Promoters of firms that default intentionally will not get further funding, warn bankers -Business Line
MUMBAI, FEB. 14:
Here’s a warning from bankers that India Inc should sit up and take notice.
Bankers say a promoter whose company has intentionally defaulted on loan repayments could face repercussions, with fresh funds being choked to his other group companies.
This warning comes in the backdrop of rising bad loans in the banking system.
SITUATION MATTERS
To a specific question on how banks will tackle the situation whereby (say) three companies have a common promoter but one of them is a defaulter, State Bank of India Deputy Managing Director R, Venkatachalam, said: “Suppose the same person is also the owner/promoter of other companies then definitely we will have a look at their standing.”
The second aspect that needs to be looked into is whether the default is intentional or because of the circumstances.
“So, we have to examine all these factors before we come to a conclusion. But wherever there is a bad intention then certainly we will have to take a second look at the companies owned by the promoter,” said Venkatachalam.
SBI Chairman Pratip Chaudhuri said if a promoter has a number of companies then default in ‘A’ company does not automatically mean a default in B, C and D companies.
But if this promoter gets classified as a director in a defaulting company, then it becomes difficult or almost impossible to lend further amounts to the other companies. So, further exposure definitely gets curtailed, added the SBI chief.
“It (fresh loans) would also depend on whether there are personal guarantees and other mitigating factors.
“But our basic approach to any fresh lending is: any company where we have taken a hair cut or we have done compromise and suffered a loss, we do not lend to that any fresh money,” said Chaudhuri.
MID-CORPORATE LENDING
SBI has considerably strengthened the credit policy processes in view of the pressure of bad loans in the mid-corporate segment. “We have raised the entry barriers. Earlier we used to give enhancement in limits based on provisional financials.
“Now we have totally stopped that. Now enhancements are based only on audited financial results,” said Chaudhuri.
And whenever there is a funding involved in restructuring, the bank is insisting on promoter’s equity being pledged.
“We are also insisting that all the unencumbered assets be mortgaged with us. So, eligibility, scrutiny and security norms have been considerably tightened,” said Chaudhuri.
Did banks ignore early warning signs on Kingfisher Airlines?
Economic times
Banks will have no one but themselves to blame if their too-late-in-the-day recovery drive against Vijay Mallya-owned Kingfisher AirlinesBSE -4.97 % comes a cropper. Cutting flights, non-payment of dues, delay in disbursing salaries are the first obvious danger signs no lender can or should ignore. Yet all this happened. Was it a plain error of judgement? ET provides some answers:
Total debt on Kingfisher: Rs 7,723 crore
KFA losses: Rs 1,090 crore
Collateral on bank books: Rs 5,237 crore
Why banks lost money on Kingfisher Airlines?
They did not take adequate collateral to cover the loan.
Failed to sense trouble when KFABSE -4.97 % cut flights in Oct'11.
Did not take legal action even a year after co failed to pay dues in Dec'11.
Was restructuring in 2010 a blunder?
Yes, it was. They should have slapped stricter conditions such as timely infusion of equity by Mallya Should not have converted their debt into equity at a 61 per cent premium.
What the banks should have done?
Should have insisted on seeking more security against loans when the airline started sinking.
Should have taken legal action after KFA failed to pay dues in Dec 2011 quarter.
Though banks vowed not to lend further without Mallya infusing fresh capital, they should have tried bringing in another investor as they jointly held 20 per cent of KFA equity.
Did the market go against Vijay Mallya?
Lehman fall in 2008 made it diffi cult for Mallya to raise equity from overseas.
Sharp rise in fuel prices too added to losses, which impacted co valuation.
Who was the smartest of among all the banks?
The answer is ICICI BankBSE -0.04 %. First to sense danger, it sold the entire `430-cr loan portfolio after KFA fl ight cuts and loan defaults but before licence cancellation.
The portfolio was bought by Srei Venture Capital, an arm of Srei Infrastructure FinanceBSE -1.80 %, along with collateral, including shares of UB group's liquor co.
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