ABG Shipyard’s ~14,000-cr loan declared ‘fraud’ account

ICICI Bank, SBI, IDBI Bank have lion’s share of exposure

The ICICI Bank-led banking consortium to ABG Shipyard has declared its ~14,000-crore exposure to the company as a ‘fraud’ account. State Bank of India (SBI), ICICI Bank, and IDBI Bank have the lion’s share of exposure — in excess of 50 per cent.

With the account being declared ‘fraud’, banks are not expected to make additional provisioning; it has been already classified a non-performing asset.

ABG Shipyard was among the ‘dirty dozen’ companies referred by the Reserve Bank of India (RBI) to be taken up under the Insolvency and Bankruptcy Code (IBC) in 2016.

In terms of fraud ticket size, ABG Shipyard is in the same league as the Nirav Modi case, which singed Punjab National Bank (PNB) in early 2018.

Attempts to reach Rishi Agarwal, the promoter of ABG Shipyard, were unsuccessful.

It has been learnt that SBI was the first to classify its exposure to ABG Shipyard as ‘fraud’, followed by ICICI Bank and IDBI Bank. While the bank-wise break-up of exposure is not available, there are 22 banks in the consortium.

While the big three — ICICI Bank, SBI, and IDBI Bank — have declared the account as ‘fraud’, when 66 per cent of the lenders by value agree it is a fraud, then all lenders in the consortium have to classify it as a ‘fraud’ account. It is learnt that several other banks have also followed suit, and the 66 per cent threshold has been breached.

A few banks also hold equity stake in the company, with ICICI Bank at 11 per cent, IDBI Bank, Oriental Bank of Commerce, and PNB at 7 per cent each, and Dena Bank at 5.7 per cent. This development can affect the resolution process of ABG Shipyard, which is under the National Company Law Tribunal. In the past, Liberty House Group of the UK, Shapoorji Pallonji Group, and Reliance Defence and Engineering (which has since headed towards resolution) had evinced interest in the company.

While amendments to the IBC indemnify a new buyer for the misdemeanours of past promoters, the National Company Law Appellate Tribunal had stayed the transfer of payment by JSW Steel to the creditors of Bhushan Steel, pending an investigation into allegations of fraud and money laundering by its erstwhile promoters.

The classification of the ABG Shipyard account as ‘fraud’ should also be seen in the light of a spike in such cases in the first half of 2019-20, even as it pushes up the ‘outlier’ fraud amounts by ~14,000 crore.

A senior banker said, “It is not clear if the ~14,000-crore ABG Shipyard loans have been captured in the RBI’S latest set of fraud numbers in public domain, as banks need not red-flag fraud accounts at the same time”. It is surmised that the ABG Shipyard account might have come under the central bank’s scrutiny, and it may have asked banks to treat it as ‘fraud’.