De­fault row: Banks ‘mustn’t go solo’

Should Co­or­di­nate With Co-Lenders Of Com­mon Bor­rower, Says SBI Chief

The Times of India (New Delhi edition) - - Times Global - [email protected]

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.

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