TFL Oct 2000 Presentation To Brass Bared The Rot

Mumbai, Aug 29: | Updated: Aug 30 2002, 05:30am hrs
Sinking deep into the mire of an erratic capital adequacy ratio (CAR) and increasing numbers of unprovided-for delinquencies, Tata Finance Ltd (TFL) had cried out for help, with details of all that was going on, as early as October 21, 2000. In simple words, the companys brass knew all about the rot, contrary to public denials about the same.

Ethics Panel Member Was On TFL Board
MAITHREYI SEETHARAMAN
umbai, Aug 29: Tata Sons director JK Setna, who was on the erstwhile board of Tata Finance Ltd (TFL), was, and still is, part of the two-member Central Ethics Committee of the Tata group.
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In a presentation a copy of which is with FE company officials, had at a special meeting convened for the purpose, addressed TFL chairman Fredie A Mehta and Tata Industries managing director and vice chairman of TFL, Kishore A Chaukar. The presentation, titled TFL Capital Infusion Plan preceded TFLs rights issue. Details of its capital infusion plans along with the debacle of its fluctuating CAR was laid bare for the top-most echelon to see.

When contacted, Tata officials declined to comment on the matter.

It is a matter of note that, according to sources, the audience of the presentation requested changes after which, the re-done presentation was used for the companys rights issue.

Informing its audience as to why the company required additional equity, the presentation stated: Low CAR just barely meets the regulatory requirement. Continuing in the same vein, the presentation said that, if Niskalps balance was merged with TFL, capital adequacy would fall further. It also stated: Minimum capital adequacy not being met on a month-to-month basis, but becomes a period-end activity.

It continues stating: Preference shares is only a substitute to borrowing. Tenure is for a smaller period of 18-24 months.

The presentation informed its audience that, the ploughing back of funds for TFL was difficult due to four major reasons: (a) The companys margins were under pressure, (b) the level of delinquencies were very high, particularly non-performing assets, (c) provisions for each year were on the rise, and (d) the unprovided portion on delinquencies were increasing.

It pointed out that the debt-equity ratio of TFL was consistently high at above 7.5, as compared to the companys competitors. It also expressed concern at the dependency levels of some subsidiaries on TFL for funding.

Analysts have raised the question, that if delinquencies were high and unprovided portion of delinquencies were increasing, why werent corrective measures initiated in October 2000 itself Analysts have also pointed out that the debt-equity ratio stated in the presentation was too high and have questioned as to why a solution was not decided on, immediately post the presentation.

In response, spokespersons for the Tata group declined comment.

Pointing out in detail, the trends in capital adequacy in the 1999-2000 period, the presentation stated by month, CAR on Tier I+II capital and its break-up along with outstandings with subsidiaries, fixed deposit outstandings and 100 per cent risk-weighted assets.

In the 12-month period (1999-2000), CAR on Tier I+II was shown to be 12.6 per cent on June 30, 1999, steadily falling to a low of 3.35 per cent on May 31, 2000 and dramatically rising to 15 per cent as of June 30, 2000.

CAR on Tier I began at 9.35 per cent on June 30, 1999 and steadily fell, moving into negative territory to -0.05 per cent on May 31, 2000 and dramatically rising again to 10.98 per cent on June 30, 2000. Including Niskalp Investments and Trading Company Ltd (Niskalp), for the year end June 30, 2000, CAR for Tier I+II was shown as 13.77 per cent and CAR for Tier I as 10.34 per cent.

Outstandings with the companys subsidiaries began at Rs 0.95 crore, swelling up to Rs 331.41 crore and suddenly shrinking to Rs 2.42 crore at the year end. Including Niskalp, this figure was at Rs 2.42 crore at the year end.

The presentation further stated the five-year summary of reserves, wherein the companys debenture redemption reserve was up from Rs 4.50 crore in 1998-99 to Rs 20.30 crore in 1999-2000. Total reserves also rose to Rs 285.39 crore in 1999-2000.

In the five-year summary of net worth, the presentation stated that net worth had risen from Rs 104.49 crore in 1995-96 to Rs 269.02 crore in 1998-99 to Rs 329.48 crore in 1999-2000.

In the five-year summary of investments in subsidiaries, Niskalp was seen as the main beneficiary of TFL largesse, receiving Rs 6.08 crore in 1996-97, increasing in large jumps to Rs 40.11 crore in 1997-98, Rs 23.17 crore in 1998-99 and as a finale, Rs 45.53 crore in 1999-2000.

The presentation noted that figures as on June 30, 1999 were audited and inspected by the Reserve Bank of India (RBI). It stated: Capital adequacy returns are filed with RBI as on September 30, 1999 and as on March 31, 2000. Capital adequacy as on June 30, 2000 is derived from the audited balance sheet. Capital adequacy as on all other months is provisional.

The presentation further went on to state: Investment in subsidiaries other than Niskalp will not yield immediate returns. No major infusion of equity capital in the last three years.

Analysts have raised a question as to why the company continued with its investments in the subsidiaries post-October, given the fact that its own debt-equity position was precarious, its CAR was erratic and the company itself needed a large dosage of capital The spokespersons for the Tata group declined to comment.

In the meanwhile, the Tata group has pumped in Rs 400 crore and will pump in Rs 100 crore more by fiscal-end for the restructuring process in place in TFL.