Wednesday 30 December 2015

Financial Terrorists of India 6 CDR failures add Rs 3,000 crore NPAs

Non-performing assets (NPAs) for a clutch of banks is set to go up by close to Rs 3,000 crore in the current quarter solely on account of six failures in the corporate debt restructuring (CDR) cell. The total value of failures for the first eight months of FY16 has risen to Rs 22,303 crore. Reserve Bank of India data showed NPAs in the banking system had risen to 5.1% of total assets from 4.6% in March.
Among the main reasons for debt restructurings not working out are the inability of promoters to infuse the requisite equity capital into the company in the defined period and a delay in repayments post the moratorium. Restructuring schemes also often fail because promoters are unable to sell non-core assets to mobilise resources as promised.
Debt recasts of three companies — Arshiya, Pradip Overseas and Baghauli Sugar and Distillery — worth Rs 2,300 crore failed in November.
In October this year, debt recast of three companies worth Rs 700 crore had failed. Among them was Mumbai-based construction company PBA Infra with a debt of around Rs 220 crore.
According to sources, logistics firm Arshiya with a debt of around Rs 1,000 crore exited the CDR cell in November. In May, lenders to Arshiya, including State Bank of India (SBI) and its subsidiaries, sold their loans to Edelweiss Asset Reconstruction Company.  In 2013, the company had sought more lenient repayment terms which the CDR cell approved at its June 24 meeting.
The Mumbai-based company is promoted by its joint managing director Archana Mittal (63.11% stake) and group chairman and managing director Ajay S Mittal (11.88%). In Q2FY16, the company posted a net loss of Rs 62 crore on the back of Rs 17 crore in revenues.
The second company to exit the CDR cell in November was the Sahara Group-owned Baghauli Sugar based in Uttar Pradesh, which has debt of around Rs 200 crore. According to the Sahara website, the factory has a capacity of 3,500 tonnes sugarcane crushed per day (TCD) upgradable to 5,000 TCD and produces of 24 lakh quintals fully refined sugar by crushing 255 lakh quintals of cane.
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Meanwhile, Ahmedabad-based Pradip Overseas — a manufacturer and exporter of home furnishings — that had debt of Rs 1,050 crore also exited the CDR cell in November. That month, Pradip Overseas told stock exchanges that its net worth had been fully eroded and its reference to the Board for Industrial and Financial Reconstruction had been registered. Major promoters in the company include Pradipkumar Jayantilal Karia (18.61%), Chetankumar Jayantilal Karia (18.61%), Vishal Rameshbhai Karia (8.85%) and Bakul Jayantilal Karia (2.61%). In Q2FY16, Pradip Overseas reported a net loss of Rs 93 crore on the back of Rs 61 crore in revenues.
CDR cell chairman Viney Kumar recently told FE that the cell reviews whether companies are able to meet the annual financial projections. “If the performance exceeds the projections by 25% or more, the company is identified for a successful exit,” he had said, adding that if it fails to meet the projections, the package fails.
Earlier last year, four other companies, whose total debt obligations of Rs 14,000 crore had been restructured to make it easier for them to repay their loans, exited CDR. Once the asset is out of the CDR fold, banks have the option of either writing off the debt or keeping it on their books as an NPA. They can also sell the loan to an ARC as they did with Bharti Shipyard (Rs 5,800 crore) and Hotel Leelaventure (Rs 3,000 crore).
The RBI had allowed lenders to classify restructured accounts under the restructured-standard category till March 2015. However, from April banks have been instructed to classify restructured accounts as NPAs and, given the continued financial strain across corporate India, chances are the NPA portfolios of some lenders could grow bigger.
The CDR cell, which has been inundated with requests for loan recasts in the last couple of years, has not received any recast requests so far in FY16. In FY15, the cell approved 54 cases worth Rs 72,560 crore for recast. Lenders approach the CDR to provide some relief to companies under stress by means of reducing the rate of interest being paid and also offering a 2-3 year moratorium on interest payments

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