Moneylife: Pune: Friday, 17 July 2020.
State
Bank of India (SBI) response to a shareholder have unveiled strange banking
practices which suggest a callous disregard for recovering bad debts. The
beleaguered Ruchi Soya Industries, whose share prices are rampaging today is a
prime example.
In
FY2019-20, SBI wrote off Rs746 crore of non-performing assets (NPA) of Ruchi
Soya Industries and has not recovered a single rupee from the company. The plan
approved under the Insolvency & Bankruptcy Code (IBC) had indicated that
SBI would recover Rs883 crore against its admitted claim of Rs1,816 crore.
Instead, it made a fresh loan of Rs Rs1,200 crore to Baba Ramdev-led Patanjali
Ayurved to help it acquire the company.
SBI was
part of a consortium of banks that lent Rs3,200 crore to Patanjali Ayurved for
its acquisition. In fact, several banks
led by SBI had made claims of over Rs12,146 crore against Ruchi Soya before the
bankruptcy courts. SBI had the highest exposure of Rs1,800 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). It would probably be safe to
surmise that other public sector banks (PSBs) in the consortium have made
similar write-offs.
The
question is, why are public sector banks (PSBs) not smart enough to protect
their interest by building in some upside while lending to the new borrower,
who is expected to achieve a turnaround? Many private banks insist on
converting loan to equity in such situations and gain from capital
appreciation. In the case of Ruchi Soya, the share price has moved from about
Rs3.50 to Rs1,535 a gain of 43,757.14% since Patanjali acquired the company.
Documents
shared by SBI to Vivek Velankar, president of Pune-based Sajag Nagrik Manch,
and a shareholder of the bank, reveals that there is absolutely no recovery
from Ruchi Soya till March 2020.
Technically
speaking, when debts are written off, they are removed as assets from the
balance sheet because the bank does not expect to recover payment. This
practice is frowned upon by experts but is routinely done by banks as part of
their tax management clean-up process. The beneficiaries are invariably some of
our biggest industrialist defaulters.
In a
regulatory filing in September 2019, Ruchi Soya had said that the National
Company Law Tribunal (NCLT) has approved Patanjali's resolution plan of Rs4,350
crore. The order had stated that, Patanjali would “infuse the amount of Rs4,350
crore” in a SPV (special purpose vehicle) called Patanjali Consortium Adhigrah,
which will be later amalgamated with Ruchi Soya.
In an
exchange filing, Ruchi Soya said the Patanjali group would infuse Rs204.75
crore as equity and Rs3,233.36 crore as debt. Another Rs900 crore will be
brought through the subscription to non-convertible debentures and preference
shares in the SPV. It would also provide a credit guarantee of nearly Rs11.89
crore.
In a
reply to an application filed under Right to Information (RTI) Act, the Reserve
Bank of India (RBI) had told applicant Saket Gokhale that Ruchi Soya Industries
with a debt of Rs2,212 is one of the top 50 defaulters.
Patanjali
Ayurved was supposed to have paid back Rs4,053.19 crore creditors under the
resolution plan. So, either Patanjali Ayurved has repaid part money to
creditors or renewed old loans of Ruchi Soya in its account books.
As
Moneylife had mentioned, during the eight years from FY12-13 to FY19-20, SBI
has 'technically/ prudentially written off’ a massive sum of Rs1.23 lakh crore
from its books, but manged to recover only 7% or Rs8,969 crore in this period.
This makes a mockery of the aggressive claims by a string of high-profile
government spokesperson and economic advisors that a ‘technical’ write-off does
not stop the recovery process. A former chairman of a PSB told Moneylife as a
matter of fact that once a loan turns bad in India, it is almost impossible to
recover anything because it has already been ever-greened for several years.
When
Patanjali completed the acquisition, Ruchi Soya shares were hovering at around
Rs3.50 per share on the BSE. Earlier on 24 July 2019, it hit its 52-week low of
Rs3.28. From January this year, Ruchi Soya share price started moving up. In
fact, on 18 May 2020, it hit a new high of Rs701.25, but slumped till 28th May
2020. After that it started reaching new highs and on 29 June 2020 recorded its
52-week high of Rs1535 per share on the BSE.
On
Thursday, Ruchi Soya closed 5% down at Rs898.15, while the 30-share Sensex
ended the day 1.2% higher at 36,471.
We
emailed SBI asking for its clarification on the debt write off and recovery
from Ruchi Soya or the company's new owners. We have not received reply from
them as yet. We will incorporate SBI reply as and when we receive it from them.
.JPG)
.JPG)
