Osian’s art auction house close to loan recast with Axis Bank

Osian’s Connoisseurs of Art, run by art collector and dealer Neville Tuli, is in talks with Axis Bank to avert the risk of closure. Photo: Abhijit Bhatlekar/Mint

Axis Bank filed a petition in Bombay high court in Feb alleging Osian’s not in a position to discharge debt

Mumbai: Osian’s Connoisseurs of Art Pvt. Ltd, run by art collector and dealer Neville Tuli, is in talks with Axis Bank Ltd to avert the risk of closure after the lender dragged the auction house to court over unpaid debt it has estimated at Rs.41 crore.

Mumbai-based Axis Bank filed a winding up petition in the Bombay high court in February, alleging that Osian’s was not in a position to discharge its debt and was “proposing to sell its assets” to defeat the bank’s claim. A copy of the petition has been reviewed by Mint.

Osian’s and Axis Bank are in negotiations and both hope to file consent terms—which relates to loan-restructuring conditions—when the matter comes up for hearing on Monday (3 December), said a person with direct knowledge of the matter. The person cannot be named as he is not authorised to speak to the media.

Axis Bank didn’t respond to mails and calls seeking comment.

Osian said the loan recast deal is only awaiting court acceptance.

“The petition you refer to is a two-year-old document which had been settled between the parties and has been awaiting formal closure in the courts for the past three months,” said Niranjan Desai, president, group communications, Osian Group, in reply to a query from Mint.

“The settlement was negotiated and agreed in June 2012, and the final closure formalities were to be completed last week, but the hearing was postponed. We expect the court to accept the matter on record in early/mid December,” Desai said.

Axis Bank filed a recovery suit in the debt recovery tribunal on 28 July 2010, which may account for the reference to a “two-year old document”. The suit is pending.

Osian’s Connoisseurs of Art is the flagship company of the privately held Osian’s Group, which supports many entities and activities. Apart from the art fund, the group runs the Osian’s-Cinefan Film Festival, which resumed this year after a two-year break.

Three years ago, the Rs.100 crore Osian’s Art Fund, India’s first such venture, struggled to repay investors. The fund failed because art prices crashed both internationally and in India and the company was left holding unsold inventory.

Amid a slowdown, the appeal of art has been hit even among the high net worth individuals who specialise in the field.

“Just like equities and other markets, the art market has also been affected by the economic slowdown,” said Girish Shahane, an art critic.

Tuli was supposed to open a film-themed cultural centre at the Minerva cinema in Mumbai, but the project has been stuck for many years. The centre is now supposed to come up at Kila Complex in Mehrauli in Delhi.

In the petition filed in February, Axis Bank asked the court to restrain the company from “disposing of, encumbering or creating any third-party rights in any manner whatsoever over the assets of the company,” and appoint an official liquidator with all recovery powers to protect the interests of the creditors.

According to the petition, Osian’s has pledged its current assets as collateral for the bank’s loan, which would possibly include items that art auction houses typically deal in, such as paintings, film memorabilia and posters.

The petition was listed for hearing on 23 November, but none of the cases scheduled for that day at that court came up because the single-judge bench was hearing cases at another division bench.

Earlier, on 11 October, justice Anoop V. Mohta passed an order adjourning the case until the Diwali holiday as the two parties were “exploring the possibility of settlement”.

According to the Axis Bank petition, Osian’s Connoisseurs had been borrowing money since October 2005, but had stopped paying outstanding dues from around 20 January 2010.

On 2 July 2010, Axis Bank sent a legal notice to the company asking it to pay Rs.40.35 crore with interest and charges, within three days of the receipt of the notice. Later in the same month, the bank approached the debt recovery tribunal.

On 15 September 2011, the bank sent another notice to Osian’s Connoisseurs asking for payment of around Rs.41 crore including interest, but the company neither cleared the dues nor replied to the bank notice.

The petition has alleged that Osian’s Connoisseurs is “failing to meet their liabilities in the ordinary course of business”. According to Axis Bank’s plea, “The said company is having huge liabilities and is in a financially embarrassed position.” It also said “the company is commercially insolvent and unable to pay day-to-day charges and liabilities.”

Ravi Krishnan contributed to this story.

Bankers, ARCs laud debt recovery amendment

BS Reporter / Mumbai Dec 11, 2012, 00:58 IST Conversion of part-debt into equity to work as sop for ARCs The Lok Sabha on Monday approved an amendment Bill to ease the recovery of bad loans by banks. Opposition parties walked out after the government rejected their demand for referring it to a standing committee. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, was approved by voice vote in the House. It seeks to convert any part of debt into shares of the defaulting company by an asset reconstruction company(ARC). Bankers and ARCs welcomed it, as the amended law will improve the prospects for reviving stressed units and loan recovery. Bankers and ARCs said although delayed, it is a welcome step, as the amendments remove some hurdles and empower them to get more legal protection while restructuring loans and supporting weak units. P H Ravikumar, managing director of Invent ARC Ltd, said, “ARCs were running risks associated with equity when supporting revival of a sick unit. The returns were those linked to debt. That situation will get corrected, indicating better returns at the time of exit.” The Bill was introduced in the Lok Sabha in December 2011. While the Opposition demanded it be referred to a standing committee for scrutiny, Finance Minister P Chidambaram said when the bill was introduced last year, the Speaker had decided against so referring it. Doing so would delay the process further, he said, adding the then minister wanted it to be passed without delay, as the amendments were of a technical nature. “The Bill was introduced in 2011 and should not be referred (to Standing Committee) now after 12 months. It would defeat the very purpose the Bill. In the interest of the banking sector, it is necessary to pass the bill in 2012,” he said, adding the move would quicken the process of loan recovery. The Bill also seeks to enable banks or any person to file a caveat so that before granting any stay, the bank or person is heard by the Debt Recovery Tribunal. According to a senior ARC official, this prevents orders by courts without hearing a bank or ARCs. Many a time, ARCs were not aware that the lender had filed a suit. On the issue of rising non-performing assets ( NPAs) of banks, Chidambaram said the sector was well regulated and the gross NPAs, around 3.5 per cent of total loans, were not high and the situation would improve with economic recovery. According to credit rating agency Icra, overall, the credit profiles of borrowers could weaken in 2012-13 due to factors such as moderation or slowdown in demand conditions, project implementation related delays, higher interest rates and foreign exchange losses, compression of operating profitability due to cost pressures, and inability of companies to pass on the higher costs in a scenario of increasing competitive intensity.

If I get a right price, I'd like to sell Rs 400 cr of NPAs this year: M V Tanksale

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BS ; Neelasri Barman & Vrishti Beniwal / Mumbai Nov 27, 2012, 00:40 IST

Interview with Chairman and Managing Director, Central Bank of India

M V Tanksale, chairman and managing director of Central Bank of India, says non-performing assets (NPAs) in the banking system will grow for a while and as long as credit creation will be there, there will be slippages. In an interview with Neelasri Barman and Vrishti Beniwal, he talks about restructuring, business growth and capital raising plans. Edited excerpts:

You have a Rs 350-crore exposure in Kingfisher Airlines that you hope to recover. How will you do so?

The company’s promoter, Vijay Mallya, is looking to raise funds. He would definitely like to do something to bail out Kingfisher. But what is his plan and how exactly it will happen are things we are yet to see. Neither he nor we have given up. As a banker, I should look for a respectable exit either way. It is better I give some breathing time, so that we can get back the money.

All public sector banks are seeing erosion on asset quality for several quarters. Do you think NPAs have peaked out?

Asset quality can be divided into two segments, one coming from the corporate sector and the other from small and medium enterprises. If a bank is more dependent on big corporate entities, then they are going to get impacted.

There is nothing called NPAs peaking out. As long as credit creation will be there, we will see slippages.

How much of NPAs do you plan to put on sale this financial year?

Many banks are looking for such a sale for balance sheet management, including me. I have put on the cards a selloff of about Rs 400 crore. We will have to see how much of it we can sell.

What are the concerns due to which NPAs are not getting sold?

The sale of assets should be at a right price. If I get one, I shall sell it.

What debt restructuring have you seen this year?

Our total restructuring book is about Rs 21,000 crore and I think our major restructuring is over. I am looking at another Rs 2,000-2,500 crore of restructuring.

Any capital raising plans?

It will be around Rs 2,000 crore. It will be by the government but they’ve also made very clear that they would appreciate it if we go through a rights issue, so that the minority stakeholders are respected.

When are you planning the rights issue?

Right now, I do not know how much the government will commit to me. Once they commit, I shall decide about it.

The Reserve Bank of India has been concerned that monetary transmission is not taking place. When do you see that happening?

Every bank has started reducing their high cost deposits. I have also brought down mine down to a large extent and reduced deposit rates. And, we have reduced lending rates on a selective basis, like home loans and car loans. We have also reduced our rates on micro, small and medium enterprises and for agriculture. Selectively, we have already transmitted whatever benefits we have got out of the cash reserve ratio reductions.

How is the credit growth pick-up in the second half of the year?

On a year-on-year basis, we have seen 17 per cent growth and I feel 15 per cent on a year-on-year should be achieved. Our focus is on retail (lending), which is expected to growth by 25 per cent or more.

What is your outlook on net interest margin?

My NIM is 2.66 per cent. I feel we should be able to maintain it at 2.7-2.75 per cent for the financial year.

Debt Recovery Act passed amid opposition walkout

B S :Aditi Phadnis / New Delhi Dec 10, 2012, 19:57 IST

Bill seeks to convert any part of debt into shares of defaulting company by Asset Reconstruction Company

A bill to make technical changes in the system of debt recovery was today passed in the form of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, with Finance Minister P Chidambaram assuring the House that problem of mounting Non Performing Assets (NPAs) of banks was not insurmountable and was certainly not alarming.

However, several members questioned the rationale for the hurry shown by Chidambaram in having the law passed to the extent that the legislation bypassed the Standing Committee on Finance. The BJP led by former Finance Minister Yashwant Sinha walked out in protest.

The bill seeks to convert any part of debt into shares of defaulting company by the asset reconstruction Company (ARC).

Chidambaram said when the bill was introduced last year the Speaker decided against referring it to the Parliamentary committee.     Referring it to the committee now would delay the process further, he said,

Trinamool Congress’ Saugata Roy said he had no serious differences with the government on the bill

A Sampath (CPIM) pointed out the misutilisation of public sector financing institutions like NABARD.

Pinaki Mishra (Biju Janata Dal) raised the issue of inefficiency of the public sector banks. “The NPAs of all nationalised banks in India stand at a staggering figure of Rs.1,23,462 crore,” he said.

Critiquing the legislations for their “inefficacy” he said, “There are 67,524 cases are pending before the Debt Recovery Tribunals.” There is just no accountability in the public sector banking institutions he added.

Mishra argued that Asset Reconstruction Companies should  be able to pass on debt to one another. “The purpose of SARFAESI was to ensure the expeditious recovery of debts. Therefore, if Section 5 of SARFAESI could be suitably amended and there could be an inter se re-assignment of debt, this could be much more expeditious and efficacious way of settling these issues.

Mishra also said a codified structure  was needed by which banks  can show complete transparency in their assignment of debts to ARCs.“So far, this has been done in an extremely cloak and dagger fashion which does not inspire any confidence”.

He also said one of the difficulties being faced by the secured creditors under SARFAESI Act is the determination of the priority of debts.

“There is a complication because the State Sales Tax Act always have a provision in their various State enactments that their’s shall be the first charge on the assets. Therefore, on realization of debts, the secured creditors are left high and dry and the purpose of SARFAESI Act is not served” he said. He argued for an in the SARFAESI Act so that it has overrding effect on all statutory dues including Sales Tax, Income Tax, Central Excise so that other secured creditors will have priority in realization of debts, of course, pro rata with workers,” Mishra said

He also pointed out that the Stamp Act is inconsistent across states. “the Stamp Act must be uniform in all the States that have the SARFAESI Act” , he said . Gurudas Dasgupta (CPI) raised the issue of Kingfisher Airlines and lauded the State Bank of India was refusing to lend any more to the ailing airline.  In his reply, Chidambaram said no leinency would be shown to anyone.

While conceding that Non Performing Assets of banks had indeed been going up – it was no approximately 3.5% -  the Finance Minister said this was a function of the performance of the economy. “Because the RBI is very strict inrequiring the banks to make provision, the net NPA is still only 1.62%. The effort is to ensure that sectors which are under stress are helped to get out of this difficult time and units which are making money, we must recover the loans. Units which are genuinely stressed must be helped.

“I said that there must be some hand-holding in a time of stress so that they all do not become bankrupt or insolvent. They come out of the stress. We have to protect employment; we have to protect jobs; and we have to protect manufacturing. They will come out of the difficulty, once the economy recovers. We are going through a difficult time. And it is this difficulty which is reflected in this rising gross NPAs. But let me tell you, thanks to the RBI, thanks to the strict vigilance, thanks

to the provisions made, the net NPAs are well under control. There is no reason to think that our banking system is in difficulty. In fact, many Members rightly complimented the banking system. When over a thousand banks failed in the United States, not one bank in India failed.…” Chidambaram said.

He was clear that no special favours would be shown to anyone including individual cases referred to by other members, he said. “A particular case was mentioned, where there was a huge NPA; the strictest action is being taken by the banks, in asking them to put up the money upfront before any kind of accommodation can be given; no fresh loans are being given. In fact, the Tax Department has taken severe action in attaching those assets. So, no favours are being shown to any one, irrespective of whoever he may be. The law is taking its course”.

Maldives government has authority to take back the airport from GMR, rules Singapore Court of Appeal

6 DEC, 2012, 01.28PM IST, PTI 

SINGAPORE/MALE: In yet another setback to embattled Indian infrastructure major GMR, a Singapore court today ruled that the Maldives Government can take back the Male International Airport from the private firm.

"Singapore Court of Appeal has passed judgement that the Maldives Government has the authority to take back the airport," Maldives President Mohamed Waheed's Press Secretary Masood Imad said in Male.

He further said, "Maldives will go ahead with the transfer as scheduled".

Maldives had in a surprise move on November 27 terminated the over $500 million contract awarded toGMR during the previous regime ofMohamed Nasheed to upgrade its Male airport and to build a new terminal.

The government had said it was terminating the contract because it was signed under "dubious conditions" and was void, a charge hotly contested by the infrastructure major.



Following the termination, GMR had approached the Singapore High Court which had stayed the scrapping of contract. However, the Maldives government remained defiant and asserted that it would take over the airport from GMR on Saturday, a day after the notice period ends.

After today's ruling, Imad told PTI, "We are not doing anything against the law. We are just following the law. Now, even the Singapore court has given us the permission to go ahead".

As per the project contract, in case of any differences between parties, the law of either Singapore or UK would apply.

Taken by "surprise" over the GMR issue, India had conveyed to Maldives that the move will have serious consequences on the bilateral ties as it is considering a "series of options", including slowing down cooperative programmes, if legal course is not followed. 

India acknowledges that the Maldivian government's decision to cancel GMR's contract for building Male airport is a domestic issue but it is upset over "anti-India sentiment being whipped up" in connection with the issue there. 

Sources said the possibility of some external forces playing a role in the cancellation of the airport contract cannot be ruled out, even though there was no clear evidence of Chinese angle so far.

GMR spat: Maldives ends deal after waiting 45 days for PM Manmohan Singh; wanted to explain why deal was unsustainable

6 DEC, 2012, 06.21AM IST, SRUTHIJITH KK,ET BUREAU 

NEW DELHI: Maldives last week terminated its agreement with the GMR-led consortium to run the Male international airport after it unsuccessfully waited 45 days for an appointment with Prime MinisterManmohan Singh for a special envoy of President Mohammed Waheed to convey a letter explaining why the deal was unsustainable, a senior official from the President's office told ET.
The unilateral termination of the deal is at the centre of a diplomatic row between India and the neighbouring archipelago. "We wanted to explain to the Prime Minister the anger among the people of this country, the pressure the government was under and how ruinous this deal was for Maldives. We wanted to seek his intervention in perhaps convincing GMR to renegotiate. But we received no response for a month and a half.

Time takes a toll on everyone. And then we had no option but to terminate the deal," Masood Imad, press secretary to the President, told ET, speaking on telephone from Male. India's external affairs ministry confirmed receiving a request, but denied that no response was made. "Yes we did receive this request. We responded saying we will receive him at an appropriate level," an external affairs ministry spokesperson said.

Despite an injunction by a competent forum— the Singapore High Court—the Maldives government has announced it will take over the operations of the airport at midnight on Friday.

The Maldives foreign minister telephoned external affairs minister Salman Khurshid on Tuesday and said the President will be sending a detailed communication to the Indian PM on the matter. Sidharath Kapur, chief financial officer of the airports division of GMR Infrastructure denied Imad's claim that Maldives wanted to renegotiate the contract and the company was unwilling to do so.

"We have never received any communication from their side about a renegotiation," Kapur said. Kapur also rebutted in detail the allegations against GMR at a press conference in the Capital and expressed hope that Maldives would honour the sanctity of the legal process and not take over the airport. "It's very unfortunate that the airport has become a football in Maldives' political arena," he said.

Kapur explained that the deal would have given Maldives revenues of more than $2.5 billion over the concession period of 25 years. This is apart from $1 billion in passenger service charges, royalties and duties. This, however, is net of the airport development fee that would be deducted till the government was able to pass laws making provisions for such a charge.

The deal, struck in 2010, started unravelling after a local court struck down the deal's provision allowing the operator (GMR) to charge a $25 airport development fee and a $2 insurance surcharge as illegal on December 8, 2011. This dramatically altered the finances of the deal. GMR's Kapur says that the then government gave them an assurance that the company's commercial interests will be protected and the loss of revenue could be adjusted against the revenues due to the state by way of payments to the Maldives Airport Company Ltd (MACL).

The former chairman of MACL issued a letter to GMR to this effect, which the company has subsequently disowned arguing the letter did not have board approval. MACL has also moved court against its former chairman. Curiously, the government of Maldives (then led by former president Mohamed Nasheed), MACL or GMIAL (the GMR-led consortium that runs the airport) did not appeal the decision of a local civil court.

Kapur says the company did not appeal the decision because the board felt at the time that the assurance from the government that GMIAL's commercial interests would be protected was adequate. The decision to rely on the assurance of one government, in a country notorious for political instability, has come back to haunt the consortium. "In hindsight, of course, you can say it was a wrong decision.

You could also ask why we did not go for political risk insurance. We didn't feel the need for it considering the close historical and cultural ties between India and Maldives. We felt that if any problems were to arise, the government of India, which was giving us full support, would be able to help," Kapur said.

When Nasheed-led government was ousted and a new government led by Mohammed Waheed came to power, it soon became clear that if the situation with regard to the airport development fee did not change, the Maldives exchequer would soon be paying GMR rather than the other way around. Imad, the press secretary, said that the former president tried unsuccessfully to get the Maldives parliament, the People's Majlis, to legislate the airport development fee. "Our economy is a tourismbased economy. We already have a departing tax of $24.

Indian banks: How many men and how many boys?

Live Mint : Nov 29 2012. 02 55 PM IST

I hate to say this but it seems that Indian banks, particularly those majority owned by the government, seem to have too many skeletons in their closets. The growth in their restructured assets bears testimony to that.

In the September quarter, the banking industry added Rs.19,544 crore to the kitty of recast loans done through the so-called corporate debt restructuring (CDR) route, taking the pile in the first six months of the year to Rs.37,501 crore—about 10% less than the quantum of bad loans restructured all of fiscal 2012.

Overall, the system has recast Rs.1.9 trillion on the CDR platform that involves majority lenders agreeing to restructure a stressed account when they feel the borrower is a victim of an economic downturn or other external factors over which it has no control. This is done by stretching the loan repayment period, cutting down interest rates and even replacing high-cost rupee loans with relatively low-cost foreign currency loans or a combination of such steps depending on circumstances and the borrower’s profile.

Apart from this, individual banks enter into bilateral agreements with their borrowers to prevent a loan from turning bad if they are convinced that the borrower will be in a position to repay the money after a short reprieve. The amount of loan recast through both these routes could be close to Rs.4 trillion—about 8% of the Indian banking sector’s total loan assets.

Now, add to this Rs.1.67 trillion gross non-performing assets (NPAs) of the banking system (in September) and, by simple arithmetic, at least 11.5% of total banking assets in India is under stress. This is not a happy sign.

Banks are optimistic that most restructured assets will turn good and their borrowers will be able to pay back on time, but that can happen only when the Indian economy gets back to its earlier pace of growth. The growth in India’s gross domestic product fell to a nine-year low of 5.3% in the March quarter, subsequently rising marginally to 5.5% in the June quarter. The story is unlikely to be very different in the next few quarters. We will get to know the September quarter growth figure on Friday.

On the face of it, banks have been aggressively restructuring loans to extend a helping hand to their borrowers. But there is another reason behind this—they want to make their balance sheets look good by keeping non-performing assets (NPAs) low. In other words, they are delaying the inevitable. Gross NPAs have been growing fast. State Bank of India, the nation’s largest lender, had 5.15% gross NPAs in September; ICICI Bank Ltd, the largest private lender and second largest bank overall, 3.54%; andPunjab National Bank , the third largest, 4.66%. The growth in net NPAs has not been that spectacular as banks have been setting aside money for bad assets and even writing off part of them.

In percentage term, bad loans—both gross and net—can also be brought down if a bank’s overall loan book grows at a faster pace but that has not been happening as banks are not aggressive in pursuing loan growth for fear of expanding bad assets. Since they cannot create an optical illusion, it’s time they tightened their credit appraisal and monitoring system.

The regulator has tightened norms for recast assets but only marginally. That alone may not deter banks from stopping the practice of restructuring loans, which is normally done more to protect their balance sheets than helping out corporations.

In good times, every bank makes money but when economic growth slows and the corporate sector is not in the best of health, the men are separated from the boys. We can count them now—there aren’t too many.