More trouble for Mallya: Will a probe unravel mysterious money transfer?

FP Jan 1,2014

The Karnataka High Court order that annulled the sale of United Breweries Holdings' United Spirits stake to Diageo may be opening up a Pandora's box for Vijay Mallya.

According to a report in the Business Standard today, the order that was passed on 20 December has also sought an investigation into a murky transfer of Rs 4000 crore to tax haven British Virgin Islands before the stake deal happened

The company judge had approved the sale of UBHL's nearly 7 percent stake in United Spirits without investigating the serious allegations raised by lenders to grounded Kingfisher Airlines, the high court has said.

The lenders had submitted to the high court that the diversion of funds was not in their interest. The UB group has told the company judge that the transfer was done as part of the acquisition of Whyte & Mackay, but lenders have contested this claim saying there is no supporting documents for this, the report said.

The high court, however, has come down heavily on the company saying that it has not approached the court "with clean hands and the transaction in question is not bona fide". It has sought an investigation into the money transfer.

According to the article, UBHL had earlier promised the banks to pay back debt from the proceeds of the stake sale but instead of following through, the company went ahead and sued the banks in various courts.

Apart from the investigation into the diversion of funds, the Karnatake HC also set aside a share pledge made by UB with brokerage and finance companies last year, in the run up to the Diageo deal.

In a recent press release, the All India Bank Employees Association had said Kinfisher Airlines owes Rs 2673 crore to public sector banks and had ranked it the top defaulter.

CCI nod for sale of Mallya-owned distillery in Chennai

BS Reporter  |  Chennai  

December 29, 2013 Last Updated at 20:47 IST

The deal involves transfer of USL's entire undertaking, business activities and operation of its unit at Poonamalle, Chennai 

The Competition Commission of India (CCI) has cleared the sale of distillery owned by Vijay Mallya-led United Spirits Ltd (USL) near Chennai to Enrica Enterprises Private Ltd (EEPL).

Through the acquisition, the promoters of EEPL are planning to enter the business of manufacturing the India-made foreign spirits.




The deal involves transfer of USL’s entire undertaking, business activities and operation of its unit at Poonamalle, Chennai. The unit is a distillery for manufacture of Indian-made foreign spirits (IMFS) to EEPL by way of slump sale. The sale consideration was estimated to be Rs 125-crore.

The distilling plant has a capacity for one-million cases a month, and it was acquired by USL nearly five years ago from Balaji Distillers. It was reported that USL was operating this plant at around 55 per cent capacity thus being a drain on the company.

Enrica would make certain IMFS brands of USL using technology and know-how and under the trademark of USL, according to a franchise agreement signed on December 4, 2013, along with the master sale agreement between the two companies.

Pursuant to the agreement, Enrica will bottle USL's brands and in consideration for this bottling arrangement, USL will earn a royalty income.

In the order, the CCI said: “Considering the facts on record, the details provided under the Act, the Commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition in India and therefore the Commission hereby approves the proposed combination.”

While the Mallya-promoted USL is a listed company, EEPL, which is a private entity, is promoted by Spurthi Holdings Pvt Ltd, Viki Investments and Properties LLP and Sree Shyam Sayi Investments and Traders Pvt Ltd. The private entity has diversified business interests and now proposes to enter the business of manufacturing IMFS through this acquisition.

RBI grants new status for CCIL

BS Reporter  |  Mumbai  January 2, 2014 Last Updated at 00:21 IST\

CCIL is authorised and supervised by RBI under Payment and Settlement Systems Act, 2007

Reserve Bank of India (RBI) granted the status of qualified central counterparty (QCCP) to Clearing Corporation of India Ltd (CCIL) in the Indian jurisdiction on Wednesday.

CCIL has qualified as a QCCP in view of the fact that it is authorised and supervised by RBI under the Payment andSettlement Systems Act, 2007.

“CCIL is also subjected, on an on-going basis, to rules and regulations that are consistent with the Principles for Financial Market Infrastructures issued by the Committee on Payment and Settlement Systems and International Organisation of Securities Commissions,” RBI said.

Viceroy Hotels gets bankers nod to sell Chennai division-J W Marriott toCeebros Hotels

T E Narasimhan  |  Chennai  January 2, 2014 Last Updated at 00:02 IST

The sale is estimated to be worth Rs 480 crore

Hyderabad-based Viceroy Hotels, owner of the J W Marriott property here, on Wednesday informed the BSE exchange it had concluded a deal to sell its Chennai assets, including the hotel and residential projects, to Ceebros Hotels. The sale is estimated to be worth Rs 480 crore.

The company had started developing a five-star hotel in the city under the J W Marriott brand.

Earlier this year, Viceroy Hotels said its board had approved a proposal to sell the Chennai project division to Ceebros for a total consideration of Rs 480 crore. In June, the company’s shareholders approved the sale proposal.

The 2012-13 annual report said the sale would cut its debt by Rs 560 crore. The company was had sought no-objection certificates from State Bank of India, State Bank of Mysore, State Bank of Bikaner & Jaipur, Indian Overseas Bank, Allahabad Bank and UCO Bank.

The loans pertaining to the Chennai hotel could not be repaid because the project was still being built while the repayment period began according to the original schedule. After the sale, all the associated loans would be repaid, the company has said. Consequently, Viceroy would not be defaulting on any loans, it added.
 
 
 

President signs Bill, Lokpal set to become law

The Lokpal Bill, after rounds of debate and discourse in the Houses of 
Parliament, as well as the greater outside, is set to become a law after
 receiving presidential assent from Pranab Mukherjee.

PTI : New Delhi, Wed Jan 01 2014, 19:02 hrs few mts ago

The much-awaited Lokpal Bill got the assent from President Pranab Mukherjee on Wednesday, providing for creation of an anti-graft watchdog which will bring under its purview even the Prime Minister with certain safeguards.

The Bill was passed by the Rajya Sabha on December 17 and by the Lok Sabha the next day.

The Lok Sabha secretariat had sent to the Law Ministry a copy of the Bill on Tuesday, which had been signed by Speaker Meira Kumar. The Bill was then forwarded to the Rashtrapati Bhavan for the President's assent, official sources said.

The President has signed the Lokpal Bill, the sources said.

The Bill was to become an Act after the signing by the President and following certain procedures.

After the assent by the President, Secretary of the Legislative Department in the Law Ministry will sign it and send it for publication in the official gazette.

The Bill aims to set up institution of Lokpal at the Centre and Lokayuktas in states by law enacted by respective legislatures within one year of coming into force of the Act.

The Bill was first passed by the Lok Sabha at the fag end of the winter session of 2011, but not by the Rajya Sabha, where it was debated but the house was adjourned before voting on it.

Later, a select committee of the Rajya Sabha had suggested changes in the Bill, most of which which were incorporated and approved by the Union Cabinet. Following the amendments, the Rajya Sabha had passed the bill.

The Lokpal had become a bone of contention among ruling Congress, opposition BJP and civil societies with each one of them wanting to make changes in it to make it more effective.

A ticking time bomb?

B S :Editorial Comment  |  New Delhi  Jan  1, 2013

Re-examine government's role as owner of banks

The problem of asset quality has become increasingly significant in the
 Indian banking system. However, as was reported in this newspaper 
on Tuesday, there is a striking asymmetry in the nature of the 
problem across different categories of banks. Over
 the past five years, while private sector banks have seen
 some improvement in the ratio of their non-performing 
assets (NPAs) to outstanding credit,public sector banks
 as a group have seen a marked deterioration. The latter
 collectively account for over 86 per cent of NPAs, while 
providing about 75 per cent of credit. In response, the
 Reserve Bank of India has proposed some measures,
 including early recognition of problem assets and
 information sharing between banks. These will be
 finalised in a few weeks based on public feedback.
 While such measures may help alleviate the problem,
 a robust solution must recognise and respond to some
 structural characteristics of government-owned banks,
 which have contributed to the build-up.

An important one is the level of independence and autonomy
 that a typical bank enjoys in making its credit decisions. 
Anecdotal evidence suggests that various channels of influence 
play a role in making credit decisions, thereby diluting the 
effectiveness of the credit appraisal process. Occasional 
revelations, such as the loans-for-bribes case involving Money
 Matters Financial Services and Punjab National Bank a few 
years ago, might be merely the tip of the iceberg.

 These tendencies are reinforced by the criteria for the
 appointment of independent directors on the boards of 
public sector banks, which are seen less as effective 
governance mechanisms and more as opportunities for 
extracting rents. Another issue is that of incentives. 

Given the relatively short tenures of chairpersons and
 executive directors, the immediate recognition flowing
 from an acceleration of credit growth perhaps outweighs
 the negative impact of asset quality problems, which
 usually materialise during the successor's tenure.
 This has contributed to the well-known succession
effect, in which a new chairperson makes provisions
 for all the bad assets from the predecessor's term,
 thereby cleaning the slate for his or her term, but 
also making the earnings pattern volatile.

These structural factors require a much deeper 
examination of the government's role as owner of banks.

 The philosophical dimension of this issue relates to 
the fulfilment of the social mandate for which banks
 were nationalised in 1969 and again in 1980. 
Has this been fulfilled and to what extent?

 Is the current situation one in which the social 
mandate itself is being compromised by weak 
governance and incentive mechanisms? 

The fact that the government is now seeing
 new private banks as agents of financial inclusion 
is one indicator that it is not completely satisfied 
with the performance of the banks that it owns. 

The practical aspect of the issue relates to the 
need to enhance the capital of banks saddled 
with high NPAs. If the government wants to 
preserve majority ownership, it perforce becomes
 the predominant source of new capital.

 It clearly does not have the fiscal space to do this,
 now or in the next couple of years.

 How is it going to reconcile the need for control 
with the imperative of more capital?

MadrasHC restrains SRM from sacking staff of proposed channel

BS Reporter  |  Chennai  

December 31, 2013 Last Updated at 20:39 IST

The company had plans to launch an Engli

sh news channel, which it scrapped

 The Madras High Court has restrained New Generation Media 
Corporation Private Limited, part of the SRM Group, 
from sacking employees or implementing pay-cuts
as part of its “alleged” closure of its proposed
 English channel launch.

The Chennai-based group, which has interest in education and media,
 was planning to launch a 24-hour News channel under New Generation 
Media Corporation, which already runs a 24- hour Tamil news channel
 Puthiya Thalamurai, Tamil GEC Pudhu Yugam, and a magazine 
Puthiya Thalaimurai.

While company officials were not available for comment, an employee
 said 29 staff, who were roped in for the proposed English News 
channel, had approached the court against the management decision
 to either cut 50 per cent salary or retrenchment with a severance pay
 of three  months salary.

This announcement was made by the management on December 
26 and employees were asked to select one of these options before 
December 30.

Confirming the order, R Vaigai, advocate who appeared for the
 employees, said the petition was admitted and the interim
 injunction was passed restraining the company from the 
pay restructuring or termination of employees.

Further, notices were issued to the company and the Tamil Nadu 
government considering that labour is a state subject.

According to rules, a company cannot terminate a large number of
 employees, like in this case, without prior permission of the state 
government, she added.

CCCL opts for debt recast scheme

BS Reporter  |  Chennai  December 31, 2013 Last Updated at 20:41 IST

Delay in several infrastructure projects including the Chennai Metro has affected the company's balance sheet, say sources

Chennai-based Consolidated Construction Consortium Ltd (CCCL) has applied for the Corporate Debt Restructuring Scheme. "The necessary application for the same is being filed with CDR cell for its approval," the company said in a filing to the exchanges.

R Sarabeswar, chairman and chief executive officer of CCCL, did not offer a comment when contacted.

Several infrastructure projects, including Chennai Metro, have been delayed due to various reasons affecting the company's balance sheet, according to industry sources. The company owes around Rs 740-crore to banks and a major share of it is short-term loans, till the end of last fiscal year.

In October, 2013, Icra had revised the company's rating on various long-term and short term fund-based facilities and NCDs to Icra D. "The revision in the ratings factors the delays observed in debt servicing by CCCL against the continuing net losses, and elevated working capital intensity over the last 18 months," an ICRA report said.

CCCL’s consolidated operating income declined 10 per cent in 2012-13 as against 2011-12. Its operating and net margins also declined by around 400 basis points in 2012-13 vis-à-vis the previous year and stood at 0.85 per cent and (-4.32) per cent respectively, it said. The net losses continued in the year-to-date of 2013-14 also, said the report on October, 2013.

 

"These losses combined with the increased working capital intensity have led to higher than anticipated debt levels and inadequate debt servicing capability for the company. The management’s efforts to reduce the debt position of the company through liquidation of its land banks have not materialised till date. Accordingly, the utilisation of the fund based bank credit facilities remained high, providing limited liquidity buffer for the company," it said.

 

The company has made a net loss of Rs 101.77 crore during the quarter ended September 30, 2013, as against the net loss of Rs 14.92 crore for the same period during previous fiscal year. The total income dropped to Rs 248.52 crore, as compared to Rs 488.13 crore during the quarter ended September, previous year, according to BSE.

 

The company has been providing services including Construction, Engineering, Procurement, and Project Management to various sectors.

Deccan Chronicle Holdings Ltd gets relief from Madras HC

 

BS Reporter  |  Chennai  

December 31, 2013 Last Updated at 20:48 IST

The Debt Recovery Tribunal was in favour of Canara Bank in auctioning the company's property to realise around Rs 360 cr

The Madras High Court has directed Deccan Chronicle Holdings Ltd (DCHL) to approach the appropriate forum against the order of the Debt Recovery Tribunal II, which was in favour of Canara Bank auctioning the company’s property to realise around Rs 360-crore.

The high court, which dismissed the writ petition of DCHL, has ordered to maintain status quo to not  sell the media group’s assets for eight weeks.

The petition was filed by DCHL challenging an order passed on September 26, 2013, by the Debts Recovery Tribunal II, Chennai, which was in favour of Canara Bank, which has initiated procedures to auction the company’s various assets under the the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002. The appropriate forum for DCHL to approach is the Debt Recovery Appellate Tribunal, according to legal sources.

An email sent to a DCHL official did not elicit any response till the time of going to press.

The bench comprising of Justice M Jaichandren and JusticeK Kalyanasundaram, in the order issued on December 16, 2013, said, “...the petitioner is permitted to move the appropriate forum, provided under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,  within a period of eight weeks from today, failing which it would be open to the First respondent (The Authorised Officer of Canara Bank) bank to proceed further, as per the relevant provisions of law, including the provisions contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.”

If the petitioner approaches the appropriate forum in time, as specified in the order, the appropriate forum shall entertain such matter, on merits and in accordance with law and dispose of the same, without raising the issue of delay, in the filing of the matter, it added.

“We also make it clear that the petitioner, including the First respondent bank, shall maintain status quo, for a period of eight weeks from today,” said the order.

The court also stated that even though various grounds have been raised on behalf of the petitioner, the Court is of the considered view that the petitioner ought to make its claims, relating to the issues arising for the consideration of the Court, in the present Writ Petition, before the appropriate forum, as provided under the SARFAESI Act, 2002.  We make it clear that it would be open to the petitioner to raise all the grounds available to it, before the appropriate forum, as per law.

According to earlier reports, DCHL owes around Rs 358 crore to Canara Bank, for which the lender has taken legal action. It has earlier issued an advertisement in the news papers seeking bidders for DCHL's property in Chennai, along with machinery in Tamil Nadu and Andhra Pradesh.

The Bank has also filed a complaint with the Central Bureau of Investigation to investigate  the alleged irregularities in the DCHL balance sheet along with various related issues.

Public Sector Banks Have More Bad Debts

B S ;Manojit Saha  |  Mumbai  

December 30, 2013 Last Updated at 23:25 IST

As their non-performing assets have risen sharply even as loans have remained stagnant, RBI steps in with stringent loan-management measures

In March 2009, when the global financial crisis was winding down, public sector banks accounted for 64.5 per cent of the Indian banking sector's total non-performing assets, orNPAs, while their share in total bank credit was 75.2. In September 2013, their share of NPAs had risen sharply to 86.1 per cent even as their loan share remained almost at the same level. This shows that private and foreign banks have brought down their NPAs from over a third to less than a seventh in the last four-and-a-half years. There's more: stressed loans (gross NPAs and restructured advances put together) have gone up sharply for public sector banks from 7.7 per cent (of gross advances) in 2008-09 to 11 per cent now, while for new private banks, they have fallen from 5.5 per cent to 3.1 per cent.

NPAs impair a bank's capacity to earn. Rising NPAs are associated the world over with reckless credit expansion and inadequate risk assessment. What went wrong with public-sector banks?

Talk to any chief executive of such a bank and he is likely to tell you that higher interest rates and the slowing economy are the culprits. If that is true, the asset quality of all banks - public sector, private and foreign - would have been impacted; but that is not the case. Actually, a combination of lax credit appraisal processes coupled with lack of accountability of top management has resulted in a disproportionate rise in the NPAs of public sector banks in the last few years. Even the Reserve Bank of India (RBI) has admitted this at several forums. "This divergent trend clearly indicates that the ability to manage asset quality across banks varies markedly and, in the post crisis years in particular, the concerns on asset quality are largely confined to the public sector banks," RBI Deputy Governor KC Chakrabarty recently said while addressing bankers.

Differing trend
This was evident in Pune-based Bank of Maharashtra clocking 36 per cent loan growth in 2012-13, while the industry's growth rate during the year was around 16 per cent. In its annual financial inspection, RBI asked the lender to adopt a cautious stance on loan disbursements. The bank's net profit for the July-September quarter dipped to Rs 47 crore from Rs 166 crore in the same period the previous year; its gross NPAs almost doubled to Rs 2,450 crore. Mumbai-based Central Bank of India was asked by the regulator to furnish financial data till a few months ago on a monthly basis. The bank, which seems to have deferred NPA classification for a few quarters, posted a net loss of Rs 1,500 crore in the second quarter due to higher provisioning for bad loans. 

RBI has now decided to take a fresh approach to tackle the menace. Earlier this week, it floated a discussion paper, seeking feedback from all stakeholders on how to identify stress early and steps that could be taken for resolution. The discussion paper has proposed banks should identify signs of stress even before the loan turns into an NPA by classifying the loan in special mention accounts if repayment is overdue for one month, though no additional provisioning will be required. The paper also emphasises on information sharing among banks as it has proposed to form a central repository of information on large credits.

Borrowers have always taken advantage of the lack of information sharing among banks to take multiple loans even if they had failed to service loans from some banks. A case in point is a large publishing house in South India which has taken loans from seven public sector banks and the lenders have no clue about the status of the loans from the various banks. "There is no formal method of information sharing, particularly in multiple lending models. At best, banks ask for a credit report from the borrower which is sketchy most of the times," says a top official of a public sector bank. In this backdrop, the recent proposals of the regulator could bring more transparency in loan sanctioning and resolution of stressed loans.



















Effective measures
"RBI, in its discussion paper, proposes formidable measures to combat asset quality issues in the Indian banking system. If these measures are implemented in true spirit, overall asset quality of Indian banks in medium to long term should improve, in our view," JM Financial said in a recent note to its clients. One key feature of the proposals is the penalty banks will face if they fail to resolve an account which has been identified as stressed within a specified time frame. Provision requirement will be accelerated (double in some cases) and asset classification benefit for work-in-progress restructured loans will be removed if banks fail to recognise and resolve stress early. According to experts, if the new proposals see the light of the day then it will speed up decision making of the corporate debt restructuring mechanism. At present, the CDR cell approves restructuring of loans between 90 and 180 days - the paper proposes to bring this down to within 30 days.

RBI Governor Raghuram Rajan is keen to implement the proposals. He has indicated, after the feedback received by the end of this month, final guidelines will be issued early next year. Bankers welcome the move, but say it could take more than a year for banks and borrowers to get more disciplined and adhere to the new conditions. And there are fears that NPA may rise in the short term.

BREAKING THE BANK-BUSINESSMEN NEXUS

"We cannot have an affluent promoter and a sick company," Finance Minister P Chidambaram famously said earlier this year in New Delhi. When asked by reporters if he was referring to Kingfisher Airlines and its once-flamboyant promoter, Vijay Mallya, Chidambaram said he wouldn't name any one company. But the finance minister's message was clear. He was referring to the banker-businessman nexus which often took the advantage of debt restructuring mechanism to defer what is inevitable, that is, the formation of NPA. Kingfisher's loan was restructured and banks took a haircut. Still, the airline could not service its dues though the debt was recast and eventually became an NPA. Three years since the restructuring, lenders are still struggling to recover their money. The finance minister's word of caution along with RBI's vigil on a regular basis has made banks think twice before going ahead with any further restructuring. There are other signs too that things could be changing: Winsome Jewellery - earlier known as Su-raj Diamonds - which burnt a Rs 3,800-crore hole in banks' books was declared an NPA even while discussions were on whether to restructure the asset.

THE CURIOUS CASE OF SBI

It happens with such regularity that most observers are no longer ready to put it down to coincidence. Whenever a new State Bank of India chairman announces his (or her) first quarterly result, there is a sharp decline in net profit. Under OP Bhatt, it fell 35 per cent. Pratip Chaudhuri, his successor, reported a plunge of 99 per cent. Its latest victim is Arundhati Bhattacharya, the incumbent. In November, when she announced the bank's earnings for the quarter ended September 30, the profit was down 35 per cent from the same quarter a year earlier. The investor community had probably expected it. The SBI share price gained 2 per cent on the day of the results.

While the drop in profitability may vary, the reason behind the fall remains more or less the same: higher provisions on account of non-performing assets. "The chairman normally decides the way accounts are prepared. When a chairman retires, he often leaves the task of cleaning the books to his successor. Everyone wants to leave on a high note and tries to show higher profitability in the last few quarters of one's term. This trend is visible in most government banks," a former executive of a Mumbai-based bank recently told Business Standard

Farm, industrial sectors account for most of the bad loans: RBI report

BL Chennai 1 Jan 2014

The growing share of bad loans is causing enough worry to India’s Rs 81-lakh crore 

banking sector, shows the RBI’s latest Financial Stability Report.

According to the half-yearly report, gross non-performing assets (NPAs) are likely to go up to 4.6 per cent of total loans by September 2014 from 4.24 per cent this September — from Rs 1.67-lakh crore to Rs 2.29-lakh crore.

In terms of gross NPAs, agriculture has the highest ratio at 5.5 per cent at end-September 2013. The sector is followed by industries at 4.9 per cent.

Industries posted the highest share in re-jigged advances, 10.9 per cent at end-September. Industries contributed the highest share of stressed advances in their loans portfolio — 15.9 per cent at end-September — followed by services at 7.6 per cent.

Loans in retail fared much better. Its share in gross NPAs stood at 2.2 per cent, while restructured standard advances to total advances were 0.3 per cent at end-September.

Incidentally, the new private sector banks, with the largest share of the retail segment in their loans portfolio, around 30 per cent, seemed to have benefited in terms of better asset quality relative to other bank-groups, shows the RBI report.

Public sector banks have the lowest share of the retail segment in their loans portfolio — around 16 per cent.