NCLT - Loan Shifter

Central Government of India appointed National Company Law Tribunal (NCLT) for taking care of corporate insolvency.

The purpose was to recover money for operational and financial vendors.  NCLT will accept companies brought to it by vendors due to Non Performing Assets. After carrying out the necessary process new bidders will be invited for the insolvent companies. Vendors will look into the terms of acquiring and insolvent companies will be sold to highest bidders.

The tragedy.

Company :

Ruchi Soya Total debt Rs.12, 000 crores

Lenders and exposure:

SBI has the highest exposure to Ruchi Soya at Rs 1,800 crore, followed by Central Bank of India (Rs 816 crore), PNB (Rs 743 crore), Standard Chartered Bank India (Rs 608 crore) and DBS (Rs 243 crore). The FMCG major has a total debt of Rs 12,000 crore. 

Major lenders:

Other lenders include Central Bank of India, Punjab National Bank, Corporation Bank, IDBI Bank, ICICI Bank, Bank of India, Standard Chartered Bank India, UCO Bank, Union Bank of India, Bank of Maharashtra, Axis Bank, DBS Bank Singapore, Bank of Baroda, IDFC-Edelweiss ARC, Dena Bank, Karur Vyasa Bank and HDFC Bank.

Haircut (loss to vendors):

Lenders will take 60% haircut. If loan provided by State Bank of India was Rs.1, 800 crore, it will get Rs.1,080 crores i.e. loss of Rs.720 crores.

Problem :

NCLT approved Patanjali's offer of Rs.4, 350 crore resolution plan.  Source of funds "Patanjali will borrow Rs 1,200 crore from SBI, Rs 700 crore from PNB, Rs 600 crore from Union Bank of India, Rs 400 crore from Syndicate Bank and Rs 300 crore from Allahabad Bank. "

My take:

The acquirers should pay cash for procurement of NCLT cases.

In case of Ruchi Soya exposure of State Bank of India is Rs.1,080 crores (old) + Rs.1,200 crores (new) = Total Rs.2,280 crores.

Why private banks are not providing the loans to Patanjali?

Why only public sector banks have to take bulk of the responsibility?

I reiterate following to Government of India?

1. Do not close public sector banks.

2. Ignore private bankers / industrialist statements on Public sector banks.

3. Ultimate responsibility of economic growth is in the hands of Government private players will walk away with fat bonus after selling the shares. 

This looks very weird.

Business loans -  Hefty haircut (form of waiver)

Agricultural Loans for farmers - Waived

Housing loans by individual - Pay principal with interest on time or before time.

I think repeated waiver of loans to Business and Agriculture will create doubts in the minds of honest consumers. Since there are job crunches and less increase in pay structure for honest employees, it is matter of time when they will also stop paying and will ask Government for waiver. 

Signals:

Consumer loans may be the next big headache for NBFCs: RBI report.

Recommendation to NCLT:

Please display the following data for each NCLT case on the website in a tabular form:

1. Company and promoter name , Directors at the time of NCLT reference

2. Vendor wise total debt (interest should be shown separately)

3. Bids received , bid amount and bidder name

4. Selected bidder

5. Mode of payment i.e. cash , debt

6. Source of cash and debt i.e. vendor name

7. Total money recovered as a percentage of total debt

8. Vendor name and the loss suffered due to NCLT

9. Other debts outstanding by insolvent company

10. Time taken for settlement