PCL has defaulted on about Rs.70 crore of loans advanced by SBI in 2011-12 that have been classified as non-performing assets. About Rs.43 crore of that is fund-based exposure and the rest is in the form of guarantees. Photo: Mint
Live Mint ; Dinesh unnikrishnan Mar 21,2014
PCL, founded by textile minister Kavuri Samba Siva Rao and headed by his daughter, owes Rs350 crore to creditors
Mumbai: State Bank of India (SBI), the nation’s largest lender by assets, is planning to take action to recover money owed by a construction firm linked to a senior Congress party politician and Union minister, signalling the seriousness with which banks are taking central bank and government warnings to curb bad loans.
Hyderabad-based Progressive Constructions Ltd (PCL), a company founded by textile minister Kavuri Samba Siva Rao and headed by his daughter Srivani Mullapudi, owes about Rs.350 crore to SBI and other creditors, mainly state-run banks.
PCL has defaulted on about Rs.70 crore of loans advanced by SBI in 2011-12 that have been classified as non-performing assets. About Rs.43 crore of that is fund-based exposure and the rest is in the form of guarantees.
Other banks owed money by the company include Andhra Bank, with Rs.149 crore of exposure, Corporation Bank (Rs.47 crore) and Allahabad Bank (Rs.42 crore), according to data with the All India Bank Employees Association (AIBEA). The association said it sourced the numbers from these banks.
Employee unions at the banks have now written to the Election Commission about PCL’s bad loan problems, ahead of the April-May general election, according to C.H. Venkatachalam, general secretary of AIBEA.
The company “has secured loans from various state-run banks over years using obvious political influence”, Venkatachalam said. Mint couldn’t independently ascertain this.
SBI could seek legal recourse to recover the money, a senior executive at the bank said, requesting anonymity on grounds that the matter is sensitive in nature.
“We have asked for viability study of the company, which is not done yet. We are now planning to take whatever action possible to recover the money including approaching courts,” this person said.
Both the Reserve Bank of India (RBI) and the Congress-led United Progressive Alliance government have been pushing state-run banks to reduce a pile of bad loans by taking strict action against defaulters.
Gross non-performing assets (NPAs) of 40 listed Indian banks rose 36% toRs.2.43 trillion as of December-end from Rs.1.79 trillion in the year-ago period.
About Rs.4 trillion of loans are being recast by banks both through the so-called corporate debt restructuring mechanism, which involves lenders writing off some debt and rolling over some more, and on a bilateral basis between individual banks and borrowers.
“If we sit on these restructured assets without closer monitoring and action, we will see further erosion in value. And that we need to combat,” RBI governor Raghuram Rajan said in an 8 October interview with Mint.
“We cannot have an affluent promoter and a sick company,” finance ministerP. Chidambaram said in March last year.
To be sure, many companies, especially infrastructure firms, are struggling to repay loans. Slower economic growth, high interest rates and delayed projects have impaired the ability of many borrowers to service debt, burdening banks with non-performing assets.
“There has been over-leveraging in the infrastructure sector in the recent years due to high growth expectation in the economy, which didn’t happen,” said Ananda Bhoumik, a senior director at India Ratings and Research Pvt. Ltd. “Also, various clearance delays have impacted the cash flows of these firms.”
Banks are starting to crack down on defaulters.
“Banks have become very stringent in terms of recovery of bad loans no matter how big or how small the company is,” said Abhishek Kothari, an analyst at Networth Stock Broking Ltd. “Especially, in the case of SBI, the bank has really quickened the process of recovery, using all possible options.”
In the case of PCL, invoking the guarantees submitted by the firm is one option, the SBI official cited above said. SBI has stayed out of a loan restructuring exercise that other lenders with exposure to PCL offered the company in 2012-2013 because the bank was concerned about its future viability, the official said.
The loans were meant for various projects planned by PCL, some of which didn’t take off eventually, the banker said. They have either turned bad (between June 2008 and September 2013) or are being recast, he said.
Email queries sent to Andhra Bank, Corporation Bank and Allahabad Bank on Tuesday evening hadn’t been answered as of press time on Thursday.
An email sent to PCL on Tuesday seeking details of its bank loans also did not elicit a response.
Samba Siva Rao, a member of Parliament from Eluru in Andhra Pradesh, said over the telephone on Wednesday that he did not hold any official position in the company now.
“There could be some issues (with the company in connection with bank loan exposure),” he admitted.
While the government has asked state-run banks to speed up bad loan recoveries, what happens when a firm linked to a Union minister has Rs350 crore in bad debt? Mint’s Dinesh Unnikrishnan has more
According to the banker, PCL had been drawing advance amounts on construction projects, which couldn’t be executed within the specified timeframe, resulting in cost overruns.
“The company was borrowing beyond its capacity and couldn’t pay back since many projects, for which money was advanced, didn’t take off.,” said the official.
Rao is also a shareholder in PCL.
Going by the declaration of assets and liabilities by members of the Lok Sabha, as of 31 March, Samba Siva Rao had 12.9 million equity shares in PCL, which works out to 41% of the total shares of the company (31.6 million), according to data sourced from Capitaline, a corporate database.
The paid-up equity capital number is as of 2007. Later data is not available on the company which, according to its website, started as a partnership firm in 1966 and is engaged in the construction of dams, powerhouses, barrages, roads, tunnels, and industrial, commercial and residential structures.
There are no details on the website of the Registrar of Companies on PCL.
According to the latest available details on the company’s website, which doesn’t have Samba Siva Rao’s name on it now, PCL posted a gross profit ofRs.220.6 crore for the year 2007-2008, compared with Rs.153.6 crore in 2006-2007.
In November, PCL was barred by the World Bank from being awarded any contract for any project financed by it for a minimum period of 11 years for violating its ‘fraud and corruption policy’.
According to a 29 November PTI report, World Bank took action against PCL for engaging in “fraudulent practices” in the execution of three contracts for a National Highway project. PCL was found to have “engaged in sanctionable practices” in connection with the Lucknow-Muzaffarpur National Highway project in Uttar Pradesh, the report said.
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