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.