Er­ror in re­port­ing in­flates AU SFB’S wil­ful de­faults

Mint ST - - NEWS - Shayan.g@livemint.com MUM­BAI

Lender sees 10-fold se­quen­tial jump in wil­ful de­faults in Septem­ber quar­ter to ₹179 cr

too far ahead,” to give them flex­i­bil­ity, he said.

By keep­ing the door open to a fourth 2018 hike in De­cem­ber, of­fi­cials are stick­ing to their grad­ual up­ward path, try­ing to pro­long the sec­ond­longest US ex­pan­sion on record with­out mak­ing an er­ror. Leav­ing mone­tary pol­icy too loose risks stok­ing ex­cess in­fla­tion and as­set bub­bles, while tight­en­ing too fast could cause a re­ces­sion.

The unan­i­mous 9-0 de­ci­sion left the bench­mark fed­eral funds rate in a tar­get range of 2% to 2.25%, fol­low­ing eight quar­ter-point hikes since late 2015.

The in­ter­est rate the Fed pays banks on ex­cess re­serves—a tool for keep­ing the ef­fec­tive funds rate within the Fed’s tar­get range—was left un­changed at 2.2%, as ex­pected. Stocks slipped and the dol­lar ex­tended gains af­ter the de­ci­sion was an­nounced, with the S&P 500 In­dex clos­ing 0.3% lower at 2,806.83.

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An er­ror in re­port­ing wil­ful de­fault­ers to credit in­for­ma­tion com­pany Tran­sunion Ci­bil by AU Small Fi­nance Bank (SFB), be­cause of du­pli­ca­tion of out­stand­ing loans, has led to a 10-fold rise in the bank’s wil­ful de­faults.

Data from Tran­sunion Ci­bil shows that the Jaipur-based small fi­nance bank’s wil­ful de­faults jumped to ₹179 crore in the Septem­ber quar­ter of FY19 from ₹18 crore in the June quar­ter.

How­ever, a look at the ge­og­ra­phy-wise dis­ag­gre­gated data shows that ev­ery di­rec­tor and co-bor­rower has wrongly been shown to have the same in­di­vid­ual out­stand­ing loan as the com­pany, thus lead­ing to the hugely in­flated num­ber.

A wil­ful de­faulter is a bor­rower who has de­faulted in re­pay­ing loans to lenders even when it has the ca­pac­ity to do so or if it has not uti­lized the loan for the spe­cific pur­poses for which fi­nance was availed of and has in­stead di­verted the funds for other pur­poses. Other cri­te­ria in­clude si­phon­ing-off of funds and dis­pos­ing of or re­mov­ing mov­able fixed as­sets or im­mov­able prop­erty for se­cur­ing a term loan with­out the knowl­edge of the lender.

For in­stance, in Mad­hya Pradesh, Gopi Pipe House owes AU SFB ₹4.6 crore, but data shows each of the two other co-bor­row­ers also owe ₹4.6 crore in­di­vid­u­ally. This gives the im­pres­sion the wil­ful de­faulter’s out­stand­ing loans are ₹13.8 crore, in­stead of ₹4.6 crore.

In an­other in­stance, wil­ful de­faulter Kotecha In­dus­tries Ltd owes ₹3 crore, but its di­rec­tors are shown to owe ₹3 crore each as well, lead­ing to an in­flated num­ber of ₹15 crore. In an emailed re­sponse, Su­nil Par­nami, chief of M&A and in­vestor re­la­tions at Au SFB, said the bank was only try­ing to com­ply with RBI’S direc­tives when it re­ported bor­row­ers and co-bor­row­ers, along with the en­tity.

“(The RBI direc­tives) re­quire that once a per­son is de­clared a wil­ful de­faulter, many sanc­tions are im­posed on them like no fur­ther lend­ing, no di­rec­tor­ship, (and com­menc­ing) crim­i­nal ac­tion against them,” said Par­nami.

Re­port­ing just their names with­out the amount would not suf­fice, which is why the amount gets re­peated, he said.

The bank clar­i­fied that it has re­ported two new bor­row­ers of ₹21.74 crore in the Septem­ber quar­ter and that the ac­tual wil­ful de­faults stood at ₹39.34 crore, in­stead of ₹179 crore as shown on Tran­sunion Ci­bil’s database.

An email sent to Tran­sunion Ci­bil did not elicit a re­sponse till press time.

Other lenders, data showed, have not faced this prob­lem as they have clubbed all di­rec­tors un­der one col­umn and the to­tal out­stand­ing loan of the com­pany in a sep­a­rate one.

RBI has man­dated banks to sub­mit a list of suit-filed ac­counts and non-suit filed ac­counts of wil­ful de­fault­ers of ₹25 lakh and above on a monthly or more fre­quent ba­sis to credit in­for­ma­tion com­pa­nies. Only a hand­ful of lenders have sub­mit­ted their wil­ful de­faulter data for the Septem­ber Wil­ful de­faults in the bank­ing sys­tem stood at ₹1.9 tril­lion, with State Bank of In­dia hav­ing the largest share at ₹34,159 crore, as per June quar­ter data. quar­ter. Ac­cord­ing to June quar­ter data, wil­ful de­faults stood at ₹1.39 tril­lion, with State Bank of In­dia hav­ing the largest share at ₹34,159 crore.

Iden­ti­fy­ing a wil­ful de­fault is not easy. The ev­i­dence of wil­ful de­fault is ex­am­ined by a panel headed by an ex­ec­u­tive di­rec­tor and two other se­nior of­fi­cers of the rank of gen­eral man­ager or deputy gen­eral man­ager of the bank. If the panel con­cludes that wil­ful de­fault has oc­curred, it is­sues a show-cause no­tice to the bor­rower and calls for their sub­mis­sions. Af­ter con­sid­er­ing the sub­mis­sions, it is­sues an or­der on wil­ful de­fault, giv­ing the rea­sons.

The or­der of the panel is then re­viewed by an­other com­mit­tee headed by the chair­man or man­ag­ing di­rec­tor and chief ex­ec­u­tive of­fi­cer of the bank and con­sist­ing of two in­de­pen­dent di­rec­tors. The or­der be­comes fi­nal only af­ter it is con­firmed by this re­view com­mit­tee.

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