IDBI Bank default cases settled with 90 pct haircut; Malvika Steel to Usha Ispat, see how surprisingly low settlement was

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Mumbai | Published: November 28, 2017 4:32:12 AM

The Stressed Assets Stabilisation Fund (SASF) formed in 2004 to recover IDBI Bank's bad loans has settled certain cases with haircuts of more than 90%, a public accounts committee (PAC) has found.

IDBI Bank, default cases, Bank default cases, IDBI Bank default cases, Malvika Steel, Usha Ispat, IDBI Bank bad loans, public accounts committeeThe Stressed Assets Stabilisation Fund (SASF) formed in 2004 to recover IDBI Bank’s bad loans has settled certain cases with haircuts of more than 90%, a public accounts committee (PAC) has found. (Image: PTI)

The Stressed Assets Stabilisation Fund (SASF) formed in 2004 to recover IDBI Bank’s bad loans has settled certain cases with haircuts of more than 90%, a public accounts committee (PAC) has found. In a report tabled in the Lok Sabha in July this year, the committee said that while the trust has settled Malvika Steel’s default of Rs 594.5 crore for Rs 41.7 crore, Usha Ispat’s default of Rs 321.8 crore was settled for Rs 48 crore. “It is really surprising that in both the cases, the trust in spite of having personal guarantees from promoters of various borrowing companies did not try to ascertain the net worth of the promoters to realise optimum amount,” the report said. The observation gains relevance at a time when promoters are increasingly under pressure in insolvency proceedings. Promoters of the Jaiprakash Group were recently asked told the court to behave and pay up, even as it imposed restrictions on the transfer and sale of their assets. Emails sent to IDBI Bank and SASF remained unanswered till the time of going to press. As on March 31, 2014, the trust has settled 319 accounts of the 631 accounts assigned to it in 2004. Karthik Srinivasan, Group head – Financial Sector Rating, ICRA told FE that the industry norm on haircuts taken by lenders is unlikely to be more than 50%. “However, the amount of haircut also depends on the value of the collateral, reasons for the loan turning bad and also whether the company was declared fraudulent or not,” Srinivasan added.

According to the committee chaired by Mallikarjun Kharge, IDBI had not obtained any personal guarantees for eight of the accounts considered by the committee. Further there was no system of obtaining copies of the income-tax returns and property details of the guarantors, the report said, adding that in the absence of the property and income details of the guarantors, the personal guarantees obtained were of no use, which was evident from the failure of the trust in enforcing them. Although, in 20 settled loans, personal guarantees were taken from the promoters, no property details were available on records of the trust. “The committee are of the opinion that had the SASF not failed in obtaining details of assets of guarantors, net worth of the borrowers, income tax returns, affidavit of assets filed by the guarantors in the courts/ debt recovery tribunal besides networth certificate by a chartered accountant, and liability statements, maximum recovery would have been assured,” it said.

Meanwhile, the committee found out that IDBI Bank and SASF exchanged stressed assets in 2006, against the decision of the finance ministry. The ministry told the committee that it had come to know about the transfer only in 2014, through a CAG audit report. In May 2006, the ministry had declined IDBI Bank’s proposal to exchange certain turnaround companies for fresh stressed assets. Despite that, IDBI Bank’s board and the trust’s board approved exchange of eight turnaround cases (worth Rs 1,522 crore) with three fresh loans (of Rs 1,335 crore) in June 2006. Auditors noted that in the eight cases that were transferred to IDBI Bank, the bank recovered Rs 1,659 crore. On the other hand, the trust was able to recover only Rs 360 crore from the three assets transferred to it.

The committee has sought an independent investigation into the matter and wants the government to take penal action against the officials of the ministry/IDBI Bank/SASF responsible for taking action in violation of government order. “Thus, this inadmissible exchange which was not approved by the government of India, benefited IDBI,” the report said. Interestingly, earlier this year, the Reserve Bank of India (RBI) had initiated prompt corrective action (PCA) against IDBI Bank. The action was prompted by IDBI Bank’s high net NPAs and negative return on assets (RoA). In the September quarter of 2017-18, the bank’s net NPA ratio stood at 16.06% while the RoA stood at -0.24%.

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