Future lenders may ask RBI not to label NPAS
MUMBAI: Lenders to Future group plan to approach the Reserve Bank of India (RBI) to seek an exemption from tagging their loans to the retailer as non-performing assets (NPA), a top banker aware of the matter said. The move comes after Future Retail Ltd (FRL)’S weekend default set the clock ticking for such classification by the end of this month.
Following a 19-month moratorium on repayments, Future Retail was supposed to pay lenders ₹3,494.56 crore on or before December 31. On Saturday, the company said that it failed to meet the repayment obligation. Following this, Care Ratings downgraded Future Retail’s non-convertible debentures, long-term bank facilities and short-term bank facilities to default grade (Care D).
“This is an exceptional case where the account could soon turn non-performing because a deal, despite being signed over a year ago, is stuck in long-drawn litigation. It seems unlikely that the firm would be able to sell non-core assets within next 30 days and repay banks,” the banker said on condition of anonymity.
As part of a debt recast process, FRL was supposed to repay lenders by selling some noncore assets; but, its efforts have not yielded results. An RBI exemption from the NPA classification rule could help banks avoid making hefty provisions, which would erode their profits. On Monday, FRL approached Delhi high court to declare arbitration proceedings in Singapore with Amazon as illegal. “We cannot approach RBI just based on the recent Competition Commission of India (CCI) order and will have to wait for a court to rule on the plea filed by Future seeking to quash arbitration proceedings. If the court entertains the plea, we could then build our case of an extension citing extraordinary circumstances,” the banker said.
As per Care Ratings, FRL owes banks ₹6,278 crore.
Last month, CCI suspended its 2019 clearance for Amazon’s 49% stake purchase in Future Retail’s parent Future Coupons Ltd and penalized it ₹202 crore for allegedly not being upfront about actual scope of the deal.
Future Coupons owns a 7.3% stake in FRL through convertible warrants. As part of the investment accord between Future Group and Amazon, the US company secured the right to buy into Future Retail after three to 10 years, and a veto over selling the firm to several specified companies, including Reliance Industries Ltd. After