“There are three kinds of people; the have’s, the have-not’s, and the have-not-paid-for-what-they-have’s,” said Earl Wilson, the American journalist.
The aphorism impeccably matches the wicked state of bad loans in the Indian banking system. The country’s bad loans have come within kissing distance of the 10 lakh crore mark!
The case of India’s bad loans is getting worse by the day. An analysis of 50 stressed assets (forming 40 percent of total stressed assets in the system), shows that metal, construction, and power sectors together constitute 70 percent of the loot. In fact, SEBI had mandated companies to disclose details of loans on which they missed payments, but rolled it back “until further notice!”
BIG BROTHER STEP INTO SLUDGE
Stepping into the muck, the RBI has recommended 12 accounts, which represent 25% of the bad loans, for “immediate” resolution. Five hundred others have been given six months’ time to restructure their debt.
Following is the bird’s eye view of the shenanigans of the “dirty dozen.”
1. Bhushan Steel
2.Bhushan Power and Steel
Ten years ago, Neeraj Singal, managing director, Steel, organized lavish birthday binge, visited upon by the who’s who of industry and Bollywood. But the music stopped when a lawyer for the State Bank alleged that the company was defaulting on loans. At present, the company’s total debts stand at Rs. 45,000 crore. Initially, cash flow wasn’t an issue, but once Chinese demand dwindled after the 2008 Olympics, the Bhushan borrowed from one bank to pay off another. By the way, when the company was sinking in March 2014, SBI and a consortium of lenders sanctioned new loans!
In 2017, SBI asked Deloitte to conduct a forensic audit. In court, the Bhushans said Deloitte found no signs of malfeasance. Meanwhile, the Serious Fraud Investigation Office (SFIO) started an investigation into the diversion of money. By the way, Bhushan Power and Steel, a sister company of Bhushan Steel, has a loan default of Rs.37,300 crore to a consortium led by Punjab National Bank (PNB).
Interestingly, Tata Steel is buying up Bhushan Steel setting in motion a wave that can see some traction for the much maligned banks.
3. Essar Steel
At his 19th floor office at Essar House in Mumbai’s Mahalaxmi, Group Director Prashant Ruia must be recalling a Shakespearean statement: “Neither a borrower nor a lender be; for loan oft loses both itself and friend.”
Essar Steel owes banks Rs.40,000 crore approximately to a 30-bank consortium led by the veritable State Bank. The Ruias invariably found themselves at the wrong end of an economic cycle. Its refinery, its steel expansion, its power project, all came at a time when those industries where heading south. Now the Ruias have started selling
their crown jewels, and Essar will be a smaller business house soon.
4.Lanco Infratech
In Lanco Infratech Limited’s Gurgaon office, there is a figurine of a tiger swathed in a bedroll either wounded or dead. That sums up the state of the company correctly. Lanco Infratech, once among the fastest growing companies in the world, has a loan default of Rs.44,000 crores. The IDBI Bank has decided to take them to insolvency courts. Lanco was hit by the slowdown in the power sector. Once those high revenues vaporized, banks, too, bunged advancing funds. That led to a liquidity crisis, which squeezed the company.
5.Alok Industries
Alok Industries, once a promising growth story, is now facing the gallows. The company has defaulted on its payment obligations. The National Company Law Tribunal (NCLT) has admitted insolvency proceedings against the textile company, which owes Rs 29,000 crore to a consortium of lenders. The company was among the largest fully integrated textile companies. The company’s performance has been hurt by low plant usage. Industry experts believe a liquidation is a serious option.
