Default row: Banks ‘mustn’t go solo’
Should Coordinate With Co-Lenders Of Common Borrower, Says SBI Chief
Leh: SBI chairman Rajnish Kumarhas cautioned lenders against undertaking “selfish steps” without coordinating with other creditors involving a common borrower. Kumar was responding to a query on default by Altico Capital, a real estate NBFC lender, triggering concerns that the sector’s troubles are not over yet.
Without naming the lender or the borrower, Kumar said: “I do not have full details of this case, but all banks have to take steps in coordination with others. If any bank undertakes a selfish step, it can have a negative impact on other arrangements. This coordinated approach has been taken by lenders in two other NBFC accounts and it has worked.”
He added; “You may have recovered a couple of hundred crores but if you end up damaging the system, it is not correct.”
On September 3, India Ratings downgraded Altico Capital, which triggered an accelerated repayment clause on the company’s borrowings from a finance company. Fearing defaults, two other lenders — HDFC Bank and another private bank — marked a lien on the company’s fixed deposits, freezing Altico’s funds.
On September 12, Altico informed the stock exchange that it had defaulted on interest payments worth Rs 20 crore due to UAEbased Mashreq Bank. “Our failure to repay the amount set out above may result in acceleration of repayment obligations in respect of debt issued by us and may trigger a default in their timely payment,” the company said.
Altico’s default has sparked a new row among lenders as many feel that the private lenders jumped the gun in se
izing Altico’s deposits. This triggered a chain of events even before lenders could assess the company’s financial position. HDFC Bank sources said that they were not the first to mark a lien on the deposits and they were within their rights to do so.
The SBI chairman’s statement could result in a fresh debate on whose interest should lenders keep forenewspersons on Friday, Kumar said that he had no doubts on the success of the Insolvency and Bankruptcy Code (IBC). “This is the first time that lenders are getting atool for resolution. The purpose of IBC is not loan recovery like the Sarfesi Act where banks seize assets and sell them. If decisions are taken quickly by lenders and processes move fast, we will see a reduction in cases. The law is new and will take time to stabilise,” said Kumar.
Kumar denied that there is risk-aversion among lenders. “There is a demand issue as well. Demand usually picks up in the second half and peaks in the last quarter. There are indications that the flow of credit to the NBFC sector has improved. The auto sector should see an improvement in vehicle financing loans once NBFCs are able to raise funds since they are large players in this area,” said Kumar.