’ Ravi argued. The pressure was relentless. Pramod Mittal of the Mittal group-another captain of the steel industry -actually showed up in the Express office in Delhi, Mercedes and all, to argue why we should not feature him.

‘‘Arre yaar,’’ he said after running through many financial arguments. ‘‘Timing galat hai, hamara GDR vagera hone wala hai (the timing is wrong, we’re going to float global depository receipts).’’
The Great Bank Robbery Series wasn’t something sensationally exclusive. Everyone in the financial world and the government knew of the impending crisis caused by the purloining of loan money. The logic behind doing it was simple: if you and I don’t repay a couple of installments of that car loan, the company is likely to snatch your car. Yet, here were India’s big daddies, not only not repaying, but getting pliant banks to give them more money.

It all got began with consulting editor Sucheta Dalal hauling out the shennanigans of some companies. I simply had to put together a team of reporters and photographers nationwide to track down the defaulters and investigate their lifestyles, contrasting their comfort with the penury of their laid-off workers.
From Chennai, the minders of SPIC, chairman and business baron, A C Muthiah, made frequent calls trying to stop us from writing how he, a defaulter, was about to become chairman of the Federation of Indian Chambers of Commerce and Industry (FICCI). ‘‘Write if you want later,’’ said one of them on his umpteenth phone call. ‘‘You come to Chennai as our guest and chairman himself will explain everything to you.’’ At least the bigger companies tried to talk their way out. There were a host of smaller companies that had pretty much stopped functioning as companies. Some promoters had even fled the country. Our brief was clear: every owner must be given the chance to defend himself or herself.

In many small towns, the greed and mismanagement of a few had squelched the dreams of hundreds, for whom the factory was a lifeline, an opportunity to join India’s achieving classes. Often, behind this great financial subterfuge, unsurprisngly, was the hand of the politician. It was apparent in the whispers we all heard about such-and-such bank being pressurised to lend money to a defaulter by such-and-such minister.
That was tough with people like the ghost-like Pathejas of Pune who had left behind rusting factories, angry workers and abandoned homes. Visits to all these places by reporters from Pune turned up no Pathejas. Finally, Pune deputy resident editor Vinita Deshmukh tracked down the wife of one of the Patheja brothers and through her finally spoke to her husband. He was on the run but he spoke calmly: yes he was on the run, yes the business had failed, yes he owed money, but that’s just how it was.

Reporters and photographers from Indian Express and Financial Express also travelled to remote interior factories to track down factories and factory workers. They brought back tales of overambition, deceit and often hopelessness among workers. In many small towns, the greed and mismanagement of a few had squelched the dreams of hundreds, for whom the factory was a lifeline, an opportunity to join India’s achieving classes. Often, behind this great financial subterfuge, unsurprisingly, was the hand of the politician. It was apparent in the whispers we all heard about such-and-such bank being pressurised to lend more money to a defaulter by such-and-such minister.

It became evident when one evening I got a call from the secretary of former Union Minister for Heavy Industry, Balasaheb Vikhe-Patil of the Shiv Sena. The minister would like to meet me, ‘‘casually’’. So I went one dark, foggy evening to his Lutyens’ bungalow and joined him for a simple meal of dal, rice and ghee. After some pleasantries, he came to the point. I was writing that he had influenced a bank to bail out a steel group, but the fact was he had never pressured anyone. It might be his former secretary who used his name. I was flabbergasted. It was indeed true that I was going to write how he had pulled strings for this baron. Only, I hadn’t written it yet!

Fallout: Banks Clamp Down

Many banks and financial institutions intensified their loan recovery process after The Great Bank Robbery series. Rs 1,10,000 crore was the amount India Inc owed banks, we said, enough to build an expressway in every state, a school in every village. The series also coincided with the passing of the Securitisation Bill in the Parliament. Some of the major recovery measures initiated by banks and financial institutions include: • ICICI Bank seized the plant of Mardia Chemicals, one of the largest defaulters in India, in Ahmedabad. Mardia has defaulted on nearly Rs 1450 crore in loans to banks and FIs. • ICICI Bank took over the assets of Patheja Brothers and Jord Engineers. * The bank also moved against the chief of the Federation of Indian Chambers of Commerce and Industry, A C Muthiah, for recovery of loans. • IDBI seized the salt refinery of Ganesh Benzoplast. `Non-performing assets’—as unpaid loans are called—entered popular vocabulary. In some cities Vijaya Bank staffers held protests outside the offices of defaulters. Some banks, including State Bank of India, even planned loan recovery agents to intensify their measures to bring down NPAs. Chairmen of several public sector banks told us that many defaulters—who refused to pay up or even meet bankers earlier—now wanted to negotiate repayments. But these are just the small, first steps. The menace of NPAs continues. Total NPAs of banks and institutions remain at the level of Rs 1,10,000 crore. Indeed, had FIs not restructured the loans of three steel companies — Essar Steel, Ispat Industries and Jindal Vijayanagar — recently, NPAs would have risen sharply. —George Mathew

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