Raghuram Rajan's fight against loan defaulters faces first test; SBI-led consortium moves to take control of Sai InfoSystem

Sangita Mehta, ET Bureau | 17 Feb, 2014, 04.13AM IST 

MUMBAI: A key element of Reserve Bank of India governor Raghuram Rajan's plan to cleanse the Indian banking system of bad loans is likely to be tested shortly as lenders take management control of Sai InfoSystem, the biggest defaulter in the information technology sector.

The move, which might otherwise have been tangled in legal issues, has been made easier because promoter Sunil Kakkad is untraceable. A consortium of banks led by the State Bank of India has hired Alvarez & Marsal, a top US firm that specialises in recovery from defaults and supplies management to companies in distress.

State Bank of India, IDBI Bank,Allahabad Bank, IDBI Bank,Corporation Bank% and State Bank of Bikaner & Jaipur have lent close to Rs 1,200 crore to the Gujarat-based company whose promoter has been absconding since June 2013. All banks have classified the account as a non-performing loan—one where the borrower has stopped paying dues—and classified the promoter as a wilful defaulter.

"The mandate to Alvarez & Marsal is to make maximum possible recovery either by selling assets or revive the unit by bringing professionals on board, or a combination of both," said a senior executive at one of the banks with a large exposure to the company.

Alvarez & Marsal declined to comment on the development, while officials from Sai InfoSystem could not be reached. Two officials from government-owned banks confirmed the development but didn't want to be named.

Rajan has called on bankers to change managements at defaulting companies. "Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise," he had said on September 5 when he took charge as governor, outlining his strategy to restore banks' loan books to health.

FM P Chidambaram and other top government officials have also raised alarm over rising bad debt and said promoters need to be held accountable. Bad loans, most of them at state-owned lenders, rose 38 per cent to Rs 1.28 lakh crore as of September 2013 over the year earlier.

Sai InfoSystem, which has 1,400-1,500 employees, collapsed after bidding aggressively for big-ticket technology mandates from government entities such as Bharat Sanchar Nigam and Brihanmumbai Municipal Corporation and failed to deliver on time.

According to media reports, the promoters are in the US, and employees haven't been paid salaries since June last. The development at Sai InfoSystem is reminiscent of what tookplace at Rajendra Steel in the mid-1990s.

The promoter, the Batras, left the country after realising they would be unable to service debt after expanding aggressively. It took banks 10 years to recover some of the loans by selling moveable properties.

Alvarez & Marsal, with 40 offices across the world, is a turnaround and restructuring specialist with revival mandates such as those of investment banker Lehman Brothers and accounting firm Arthur Andersen.