Auditors’ query forces BOI to declare Gupta Coal loans as NPA

TOI 1 Oct 2014
Nagpur: The city-based Gupta Group is turning out to be another vexed loan case for the banks. While lenders are yet to finalize a corporate debt restructuring (CDR) proposal for two group companies, Gupta Coal India Limited (GCIL), which has the biggest loan of over 2,000 crore, has been declared a non-performing asset (NPA) by Bank of India (BOI) for its share of the debt.

BOI is the leader of a consortium of over half a dozen lending agencies with exposure in GCIL. However, the account was only classified as NPA after BOI auditors raised an objection. BOI's individual loan to GCIL stands at over 550 crore.

GCIL is a coal trading company also engaged in imports. Most of the other consortium banks continue to keep it as a standard asset, saying that the payment has been regular. Sources in BOI say it was in June that the account was finally classified as NPA. Though the bank tried its best to treat it as a standard asset, the auditors did not agree.

Now, with the auditors having raised objections, there is little chance of considering a CDR proposal for this company, which was in the offing to tide over this financial crisis faced by the Gupta Group.

The Gupta group is headed by Padmesh Gupta, a prominent businessman from the city. TOI had sent him a text message seeking his comments, but it remained unanswered.

A large part of the GCIL loan is a cash credit limit, apart from letters of credit (L/C) and bank guarantee. The latter make up non-fund-based loans, which are to the tune of Rs490 crore, say sources. It has been learnt that the auditors had questioned the method on the basis of which the limits were sanctioned. Insiders say the company's credit limit should not have gone beyond 220 crore but the total outstanding ended up crossing over 550 crore.

One of the main features of the loan package was that the non-fund-based loans were convertible into fund-based. With a letter of credit, the company can purchase goods from the vendor with the bank directly paying the vendor. However, the bank's dues have to be cleared within 90 days. If there is a provision to change non-fund-based loans like L/C to fund-based, on non-payment after 90 days, the cash credit limit can be extended proportionately. After this, funds are drawn from
the limit to pay back the dues on L/C.

So, it becomes a part of the larger loan, which does not become NPA so long as the interest is served.

This facility is generally provided when the borrower has a longer realization cycle. But it can also be a convenient method to avoid an account from becoming NPA. If the defaulted amount on L/C becomes part of the larger loan, only interest has to be paid to keep the account as standard, said a chartered accountant engaged in project finance.

A senior officer in BOI who is monitoring the case admitted that the account was classified as NPA following the audit objection. There was an issue related to the limits that were calculated. "The bank has gone by the laid down norms, though it was not correct as per the auditors," the officer said, not wishing to be named. However, another top official in this bank said there are certain instances of diversion of funds too.