Hindustan Construction loans on brink of turning NPAs

 



20 MAR, 2012, 02.52AM IST, ANITA BHOIR & RACHITA PRASAD,ET BUREAU  




 A consortium of 27 lenders, including State Bank of India and Punjab National Bank, is persuading Hindustan Construction Co to pay up at least the interest before the month end to prevent the account from turning sour, said three bankers. 


The company that built the Mumbai Sea Link and a nuclear power plant in 1971 in Rajasthan is on the brink of losing the "standard" status with banks who are seeking Rs 90 crore in interest payments by March 31 so that they can restructure Rs 3,000 crore of loans. 


Officials at the Corporate Debt Restructuring cell will meet the company's executives once before the fiscal year end, but a package may not be finalised since getting on board more than 20 banks at a short notice is impossible. 


"HCC has been formally admitted to the Corporate Debt Restructuring cell," said one of the bankers in the know of things. "The implementation of the package would not be completed by March. The negotiations could spill over to April." Top banks involved in the transaction, including ICICI Bank, State Bank of India and Axis Bank, declined comment. 


Loans restructuring is poised to touch a record Rs 1.5 lakh crore this fiscal in the banking system as companies lured by high growth rates of the past few years loaded up on debt indiscriminately. The rise in input costs and interest charges is also squeezing companies' profitability. With many projects stalled due to government inaction, companies are throwing their hands up, saddling banks with bad loans. 


HCC, that's building the hill city, Lavasa, near Pune, posted a loss of Rs 134 crore in the December quarter as order flows slowed and payments from customers stalled. Its interest payment was Rs 30 crore higher at Rs 104 crore and it also suffered a Rs 64.87-crore loss due to cost overruns. 




The company, which has a consolidated debt of Rs 8,100 crore, may make losses next fiscal, too, its chief financial officer Praveen Soon had said. 


"We are trying hard to move from loss to cash profit and from that to net profit but it wouldn't happen for another year," Soon had said during earnings release. "We should be able to report operating profits by the first quarter of 2013-14.'' 


 

He declined to speak on loans restructuring. Interest payment to keep the account "good" may not happen as it contemplates sale of assets to repay debt. Top executives of the company had told bankers that raising cash appears a difficult task. 


If the payments are missed, state-run banks may be hurt more since private banks are receiving payments on their working capital loans. "Some of the large private sector banks have working capital and non-fund based exposure," said one of the bankers.

Quotes Gems - Determination

 







"We will either find a way, or make one!"
 

 Hannibal  
247–183 or 182 BC 
 He is  one of the greatest military commanders in history.  

Cases pile up as debt tribunal goes headless

 


Rahul Devulapalli, TNN Mar 10, 2012, 02.44AM IST 

HYDERABAD: The Debt Recovery Tribunal (DRT), a significant arm of the Union ministry of finance which deals with cases related to the nationalized banks, has almost been reduced to a defunct entity in the city thanks to the absence of a regular Presiding Officer (PO).

Having had no permanent presiding officers for almost two years now, the DRT has more than 2,700 cases pending with it which were filed by either banks or their customers. It is estimated that at least Rs 1,000 crore in recoveries has been held up due to the delay in clearing these cases.

The presiding officer is generally a judge of the rank of a district and sessions judge and is the sole judicial authority to hear and pass orders. But, after PO D Gopal Krishna was suspended in April 2010, his chair has yet to get a permanent occupant. The PO of Mumbai DRT-1, A Vijay Kumar, is the acting PO of the Hyderabad tribunal. Since the acting PO visits Hyderabad no more than a couple of times in a month, the tribunal functions only on those days.

The tribunal deals with cases related to banks from the Rayalaseema and Telangana regions but has had only one recovery officer in the last four months instead of the stipulated two officers.

But now, Ramu Itikyal, a social activist and para legal volunteer with AP State Legal Service Authority, is planning to submit a memorandum to the Union finance ministry drawing its attention to the current crisis of personnel.

"It is public money which is involved in these recovery cases. The tribunal should work efficiently to recover debt money as soon as possible," he said, adding that a permanent PO should be immediately appointed and other vacant posts be filled.

He said that citizens who have approached the tribunal seeking more time for repayment of loans stand to be especially inconvenienced by the snail's pace of functioning.

"Case disposal rate is very slow. A citizen who has approached the tribunal for more time to repay the loan faces a long wait in getting the order. Interest, however, would be charged on his loan for that duration. And, if the decision goes against him, he has to pay an extra sum, too, which is very unfair."

TV Bhaskar, RTI activist and director of the SIRI voluntary organization, has even filed an RTI appeal seeking complete details of the cases and orders heard in the recent past. "The cases should be disposed of within a month; then only can proper justice be said to have been done. But here it takes a long time for cases to even be heard," Bhaskar said.

Bhaskar also spoke of malpractices in the matter of loan settlements effected by the tribunal.

"There are increasing cases of partial recovery of huge loans. That is due to some corrupt bank officials who are hand in glove with some customers who do not want to repay the complete loan amount."

A senior official, however, clarified that the tribunal was functioning smoothly.

"The last permanent PO is still under suspension; unless he is removed another cannot be appointed in his place. The acting PO from Mumbai DRT-1 tries to clear as many cases as possible whenever he is here," he said.

Asset Reconstruction Companies still in a state of drift due to fear among banks and policy paralysis

 
13 MAR, 2012, 05.54AM IST, RISHI SHAH & DHEERAJ TIWARI,ET BUREAU  

The business of asset reconstruction companies, which specialise in settling bad loans of the financial sector, should pick up when an economy feels pain. Yet, even as the Indian economy decelerates to its slowest in three years and bad loans of banks hit an all-time high, ARCs remain in a state of drift, subdued by fear among banks and a loose policy framework.

The pace of new bad loans with banks has always exceeded the loans transferred by them to ARCs for disposal. For example, between March 2009 and March 2010, even as bad loans with banks increased by Rs 15,774 crore, transfers to ARCs trailed at Rs 10,675 crore, according to data from the Reserve Bank of India (RBI). This differential is likely to increase as, between March 2010 and September 2011, bad loans of banks are up 40%. While exact numbers are not available, anecdotal evidence suggests flows to ARCs is not keeping pace.

"There is no business coming our way," says a senior official with a leading reconstruction company. According to the latest financial report of State Bank of India (SBI), India's largest bank, it has Rs 40,000 crore of bad loans. Yet, in 2009-10 and 2010-11, it passed on just six bad loans with a combined book value of Rs 40 crore to ARCs.

"In a continually rising NPA scenario, even large banks such as SBI and IDBI Bank sell three and two NPAs, respectively, in a year, that too year after year," adds Rajiv Ranjan, president & CEO of Reliance ARC. "What can you guess about business coming the way of ARCs?" Business is not picking up for two reasons: fear among bank officials and a weak policy framework.

FEAR OF ACTION 

Bank officials are hesitant to sell bad loans. "Banking is dominated by the public sector, which is reluctant to pawn off assets to other management firms as they fear a loss of face," says the head of a PSU bank, not wanting to be identified. When a loan is transferred, it goes off the bank's books. But rather than see it as a way to clean the balance sheet, along with a possibility of recovering something from it, many bank officials fear this might be perceived as an admittance of failure to recover the loan.

They also fear vigilance inquiries. "The problem in India is that everybody wants to complain," says MS Verma, chairman of International Asset Reconstruction Company (IARC), an ARC promoted by HDFC Bank and Tata Capital. "Bankers are afraid that even in a fair process, questions might be asked as to why the NPAs had to be sold when recovery was possible." 

Typically, every bank has a chief vigilance officer (CVO) looking into such complaints. Beyond the bank's CVO, if required, even the Chief Vigilance Commissioner (CVC) and the Central Bureau of Investigation (CBI) can take up such inquiries. In fact, when an ED is to be promoted to CMD, CVC clearance is needed, and inquiries over transfers of bad loan to ARCs can lead to delays in appointments.

Given all this, not doing anything is seen as a safer option. "In the public sector, usually, there is accountability only for doing, but none for not doing," says a senior advocate who declined to be named as he represents banks in courts. 

"For existing bad loans, all he has to do is create a record that he tried to recover it in every possible way." The numbers of Arcil, India's largest ARC, bear that out. Arcil has acquired bad loans with a principal value of Rs 24,000 crore. Of this, Rs 9,000 crore came from ICICI Bank, a private bank, which is 50% more than what SBI gave. Both banks, along with PNB and IDBI Bank, are copromoters of Arcil.

WEAK POLICY FRAMEWORK 

According to the RBI, as of June 2011, India had 13 operational ARCs, holding assets with a combined book value of about Rs 74,000 crore. But they are not endowed with capital. In developed markets, well-capitalised ARCs buy loans outright.

In India, however, ARCs, pay a bank about 5% of the price of the loan agreed on. For the rest, ARCs issue security receipts (SRs), which is a promise to pay the bank a certain share of the sale value at the time of selling the bad loan. When bad loans have been transferred, both banks and ARCs have bickered over the pricediscovery mechanism and the auction process.

Indian banks, typically, offer those loans to ARCs they have been unable to realise for five years or more, and so are often mired in legalities. Banks sell bad loans through an auction, for which they fix a base price. Neeta Mukerji of Arcil says the base price fixed by banks is random and has no relation to the asset's residual value.

"An ARC's estimate of recovery expected, time frame, cost and funding cost is quite different from that of banks," says Mukerji, officiating CEO of Arcil. Officials of four ARCs that ET spoke to say the process favours banks, with one even labelling the auction "a sham". "They only want to sell the worthless, age-old NPAs, where they have almost exhausted recovery possibilities," says an official of one of those ARCs, not wanting to be named. "And they want us to pay a substantial price."

Verma of IARC says some banks conduct auctions only to find the "right price" for themselves to further use as a bargaining tool with defaulters. "Then, they go to the borrower and scare him by saying that ARCs will use tougher means and try to settle it for a higher price," he adds. Another head of a smaller ARC, speaking on the condition of anonymity, says that during due diligence, one bank refuses to show any papers or even the asset to ARC officials, even though some might have legal claims on them.

A government panel, with representation from industry, is currently looking at regulatory, legal and accounting issues plaguing ARCs in India. These include a standard format for documentation, ARCs going public to raise more capital and reduction in bottlenecks in the functioning of debt recovery tribunals (DRTs), which is the stage preceding ARCs.

A quick resolution will benefit all stakeholders, says a finance ministry official who is part of the panel but did not want to be identified. "Experience suggests that NPAs, like a cube of ice, lose value over time. And rather fast," he says. 

Robbing Peter to pay Paul, PNB style

 

Raj Kumar, TNN Mar 11, 2012, 04.47AM IST 

PATNA: One has heard of courts restraining private banks from using force to save debts from turning bad. Here's an instance of a public sector bank auctioning the property of three people for recovering a loan which they neither took nor guaranteed.

Meet Anita Singh (47), wife of Dwijendra Kumar who works in the state cooperative department at Muzaffarpur. 

The couple has been running from pillar to post since February 16 this year, the day they came to know their only house at Adarsh Colony at Muzaffarpur had been auctioned by Punjab National Bank (PNB) a day earlier to recover a loan of Rs 5 lakh which their neighbour, Ajay Sharma, had taken from PNB's Bela branch in Muzaffarpur in 1999.

As Ajay of Jai Mata Di Fabrics went missing along with his family members from their house, the bank issued notices to the guarantors, including one Aniruddh Prasad of East Champaran district.

In his reply to the bank's legal notice, Prasad informed the bank that in November 2003, he sold his 2-kattha land - 'khata' number 120, 'khesra' number 568 - in Ajay's neighbourhood to one Kusum Devi in 1981 (almost two decades before Ajay took the loan) and that he never signed any document related to any loan from any bank to Ajay.

According to documents available with TOI, Kusum sold the land in pieces to Poonam Jha, Ram Bahadur Thakur and Anita Singh in 1997. While Singhs and Thakurs constructed houses, Jha sold her land to one Radha Rani in 2004.

All this could have been known had the PNB, in response to Prasad's reply to its notice, bothered to check the land records in the Musahari circle office. Instead, the PNB moved the Debts Recovery Tribunal (DRT) where it submitted the allegedly fake land documents on the basis of which the DRT, in August 2007, passed the decree in favour of PNB. None of the current owners of the plot was made a party; nor were they even intimated about the hearings.

Armed with the decree, PNB auctioned Ajay's house as well as the three adjacent plots for Rs 47 lakh on February 15.

A horrified Anita Singh has since visited the PNB's branch office, regional office and circle office in Muzaffarpur. 

All she got was advice to meet Saba Ahmad, PNB's official at its Rajapul branch in Patna. Her husband went rushing to Ahmad who redirected him to visit DRT. 

DRT officials refused to acknowledge the Singhs as a "party" and it was only after quite a scene that they were asked to hire a lawyer to plead their case.

But why did the then bank manager sanction the loan against allegedly fake documents? 

What action will the PNB bosses take against him? 

Why did the then PNB authorities ignore Prasad's reply to their legal notice? 

Who will compensate and what, for the harassment caused to the Singhs and others?

PNB's chief manager Naresh Batra, who also looks after the bank's public relations, refrained from replying to these questions.

 "But there's a proper forum -- Debts Recovery Appellate Tribunal - from where victims in such cases can seek remedy," he told TOI over phone on Saturday evening.

Punjab National Bank auctions wrong house to recover loan

 

Raj Kumar, TNN Mar 12, 2012, 04.08AM IST 

PATNA: Anita Singh, 47, and her husband Dwijendra Kumar have been chasing authorities since February 16. 

That day they came to know that their only house at Adarsh Colony in Muzaffarpur had been auctioned by Punjab National Bank (PNB) to recover a loan of Rs 5 lakh which their neighbour, Ajay Sharma, had taken from PNB's Bela branch in Muzaffarpur in 1999.

Ajay of Jai Mata Di Fabrics went missing along with his family and the bank issued notices to the guarantors, including Aniruddh Prasad of East Champaran.

In his reply, Prasad informed the bank that in November 2003 he sold his land in Ajay's neighbourhood to Kusum Devi in 1981 and that he never signed any document related to any loan to Ajay. 

According to documents available with TOI, Kusum sold the land in pieces to Poonam Jha, Ram Bahadur Thakur and Anita Singh in 1997. While the Singhs and Thakurs constructed houses, Jha sold her land to one Radha Rani in 2004.

All this could have been known had the PNB, in response to Prasad's reply, bothered to check the land records in the Musahari circle office. 

Instead, the PNB moved the Debts Recovery Tribunal where it submitted the allegedly fake land documents on the basis of which the DRT, in August 2007, passed the decree in favour of PNB. Armed with the decree, the PNB auctioned Ajay's house as well as the three adjacent plots for Rs 47 lakh on February 15.

 Anita has since visited the bank's branch, regional and circle offices in Muzaffarpur. She got the advice to meet Saba Ahmad, PNB's official at its Rajapul branch in Patna.

Her husband went to Ahmad who redirected him to visit DRT.

 DRT officials refused to acknowledge the Singhs as a "party" and they were asked to hire a lawyer.

M.S.Arunkumar V/S SBI

M.A:116/2011 

1.         This appeal impugns the order dated 04.03.2011 passed by the Learned Presiding Officer, DRT Madurai in IA No.299/2010 in IA No.1031/2009 in TA No.57/209.

2.         The case of the appellant may be stated as follows:

The appellant is the 8^th defendant in TA No.57/2009 filed by the first respondent bank for the recovery of a sum of Rs.33,01,573.31.  The said TA was allowed ex-parte on 22.11.2007 by DRT Coimbatore and DRC No.90/2008 came to be issued. 

 It is stated by the appellant that when he came to know about the exparte decree passed against him he filed IA No.1031/2009 to condone the delay of 251 days in filing the petition to set aside the exparte decree, IA No.1032/2009 to set aside the exparte decree and IA No.1033/2009 for a stay of all proceedings under the DRC till the disposal of the above three IAs.  

It is stated in view of the establishment of DRT Madurai the Recovery Proceedings pertaining to the above case stood transferred to DRT Madurai and the Recovery Officer, DRT Madurai also brought the property for sale. 

 It is stated that this being so the appellant filed W.P. No.711/2009 on the file of the Hon’ble High Court of Madras (Madurai Bench) and the Hon’ble High Court was pleased to dispose the same on 25.3.2009 with a direction issued to the appellant to deposit a sum of Rs.5 lakhs with the Recovery Officer within three days from the date of the order and also was pleased to pass orders staying the confirmation of sale till disposal of the IAs by the DRT. 

 It is stated that subsequently the IAs were taken up by DRT Madurai and the respondent bank also filed its counter.  It is averred that the appellant was in touch with the Advocate in Coimbatore who in turn was briefing the Advocate atMadurai and that due to the communication gap the Advocate atMadurai reported “no instructions” and the three IAs were dismissed for non prosecution.  

It is stated that the said fact came to the notice of the appellant when he received a notice from the Recovery Officer requiring him to show cause as to why the sale should not be confirmed and the sale certificate issued.  It is stated that thereafter the appellant contacted the Advocate at Madurai and filed the IAs for the restoration of the dismissed IAs. 

 It is stated that the Ld. Presiding Officer, DRT Madurai by his order dated 4.3.2011 has dismissed IA No.299/2010 filed for restoration of IA No.1031/2009 which IA was filed for the condonation of the delay of 251 days in filing the IA to set aside the exparte decree.  It is stated that the Ld Presiding Officer has dismissed the IA without giving any opportunity to the appellant to contest the case and prayed that the appeal be allowed.

3.         The appellant filed the list of dates and events and the same forms part of the record.  The appellant relied upon the following judgments in support of his contentions:

(i)                  Tahil Ram Issardas Sadarangani and others Vs. Ramchand Issardas Sadarangani and Another: 1993 Supp (3) SCC 256.

(ii)                Judgment of the Hon’ble Supreme Court dated 2.12.1997 made in Malkiat Singh and Another Vs. Joginder Singh and others.

4.         The first respondent filed written objections to the appeal and the written arguments and the same form part of the records.  The first respondent relied upon the following judgments in support of its contentions:

           

(i)                  Indian Bank Vs. ABS Marine Products (P) Ltd:(2006) 5 SCC 72.

(ii)                Mahabir Singh Vs. Subhash and others: (2008) 1 SCC 358.

(iii)               Sunil Poddar and Others Vs. Union Bank of India(2008) 2 SCC 326.

5.         The 2^nd respondent filed his written submissions and relied upon the following judgments in support of his contentions:

(i)                  Subbulakshmi Vs. Punjab and Sind Bank and others: 2010 (5) CTC 786.

(ii)                Sankaralingam and Another Vs. V. Rahuraman 2002 (3) CTC 13.

(iii)               Union Bank of India,Coimbatore Vs. K.R. Jewellers & Ors. II(2009) BC 474 (DB).

(iv)              Sunil Poddar & Ors. Vs. Union Bank of India: 2008(2) CTC 686.

(v)                Cancer Care Trust Research Foundation Vs. Bank of Barod and Others: III (2007) BC 564.

(vi)              Adhimoolam and Others Vs. Indian Bank Chennai and others: (2008) 6 MLJ 1155.

(vii)             Subhash Kathuria Vs. Deve Sugars Limited and 02 others: (2009) 4 MLJ 83.

(viii)           Janatha Textiles & Others Vs. Tax Recovery Officer and Another: 2009 (2) LW 108.

(ix)              Jayan vs. Hong Kong and Shanghai Banking Corporation Ltd.: IV(2009) BC 635.

6.         Heard the Ld. Counsel.

7.         A reading of the affidavit of the petitioner filed in support of IA No.299/2010 before the Tribunal below reveals that the petitioner has stated in paragraph 5 of the said affidavit that due to business affairs he was out of the State of Tamilnadu from 25.1.2010 to 15.2.2010 and that he had lost his mobile phone and hence his counsel could not contact him and get instructions to get alongwith the enquiry on 5.2.2010 and that therefore his counsel reported “no instructions” on 5.2.2010 and the Tribunal below dismissed all the applications for default on 5.2.2010. 

8.         The loss of the mobile phone, the inability of the Ld. Counsel for the appellant to contact the appellant on account of the loss of mobile phone of the appellant cannot at any rate be stated as reasons for the Ld. Counsel for the appellant for reporting no instructions as it is common knowledge that a client can always contact the Advocate at any time and from any place in case the Advocate was not in a position to contact his client. 

 The Ld. Presiding Officer has considered all the events that had taken place right from 27.9.2007 i.e., the date on which the petitioner was initially set ex-parte in the TA and has properly analyzed the same in his order and has also arrived at the correct conclusion that the affidavit filed in support of the appellant’s case does not support the case of the appellant and has correctly dismissed IA-299/2010 and therefore this tribunal is driven to conclude that the order of the Ld. Presiding Officer warrants no interference and accordingly the order of the Ld. Presiding Officer is confirmed.

9.         In the result the appeal is dismissed. 

IA 409/2011 (Stay):  MA is dismissed today.  Hence this IA is also dismissed.

This judgement  was delivered on 14 th Mar 2012 by the Honble Chair Person of DRAT Chennai