Bank­ing blues!

Money Times - - Editor’s Brief - By R.N. Gupta

2018 is to end in a few hours. If there is one thing this year will be re­mem­bered for is the trial and tribu­la­tions that haunted the bank­ing sec­tor both for its eco­nomic out­look but more from the stock mar­ket per­spec­tive es­pe­cially as bank­ing is con­sid­ered to be a proxy for the econ­omy.

Since banks are re­ferred to as lenders, their fi­nan­cial health re­flects the state of the econ­omy to in­vestors and buoy­ancy in this sec­tor is a vote on the poli­cies of the gov­ern­ment of the day in pur­su­ing eco­nomic growth through in­dus­try, agri­cul­ture, com­merce, ser­vices and fi­nally the stock mar­ket.

Is it, there­fore, any sur­prise that cal­en­dar 2017 closed at Sen­sex 34056.83 but 363 days later on Fri­day, 28 De­cem­ber 2018, the Sen­sex closed at 36076.72, up 2,019.89 points, which is a thumbs up to the BJP led NDA’s prag­matic poli­cies. Cor­re­spond­ingly, the Bank Nifty closed 2017 at 25539.45 and touched 27125.3 on Fri­day, 28 De­cem­ber 2018, with a gain of 1,585.85 points while clos­ing this is­sue of Money Times as the pace or re­cov­er­ies caught on. While the loss of fla­vor of bank­ing in the stock mar­kets is un­der­stand­able be­cause mar­kets are volatile by na­ture and in­dus­try sec­tors are fan­cied or dumped with ease, the bank­ing in­dus­try was in tur­moil grap­pling with high NPAs, ques­tion­able val­u­a­tions, high pro­file de­fault­ers, cor­rup­tion and frauds and sheer neg­li­gence right from the top in some cases for the greater part of 2018. The resur­gence in bank­ing stocks is just about one month old. As the gov­ern­ment took stock of the sit­u­a­tion and ways and means to tackle the rot that had set in, some high pro­file de­fault­ers with good po­lit­i­cal con­nec­tions fled the coun­try and set­tled abroad with four of them re­port­edly seek­ing cit­i­zen­ship in tax havens. Th­ese ab­scon­ders fol­lowed the foot­steps of the crick­et­ing czar and IPL founder, Lalit Modi, af­ter the BCCI scam sur­faced in 2010 and he took flight to Lon­don and is holed up there since the last eight years.

But Lalit Modi had not de­frauded banks un­like th­ese in­dus­tri­al­ists and jewellers who be­tween them have si­phoned about Rs.40000 crore. Such was the shock of th­ese de­faults that it be­came po­lit­i­cal fod­der for the Congress to beat the rul­ing BJP in the re­cent as­sem­bly elec­tions. It is a dif­fer­ent mat­ter that all th­ese bank loans were given when the Congress led UPA gov­ern­ments were in power. But that is the boon or curse of pol­i­tics as one party sows while an­other reaps when­ever the gov­ern­ment changes!

The drama­tis per­sonae were avidly fol­lowed by in­vestors as their stock prices had zoomed some time or the other on the charts. Al­though Vi­jay Mallya of the United Brew­eries is the old­est listed group among them, he claims to be more of a vic­tim than a wil­ful de­faulter as he had lit­tle choice as his King­fisher air­line went belly up with no re­lief forth­com­ing ei­ther from the gov­ern­ment or the banks. This may not be en­tirely true as this pro­po­nent of 'Live life king size' had

shrewdly started di­vest­ing stake in his liquor com­pa­nies over the past decade. He now claims be­ing earnest in set­tling the prin­ci­pal amounts owed to the banks out of Rs.9000 crore asked of him.

The crown, there­fore, be­longs to Jatin Me­hta of Su­Raj Di­a­monds, the first jeweller to go pub­lic in 1986 who cashed in on the ex­port boom. His web of com­pa­nies hardly in­stilled con­fi­dence but lead man­ager Grind­lays Bank thought oth­er­wise. If SEBI had ex­isted then and scru­ti­nised the prospec­tus, this is­sue would never had made it. Is it then any sur­prise that al­most 15 years af­ter en­joy­ing the fruits of list­ing, the com­pany rechris­tens it­self Win­some Di­a­monds? And af­ter milk­ing the banks, Me­hta dis­ap­pears into the Caribbean ow­ing over Rs.7000 crore. Jatin Me­hta per­haps was the in­spi­ra­tion for Me­hul Choksi who very ag­gres­sively pro­moted Gi­tan­jali Gems with a host of brands like 'Gili', 'Asmi', 'Nak­sha­tra' etc. with a Bollywood star as the brand am­bas­sador of each brand. Ac­tress Jaque­line Fer­nan­des, the then new Miss Sri Lanka, was flown in by him to the press meet. But this mar­ket­ing savvy jeweller found him­self in deep wa­ters and took one des­per­ate step into real es­tate with his 'Gi­tan­jali Tow­ers' project on the Western Ex­press­way in Bori­vali East in Mum­bai. With real es­tate tak­ing a down­ward turn, Choksi chose to flee In­dia rather than face the bankers to re­pay around Rs.6100 crore.

His nephew, Nirav Modi, was more suave as a dia­man­taire deal­ing with the su­per rich with his ex­clu­sive di­a­monds. His pub­lic is­sue was to fol­low and he was busy cul­ti­vat­ing pow­er­ful politi­cians when the dull stock mar­ket and the sink­ing for­tunes of his ma­ter­nal un­cle made him change his mind. If he is brought to book, he will have to cough up Rs.11400 crore.

But while th­ese three jewellers tried to lever­age their fam­ily back­grounds, the real buc­ca­neer is

Nitin San­desara who has fled to Nige­ria ow­ing over Rs.4000 crore to na­tion­alised banks. This char­tered ac­coun­tant al­ways had his eyes on the stock mar­ket and tried to part­ner a NRI in an off­shore power project in the mid-Eight­ies but was soon sacked for ques­tion­able deal­ings. Later, he sur­faced as the pro­moter of Ensa Steels in Bar­oda and made a place for him­self in the city's fab­ric as the spon­sor of the big­gest 'dan­dia' at Dussehra. With his base in Mum­bai, he cul­ti­vated politi­cians and bankers and ended up with a ge­latin unit in Tamil Nadu, re­named it Ster­ling Biotech and re­peated his earn­ings growth as this stock climbed the charts like Ensa Steels did ear­lier. Know­ing that one can­not fool all the peo­ple all the time, he did the dis­ap­pear­ing act along with his fam­ily.

Th­ese are the ones that got away but there is over five fold to be re­cov­ered from the likes of ABG Ship­yard, Bhushan Steel & Power, Es­sar Steel, Amtek Auto group, J.P. As­so­ci­ates, Mon­net Is­pat, Video­con group, Jet Air­ways, Lanco group, IVRCL and a host of oth­ers re­spon­si­ble for the bank­ing blues that sent many heads rolling in the sec­tor and left no op­tion for the gov­ern­ment but to re­cap­i­talise the banks. Al­though NCLT and IBC have helped re­cover sub­stan­tial amounts, the qual­i­ta­tive im­pact is that it has sent shivers down the spine of de­fault­ers who are now mak­ing rec­on­cil­ia­tory moves, which is a far cry from their brazen at­ti­tude ear­lier. This is a very pos­i­tive out­come which will help the bank­ing sec­tor re­cover and shed the stigma of NPAs that have come to haunt it.

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