Info bank of large borrowers to be set up

BS ;Mumbai  September 13, 2013 Last Updated at 00:10 IST

Individuals and entities with exposure of over Rs 10 crore 
would be reported to the central bank

The Reserve Bank of India (RBI) would create a central repository of borrowers with an exposure of more than Rs 10 crore. The database would include individuals, as well as entities.

In a circular to banks, the central bank said it was necessary to build a repository of large credits and share the information with banks. 

“It has been decided to use the information supplied by banks through the return on large borrowers (form A), which captures the system-wide exposure of individuals and entities with exposure (both fund and non-fund based) of more than Rs 10 crore for creation of a central repository of large credits across banks,” the circular said.

After taking charge as RBI governor, Raghuram Rajan had announced the central bank planned to create a central repository of large exposures. 

“This (repository) will enable banks to be aware of building leverage and common exposures,” he had said.

RBI collects the data from banks and non-submission of data or wrong reporting attracts penalties under the banking regulations Act.

 “Banks are advised to take utmost care about data accuracy and integrity, while submitting the data on large credit to RBI. Failing this, penal action would be undertaken,” RBI said.

Gross non-performing assets (NPAs) of public sector banks rose to Rs 1.76 lakh crore at the end of June, against Rs 1.55 lakh crore at the end of March.

 For commercial banks, the ratio of gross NPAs to gross advances rose from 2.36 per cent in March 2011 to 3.92 per cent in June 2013.

Caught in debt, Mallya hopes for out-of-court-settlements

UB Group chairman Vijay Mallya. Reuters


FP : PTI ;Sep 12, 2013



Bangalore: UB Group chairman Vijay Mallya today expressed hope that out-of-court settlements could be reached in some of the winding up petitions filed by creditors of United Breweries Holding Limited (UBHL). 

“There are five winding up petitions that have been filed before the court in Bangalore, and out of these five, we have serious counter claims against three of the petitioners, which basically leaves two petitioners with whom we are in dialogue for an out of court settlement,” he told reporters in Bangalore after UBHL’s Annual General Meeting.

Certain companies, including BNP Paribas, which are creditors to UBHL, had filed company petitions in Karnataka High Court seeking winding up of UBHL as the holding company was unable to pay its debts. UBHL, holding company of the UB Group, is contesting in the Karnataka High Court admission of six winding-up petitions filed by aircraft lessors and financiers of the crisis-hit Kingfisher Airlines last year.

 On changes to Mangalore Chemical and Fertilisers Ltd (MCFL) shareholding, Mallya said UBHL was in full control of the company. 

“I cannot stop people from buying shares. Neither can I stop people from making claims, but how successful those claims will be only time will tell. As far as I am concerned, we are firmly in control of MCF and intend to remain so,” he said.



Deepak Fertilisers holds 24.5 percent in MCFL, while Poddar’s Zuari Agro has around 16 percent. All the three companies compete with each other in the fertiliser business, but huge debt load of Vijay Mallya-led group has led to speculations about MCFL being an apparent takeover target for rivals. 

Regarding Kingfisher Airlines (KFA)’s revival, Mallya without naming any investors or companies said, “We are in talks with potential investors and it will take some time to convince investors to invest and then revive the company.” 

Grounded carrier Kingfisher Airlines had accumulated losses of over Rs 16,000 crore as on 31 March 2013, while it had a negative net worth of close to Rs 13,000 crore. Its long-term borrowings stood at about Rs 6,900 crore, while short-term borrowings were Rs 1,750 crore at the end of last financial year.

JP Cements is just a distress sale but UltraTech gets a killer bargain

Ultratech Cements is likely to fund the acquisition through debt, equity 
and internal accruals. UltraCement currently has net debts of Rs 2000 crore.
 Reuters


By Rajesh Pandathil and Sunainaa  :FP:Sep 12, 2013



Chadha Jaypee Associates’ Rs 3,800 crore deal to sell its Gujarat cement units to UltraTech is a distress sale. For one, the company has been trying desperately to sell its cement business in order to cut its debt pile of Rs 55,000 crore. Moreover, the valuation is at a huge discount to the earlier estimates of Rs 4,500 crore.

 The fall in valuation has been attributed to the slowdown in economy and concerns over a mine owned by Jaypee. “Had the economy been growing at 8 percent, I would not have sold the Gijarat unit, Manoj Gaur of Jaypee Associates told CNBC- TV18 in an interview soon after the deal was announced. According to reports, the deal values the units at $124 per tonne, nearly half of the $230 per tonne Barings Private Equity Asia had paid in its 14 percent stake deal with Lafarge India.

 The private equity company had paid Rs 1,400 crore for the stake. Further, Holcim paid $200 per tonne for buying stakes in ACC and Ambuja. But that was in 2008, when the economy was not in as bad shape. 

The valuation is poor even compared with the current replacement cost of $140-145 per tonne for a 1 million tonne cement plant. Replacement cost denotes the cost required to set up a green field cement plant. 

Consider UltraTech’s own current valuation of $131 a tonne, and you know why shares of Jaypee Associates are the worst hit today ( down 6 percent) while UltraTech is up about 1 percent. Jaypee needs to sell more assets to pare its debt and Gaur has indicated that he would not rule out selling the Andhra Pradesh and Panipat units. 

According to the agreement between UltraTech and Jaypee Cements, UltraTech will take over the debt of Rs 3,650 crore of Jaypee’s Gujarat unit and transfer remaining Rs 150 crore worth of shares once the transaction is completed. So, the transaction will help Jaypee to cut its debt to a small extent. 

The company has said that it would reduce debt by Rs 15,000 crore through sale of assets this year but attaining this target will be a tall task given the economic downturn. Ultratech Cements is likely to fund the acquisition through debt, equity and internal accruals. UltraCement currently has net debts of Rs 2000 crore. Reuters 

The debt reduction from the Gujarat plant sale will happen directly from the group’s flagship Jaiprakash Associate (JAL). JAL has a total debt of Rs 23,000 crore, which will now immediately be reduced by Rs 3,650 crore on conclusion of the deal. 

“Post completion of this transaction, it is likely to reduce the overall debt on standalone basis by Rs 2000 crore and also reduce loans and advances by Rs 1,650 crore.

 This is likely to enhance earnings for the company in FY15,” said Kotak in a research report. Ultratech Cements is likely to fund the acquisition through debt, equity and internal accruals. UltraCement currently has net debts of Rs 2000 crore. 

According to Kotak, this acquisition is likely to be marginally EPS negative in near term for Ultratech Cements as the deal is likely to be completed in 6-9 months and incremental debt is expected to increase interest outgo. 

However, higher capacity in Gujarat is likely to increase Ultratech Cement’s market share and gives company ready access to completed plant. As this CNBC-TV18 report noted, the purchase will enable Ultratech to grow its market share in Gujarat from roughly 20 percent to 35 percent and in country’s fastest growing cement region.” 

Overall, Ultratech’s cement capacity goes up from 54 million tonnes to 59 million tones and it also gains access to 57.5 MW captive power capacity, limestone reserves sufficient for over 90 years at current capacity and a captive jetty.

 “Ready, recently built capacity with potential to double the existing capacity given the land parcel and limestone reserve is a positive for UltraCement,” said Morgan Stanley in a research report.

 Not only will UltraTech now enjoy a higher pricing power, it will also become the leader in the cement space in the western region. 

However, ICICI Securities cautioned that while the acquisition would increase UltraTech’s market share by 1.5% and save three to four years of lead time for setting up plants, it would also increase its net debt to equity from 0.1x to 0.3x.

 So while the deal may be beneficial for UltraTech in the near term it will increase its net debt by Rs 3650 crore, there by taking away the comfort of a relatively unleveraged balance sheet.

 Many brokerages see the deal as one-off in a sector which is bogged down by economic slowdown. 

They do not see the deal as a harbinger of a consolidation.

 Rising input and energy costs have been squeezing cement companies’ margins, while demand remains a worry amid a weakening economy and high interest rates. 

The pressure is mounting on cement makers, especially those with high debt. 

The UltraTech-Jaypee deal means nothing for the sector now.

Banks told to file FIRs against wilful defaulters

Arun S | New Delhi | Financial  Express:Sep 10 2013, 18:47 IST

FinMin is also planning to hold more frequent meetings with the CBI, RBI and Sebi.

Determined to address the problem of rising bad loans, the finance ministry has asked banks to register first information reports (FIRs) and initiate criminal proceedings against wilful defaulters. 

The ministry is also planning to hold more frequent meetings with the Central Bureau of Investigation (CBI) as well as regulators Reserve Bank of India and Securities and Exchange Board of India (Sebi) to avert and/or tackle potential dangers to the banking system caused by wilful defaulters, official sources said.

“Public sector banks have been told to show zero tolerance towards wilful defaulters and lodge FIRs against them. Taking over the company management from such defaulters is also a must. Not just the banking system, but society is paying a heavy price due to such defaulters," financial services secretary Rajiv Takru told FE.

Banks are already submitting to the RBI on a quarterly basis a list of those who deliberately default (cases of over R25 lakh where suits have not been filed but were classified as doubtful/loss accounts). In addition, the RBI and CIBIL have a database of suit-filed accounts, including wilful defaulters of over R25 lakh.

According to a December 2012 statement, as on March 31, 2012, PSBs had 3,536 such suit-filed accounts worth R16,525 crore and 1,138 non-suit-filed accounts worth R4,175 crore. The RBI and CIBIL forward to Sebi a copy of the list to prevent them from accessing the capital market. Of course, this is still a relatively small, but growing segment of the gross non-performing assets (NPAs) of PSBs that had jumped to R1.79 lakh crore at the end of the June quarter from R1.55 lakh crore as on March 31, 2013.

According to RBI norms, a "wilful default" would be deemed to have occurred if the unit has defaulted in meeting repayment obligations even when it has the capacity to honour the obligations, or has diverted the funds obtained from the lender for other purposes, or siphoned off funds or has also disposed of the movable fixed assets or immovable property given as collateral.

Meanwhile, the RBI, on its part, may soon direct lenders to fine-tune their early-warning systems (EWS) for timely detection of risks arising from big accounts. The regulator also wants the banks to upgrade their management information system (MIS) and IT framework and improve their EWS to effectively spot early signals of distress in individual accounts and at the sectoral level, finance ministry sources said. The distress signals include liquidity and working capital deterioration, increase in long-term debt vis-a-vis equity, operating losses, labour and management problems, declining bank balances and account operations as well as defaults in repayments. The RBI's aim is also to similarly collect on a regular basis data on NPAs and restructured accounts not only size-wise but also region-wise.

An upgraded EWS will also help in separating wilful defaulters from genuine ones so that the needed hand-holding can be extended only to the genuinely distressed accounts, the source said. This will help lenders to be prompt in sending error-free information to RBI, Sebi and CIBIL about wilful defaulters and sectoral data on their bad loans, the restructured accounts and the compromise settlements entered into.

Most banks have an EWS, but the RBI during its annual financial inspection found scope for improvement in most of them, sources said. They added that the current RBI governor Raghuram Rajan, as then chief economic adviser to the finance ministry, had at a recent meeting of the ministry's macro-financial monitoring group flagged the issue of lack of granular data to track NPAs as well as the NPA concentration in certain segments/regions. Lack of detailed information increases the vulnerability of banks, sources said. Since banks get vulnerable by being overexposed in consortium lending, the ministry has asked all the PSBs to individually carry out due diligence in such cases, as opposed to the prevailing practice of depending on the lead bank.

As on June 30 this year, the total number of cases approved by the corporate debt restructuring cell stood at 415 involving Rs 2.5 lakh crore. This was up from 309 approved cases worth Rs 1.68 lakh crore as on June 30, 2012.

On taking office as RBI governor, Rajan had asked RBI deputy governor KC Chakrabarty to take a close look at rising NPAs and the restructuring/recovery process so that RBI can soon take the next steps. He added that the RBI proposes to collect credit data and examine large common exposures across banks.

"This will enable the creation of a central repository on large credits, which we will share with the banks. This will enable banks themselves to be aware of building leverage and common exposures," he had said.

India Inc sitting on debt bomb:

India Inc sitting on debt bomb: 

Why the health of large corporates should worry us all

G Seetharaman ET :25 th Aug 2013

Earlier this week, the director of the Central Bureau of Investigation Ranjit Sinha warned that the agency may begin a probe into the rising volume of loan defaults, and look into the possible culpability of senior officials of mainly public sector banks.

Pointing to the fact that non-performing assets (NPAs) of public sector banks had risen by 95% between 2010 and 2012, he made the additional point that the bulk of NPAs were from the top 30 defaulters for most public sector banks.

Former Reserve Bank of India (RBI) governor C Rangarajan, who was present at the event in Delhi where Sinha made those comments, differed pointing to the fact that NPA levels are also due to the weak state of the economy.

"Every NPA is not due to motivated actions of bank employees," he is reported to have said. Much of the weakness in the economy, and the recent crash in the rupee and stocks, has been blamed on the failure of the current government to carry out structural reforms.

The weak economy is certainly an important part of the large and growing NPA problem. But even the RBI itself doesn't seem to think that's the only story.

In a speech recently on bank lending to the infrastructure sector, which now accounts for 35% of total loans to industry, deputy governor KC Chakrabarty stated: "I reiterate that the reason for NPAs is non-performing administration.

In the case of infrastructure, this could also be on account of non-performance beyond that of the bank management — that of policymakers, bureaucracy etc.

But what is really puzzling is why this affects the public sector banks the most...The answer lies squarely in the poor project appraisal techniques, lack of accountability, post-disbursal supervision, etc.

In our assessment, the project appraisal and the decision making in public sector banks has been more impressionistic rather than being information based.

How else does one defend the eagerness of some banks to fund power distribution companies with negative net worth!"

"The huge leverage of Indian infrastructure companies is a combination of their over-willingness to take on projects and poor lending standards of banks," points out Nick Paulson-Ellis, chief executive of Espirito Santo Securities India.

"Private banks are much more prudent in their lending than state-owned banks," he adds. "Over the past few years, loan growth has been driven by a few levered corporates, initially leveraging up the balance sheet and later rolling over — the balance sheets at some of these corporates are stretched," a report by Morgan Stanley pointed out.

What are the consequences of such high levels of leverage, and what do they imply for the ability of corporate India to not just weather the downturn, but emerge from it leaner and stronger?

Fuelled by Debt

A recent report by Credit Suisse points to the scale of the problem in the context of large corporate houses.

According to the report, 10 corporate groups — the Adanis, Vedanta, GMR, GVK and Jaypee among others — together account for around 13% of all banking system loans. In other words, the Indian banking system — and this is to a considerable extent the problem of public sector banks — is heavily exposed to the fortunes of just these groups. The report, an updated version of a similar one published last year, points to worrying trends.

One, the collective debt levels of these groups have actually risen from last year by 15%. Secondly, their ability to service this debt has deteriorated.

"The largest increases have been at groups such as GVK, Lanco and ADA where the gross debt levels are up 24% year on year. For most of these corporate groups, the debt increase even outpaced capital expenditure. Asset sales — key for deleveraging for most of these — have still not taken-off; only GMR and Videocon have had some success on that front," says the report.

The groups for their part punch holes in the Credit Suisse report. A Reliance ADA Group spokesperson argues that "a figure of gross debt without reference to the break-up and the purpose for which it has been incurred is quite meaningless and altogether misleading."

He adds: "Our levels of debt are more than reasonable and commensurate looking at the scale and magnitude of the projects we are developing, and their assured high-quality revenues... The increase in debt from fiscal years 2012 to 2013 is a natural consequence of debt being drawn down for capex as our various projects have moved towards completion."

 
An Essar spokesperson says: "Each individual asset ties up its own financing as per their capital requirement which comes with varying terms and maturity profile. Therefore consolidation of debt of individual companies to arrive at gross debt and repayment could be misrepresentative."

Rajan has declared a war against defaulters

Atmadip Ray, ET Bureau | 10 Sep, 2013, 05.55AM IST

KOLKATA: Despite the Reserve Bank of India's (RBI) hard talks against loan defaulters, banks are expecting more pain in terms of asset quality as the systemic gaps allow bad borrowers to divert funds and go scot-free under the garb of economic slowdown.

Bankers said this trend has almost become viral and put an added stress on the bad loan scenario which has anyway been weighed down by slower economic expansion. It's also a common refrain from bankers that borrowers misuse the debt restructuring facility and use the banking system to recapitalise their failed ventures.

Rajan has declared a war against defaulters by saying that promoters do not have a divine right to continue if an enterprise flops, but the existing legal and administrative gaps have created enough doubts in the mind of a banker that nobody is expecting a quick-fix solution to the spiralling NPA situation. 

"Although RBI governor's statement on NPA has sent a strong signal to defaulting borrowers, banks are facing difficulties at the field level in implementing SARFAESI Act and taking physical possession of mortgaged properties due to administrative gaps. This needs to be addressed first, otherwise bad borrowers will continue to use the loopholes and make mockery of the system," United Bank of Indiaexecutive director Deepak Narangsaid.

Rajan has mandated deputy governor KC Chakrabarty to take a close look at rising NPAs and the restructuring process. The central bank has proposed to collect credit data and examine large common exposures across banks to create a central repository on large credits. "Nothing can change overnight," said South Indian Bank managing director & chief executive officer VA Jospeh. "There are gaps in the system and hopefully the committee finds out the lacuna in the system and address it."

Some suggest that the RBI may use its RTGS network to find the trail of the diverted money. "Even if we know that bank loans are being diverted, we don't have the ammunition to find the trail and create charge on the asset, limiting our ability to recover loans. The RBI's RTGS network can be used in such cases effectively," a senior bank executive said in the condition of anonymity.

The sluggish economic growth has already led to a sharp rise in NPAs, with the gross ratio touching 3.9 per cent in June. The RBI has estimated that gross NPA may rise to 4.4 per cent if the macro-economic situation does not improve. Besides, banks are sitting on a pile of restructured loans.

The Corporate Debt Restructuring Cell has approved 415 accounts amounting to Rs 2.5 lakh crore in the past eight years. By a very conservative estimate, even if 10 per cent of it turns bad, a whopping Rs 25,000 crore worth of loans will add to the NPA list.

With the first quarter GDP growth slowing to 4.4 per cent, a four-year low amid a contraction in mining and manufacturing sectors, banks have every reason to lose sleep. 

The future looks grim, with global investment bank Nomura cutting India's real GDP growth estimates to 4.2 per cent for 2013-14 from 5 per cent earlier.

Vijay Mallya in firing line as lenders put squeeze on UB Group assets

Vijay Mallya's Kingfisher Airlines has not returned a profit from 2005 
when it started operations and had run up accumulated losses
 of Rs 16,023 cr as of March 2013.\

The IE:Bangalore :9th Sep 2013

Even as the UB Group is being pushed to the wall by creditors who have managed to secure a virtual freeze on its assets, chairman Vijay Mallya is set to face shareholders over a series of annual general meetings during the next couple of weeks.

It was around this time a year ago that the group first announced it was negotiating with British liquor company Diageo for a stake sale and also talking to foreign carriers for a possible investment in Kingfisher Airlines (KFA), both of which were seen to offer a way out of its financial troubles and to rescue the carrier.

However, the group's woes have piled up in the year since. While lenders have claimed some of the pledged assets, the airline and its parent are fighting numerous court cases, including winding-up petitions filed by some creditors, because of which they have been restrained from selling or transferring assets. Besides, the airline's lenders are also eying the money received from the Diageo deal.

With Diageo taking control over the flagship United Spirits, the focus is on how Mallya's holding company, United Breweries Holdings (UBHL), will be able to muster up the funds to pay off creditors besides detailing plans for the airline that has time till December 2014 to renew its licence. UBHL's annual general meeting is scheduled for Thursday while the shareholders' meeting for KFA is slated for September 24.

"A revival plan has been submitted to DGCA (Directorate General of Civil Aviation) which is under consideration. Further, discussions are in progress with some prospective investors for restarting the airline operations," said UBHL's annual report for FY13.

"The Board of Directors at an appropriate time will discuss the merits of commissioning an in depth study to assess the recoverability of the amounts advanced to KFA as part of its strategic review of all core investments. Meanwhile, in order to keep its investment prospects alive, the board has decided to keep the airline funded on a need basis."

The carrier, grounded since October 2012, has not returned a profit from 2005 when it started operations and had run up accumulated losses of R16,023 crore as of March 2013.

Apart from its equity investment of R2,095 crore in the airline, UBHL's exposure includes loans and advances of R2,359 crore besides corporate guarantees.

The airline's consortium of lenders led by State Bank of India, which is looking to recover dues of R6,203 crore, has so far recovered around R544 crore by selling pledged shares in the open market.