Bombay Rayon keeps books off Central Bank, runs wilful default risk

Aftab Ahmed, Aparna Iyer Posted online: Friday, Sep 13, 2013 at 0000 hrs
Mumbai : Banks are increasingly getting tough on corporates who they believe are intentionally delaying loan repayments and although it may not help them recover their money, they are referring such customers to the Reserve Bank of India (RBI) as “wilful defaulters”.

Central Bank of India recently sent a notice to Bombay Rayon Fashions — which owes a consortium of banks R4,055 crore — asking it to furnish details of how the company was using the money lent to it. The notice was issued since the textile company did not allow the bank to conduct a forensic audit of its books, a senior executive at the bank confirmed.

“If a satisfactory response is not forthcoming, we will declare the company a wilful defaulter,” the executive told FE, adding Bombay Rayon’s reluctance to allow a forensic audit had aroused suspicions that there could be “something wrong with the accounts”.

Central Bank, which has an exposure of R100 crore to Bombay Rayon, has also intimated other lenders that it suspects Bombay Rayon has the resources to repay the loan but is not doing so wilfully.

The public sector bank is also likely to send a notice to the Mukul Kasliwal-controlled infrastructure and energy company Entegra, asking it to explain why it has failed to repay R150 crore for the last two years.

Both Entegra and Bombay Rayon have a 60-day notice period to respond to the bank. If the reply is satisfactory, the bank will give them a hearing; else, both companies will be labelled as wilful defaulters.

Central Bank recently told Deccan Chronicle Holdings Ltd (DCHL) that it would be classified a wilful defaulter soon. DCHL owes a 20-bank consortium close to Rs 4,000 crore, while Central Bank has lent it Rs 57 crore.

A borrower who fails to repay a loan, despite having the capacity to do so or diverts and siphons off money can be declared a wilful defaulter. Bankers say a borrower is declared wilful defaulter only after many rounds of consultations and after he has been given adequate time to explain his position. The bank submits the details of wilful defaulters to the RBI every three months.

In a recent address to the Parliamentary consultative committee, finance minister P Chidambaram had asserted that public sector banks should be strict with wilful defaulters; the finance ministry has been exhorting banks to take a tough stance with errant borrowers. According to the RBI’s latest circular, once a company is declared a wilful defaulter, it loses access to finance from other banks and financial institutions. Further, promoters of such companies cannot be given fresh funds for five years to start a new venture. Lenders can also initiate criminal proceedings, if necessary, against the guarantors and companies or seek a change in management.

Recent Wilful Defaulters

Bombay Rayon: 4,500*

Deccan Chronicle Holdings: 4,000

Entegra: 150*

* In the process of being named wilful defaulters

(In Rs crore)