New Delhi, Sep 19 (): Debts termed bad by state-owned banks face the heat from newly appointed RBI Governor and Finance Ministry.
Rajan questioned the promoters of companies with huge debts about mismanagement and asked whether it was their divine right. His Deputy Governor Chakraborty has been told to clean up the debts, and start recovering the money.
He wrote in the RBI bulletin that PSU banks took the most hit as their appraisals were not based on information but went with the impression that these companies put out. He could not understand how some power distribution forms with minus net worth got loans. The Finance Ministry has joined the chorus and asked State banks to recover debts through SARFAESI Act which does away with court intervention. It also gives powers to do away with those who mismanaged the company.
Yesterday, Deccan Chronicle Holdings told BSE that BIFR which restructures a company once declared sick has accepted its plea. This checkmates the move of the banks who have moved debt recovery tribunal and reported to RBI as wilful defaulter (this stops funding from financial organizations).
CBI sealed the head office of the company and faces the prospect of having to print from outside press. The board directors are out on bail facing many cases of fraud.
Around Rs 4000 crores debts is riding on it with hardly 25% collateral holding by banks. Kingfisher for two years ran with debt restructuring from banks and the reason was that Vijay Mallya would put in the money got from United Spirits stock sale into the airlines and if this did not happen then they had the assets to cover up for the money they loaned.
Now banks find that stocks of KF that they hold are just pieces of paper and the recovery of the villa in Goa is blocked by a court order. All they managed to get is the airlines head office in Mumbai. Only 25% of the money can be recovered.
Banks foolishly believed Mallya that foreign airlines were in talks to invest in the debt ridden airlines. The KF loan accounts for the decline in Q4 results of SBI. If ICRA is to believed, bad loans of Government banks are on the rise and by March 2014 would touch 5%.
Under the refinancing of bad loans it has given around Rs 2.5 lakh crores to 415 firms till June. RBI maintains that provision for bad loans has been made and it has not become a systemic issue. The crackdown shows that these banks have been trying to make cosmetic changes to loans which they knew was enviable. A review of the debt restructuring is on.
CBI is probing this CDR of companies. Finance Ministry rightfully termed this bad loan issue as affluent promoters with sick companies and said that this cannot go on as this affluence came through siphoning off public money.