Tag: infrastructure

The biggest mistake we made was we did not go to the bankers before going court: Hemant Kanoria

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“In hindsight, the biggest mistake we made was that we did not go to the bankers before going to the Court (National Company Law Tribunal/NCLT),” said Hemant Kanoria, former promoter of the Kolkata-based SREI Group. Kanoria was referring to an application filed last year by Srei Equipment Finance Limited (SEFL), a material wholly-owned subsidiary of Srei Infrastructure Finance Ltd (SIFL), for approval of a proposed Scheme of Arrangement with the creditors and SEFL for re-alignment of debts under Section 230(1) of the Companies Act, 2013. However, the Reserve Bank of India (RBI) superseded the Board of Directors of SIFL and SEFL on October 4, 2021, owing to governance concerns and defaults by these companies in meeting their various payment obligations and placed them under an Administrator (Rajneesh Sharma, Ex- Chief General Manager, Bank of Baroda). NCLT, Kolkata, accepted the central bank’s application on October 8, 2021, to initiate corporate insolvency resolution process (CIRP) against the aforementioned companies. In an interaction with BusinessLine, Kanoria observed that he will weigh, as erstwhile founder of the infrastructure finance company, if he can participate in the CIRP. He emphasised that SEFL had earlier received expression of interest from 11 investors and many of them would be interested to come back and make investment via CIRP. Excerpts:

Will you be able get back your company?

If we see someone (investor) coming and giving a very good value for the company and all the creditors are able to get their full payment, we’ll be very happy. But if people are trying to take the company for a ride and give a lower bid, we may have to come in and intervene…we are quite sure there are sufficient securities/ assets, arbitration awards, which may take a little time (to realise)…Unfortunately the infrastructure sector has been very badly impacted, because everything was derailed, and to bring things back on the rails takes time.

How did your group get into a spot?

Last year, when Covid happened and when the lockdowns began, most of our clients — construction companies and contractors, along with infrastructure companies, started facing problems. Their work came to a standstill. They were not able to get their money because government offices were closed. There were claims cases, which were in the courts, and all that came to a standstill. So, the whole cycle stopped.

RBI subsequently come out with guidelines for extending moratorium to our clients and offering them refinancing/ restructuring. That was a good move. If it had not been done, all of them would have defaulted. But, at the same time, this (moratorium) was not extended to NBFCs (who had taken loans from banks) because for the consumer-lending NBFCs it was not required as their average tenure of lending was short.

Given that we are an IFC, all of our lending was medium to long-term. Unfortunately, we being the only company in this particular (infrastructure) sector, the RBI could not have had a special dispensation/ guidelines for us.

Why did your attempt to realign debt fail?

Until and unless there was stress, we could not go in for a realignment of the debt. And that time there was no loan outstanding. So, the only alternative for us to deal with the loans from banks was to do a debt realignment under Section 230 of the Companies Act as that allowed us to do realignment in consultation with the creditors and with their consent.

We moved under Section 230 last year in October for making full payment along with interest to all the banks…and we said that the entire loan be converted into debentures and the whole payment can be made over a period of certain time along with interest.

And if this scheme was not acceptable to the bankers, they could have revised it. Unfortunately, the bankers did not like that we went to court because they thought going to the court was fighting against them. But actually it was not fighting. It was only facilitating so that repayments can take place in a structured manner and the company could continue in the proper manner without disruption being caused to the company due to either mismatch on the asset liability side or in any other matter.

And also our clients were not in a position to pay back timely because all their money was stuck up.

Were bankers uncomfortable with the idea of conversion of loans into debentures?

Anticipating all the aforementioned developments, we moved NCLT in October 2020. But in November, the bankers put a restraint on the operations of the company and also created a trust and retention account where all the cash flows were captured by them. In December last year, we had to move all the other creditors (secured debenture holders, unsecured debenture holders, secured ECB lenders, unsecured ECB lenders, PDI holders and individual debenture holders of SEFL) also for a realignment of the debt. However, at no particular time we had offered any haircut to the bankers. At no particular time we had asked for any sacrifice on the interest etc, it was full payment, because we were sure that we will be in a position to pay all the creditors in a structured, orderly fashion. And that was the reason why we moved the court and there was no other intention. But we found that this pre-emptive move was not taken very well by the bankers or by RBI.

The RBI flagged connected lending. What do you have to say on this?

The RBI raised certain issues about connected parties or related parties (lending) etc. It identified certain parties, being borrowers of SEFL, as probable connected/related companies. But there is a process which the company follows. We have a very strong board of directors and all the decisions are taken through committees etc. So, therefore, when any borrower is brought in by the team members, the appraisal is done on the basis of the project, cash flows, security, which the borrower offers, and after that, in the event that that particular borrower falls under related party or connected entity then there is a process again, which is followed through the compliance, legal and the Secretarial department to see whether it falls under related party or connected party under the Companies Act and Ind-AS. And if it does, then it is adequately reported to the audit committee of the board. If it does not, then it is not reported to the audit committee of the board. We have inspections going on by RBI, we have various other internal audits, statutory audit which keeps going on and this is not something which is new.

So, all of a sudden.. the RBI took exception to it…Borrowers which are there will be classified under the connected party…I’m only talking about the connected entities. But most of them are companies which are under the Alternative Investment Fund. Srei Infra has an investment in that AIF. They are only managers and this is third party money.

So, therefore, just to give you an example, suppose a Bank’s mutual fund arm has invested in the debt paper of an automobile company. The MF is only a manager, investing third party money in the debt paper. Now, if the bank gives a loan to this automobile company, will the company become a connected party for the bank? Under no stretch of imagination does it becomes a connected party. So, similarly, in the case of AIF and SREI that is the relationship which is there.

Because the RBI mentioned that these are probable connected parties, they were adequately reflected in the balance sheet of March 31…There is no distinction in the process which is being followed for any loan the company gives. All the borrowers assets are seen, securities are seen, cash flows are seen and proper evaluation is done. So, there has been no dilution in the processes which have been followed.

Why did you opt for debt realignment under Section 230 of the Companies Act?

We went under Section 230 so that the company does not end up being in default. Because we have so many lenders, both domestic and international, and bond holders (almost about 70,000-80,000 bond holders), going to everyone independently would have taken a lot of time and would have resulted in the company getting into a big problem.

But in hindsight, I think that the biggest mistake we made was that we did not go to the bankers before going to the court. We should have first gone to them, discussed with them, and then gone to the court… We thought if we go through the court route, we will be able to deal with many creditors on one platform and the scheme that we had given was very, very fair. There was no haircut to anyone at all. But by taking the company through CIRP, we do not know what the result will be. From our end, that is the reason we have reached out to the Administrator, the RBI and the creditors that whatever support or help that is required, we are very happy to provide that because we want the institution to get back on its feet as soon as possible. So that is our only intent — to see that all the creditors are paid off because there are sufficient assets in the company, there are claims (court), there are assets/ securities. So, that someone needs to very intensely follow up to find out solutions.

We have investors who are quite keen to come in and…about 11 Expression of Interest had already come in. Many of them would be interested to come back (via CIRP) and make investments.

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Deepak Jain to take over as the new Chief Risk Officer of AU Small Finance Bank, BFSI News, ET BFSI

Banking & Finance

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In a regulatory filing of sunday, AU Small Finance Bank announced the appointment of Deepak Jain as the new Chief Risk Officer for a tenure of 3 years.The commencement of his duty will begin September 1, 2021. Jain will restore the position of Alok Gupta the ex chief risk officer who abdicated on personal grounds this year on july.

He has vast and diverse experience and knowledge across accounts, finance, operations, it, audit and risk management. Over the years, he has handled various responsibilities with ease, precision and has always focused on building the robust processes, systems, and control mechanisms for ensuring sustainable and balanced growth of the bankAU Small Finance Bank

Jain is a qualified chartered accountant, with an overall experience of 23 years including 12 years with the bank as CFO and COO. In may 2010 , AU Small Finance Bank Limited appointed Jain as CFO and later designated as COO in April 2020.

“He has vast and diverse experience and knowledge across accounts, finance, operations, it, audit and risk management. Over the years, he has handled various responsibilities with ease, precision and has always focused on building the robust processes, systems, and control mechanisms for ensuring sustainable and balanced growth of the bank,” said AU Small Finance Bank in a statement.

He governed various segments incorporating finance and accounts, taxation and corporate and securities laws; credit processes, operations and information technology; and collections and legal and Infrastructure.

He is also the chairman of some of the board-delegated committees (executive committees), and member of others.



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Finance Ministry exploring insurance bonds as alternative to bank guarantees, BFSI News, ET BFSI

Personal Finance

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The government is considering to introduce insurance bonds as an alternative to bank guarantees, Finance Secretary T V Somanathan said here on Tuesday. Somanathan made the announcement during a meeting between industry captains and Finance Minister Nirmala Sitharaman, who is on a two-day visit to the financial capital.

“Government is exploring on instituting insurance bonds as alternatives to bank guarantees,” an official statement said.

Bank guarantees are usually asked for while extending a loan and typically require a collateral. An insurance bond is also a surety but it does not require any collateral.

As per reports last year, insurance regulator Irdai was also looking at the option of insurers offering surety bonds in the context of road projects.

Sitharaman, who met the industry captains in the evening, said the government is committed to working towards ensuring policy certainty, adding that the regulators also have a key role in ensuring the same.

She said the government is working with the regulators on this “important issue”, as per the statement.

The finance minister emphasised the importance of ‘India’s own equity capital’ while addressing the industry and assured government facilitation for sunrise sectors and startups.

Revenue Secretary Tarun Bajaj said his department was working on tax-related issues of startups and sought industry inputs on the same.

Sitharaman also assured the industry of addressing issues related to competitiveness, including high power tariffs, and matters related to cumbersome regulatory compliances, the statement said.

The economy is moving gradually from a bank-led lending model to a more market-based finance model and the operationalisation of the Development Finance Institution (DFI) will ensure long-term lending for projects, Sitharaman said.

The DFI will increase competition for banks and also improve their efficiency, the statement quoted her as saying.

In the meeting, which comes in the wake of a controversy caused by her cabinet colleague Piyush Goyal’s reported remarks about disenchantment with the industry for not keeping the nation’s interest in mind, Sitharaman said, “This government believes in listening, working and responding and would extend all possible support.”

Tata Steel’s T V Narendran said for growth to take deep roots, sustained demand is critical, and the immediate source of demand has to be government expenditure.

Narendran also recommended frontloading of the committed capital expenditure, especially on infrastructure, adding that the first quarter’s handsome revenues create a room for the same, as per the statement.

On the issue of arbitration awards being appealed, Somanathan said there is a need for a behaviourial change and added that the government trusts wealth creators.

The constraint on vaccination is on the supply side and the same is likely to be addressed soon, he further said.

Sitharaman met officials from income tax, Goods and Services Tax (GST) and customs departments in two separate meetings in what is her maiden visit to the financial capital since the second wave of COVID-19.

She is scheduled to address chiefs of state-run banks at a meeting on Wednesday.



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HDFC Bank plans to raise funds via AT-1 bonds from overseas market, BFSI News, ET BFSI

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NEW DELHI: HDFC Bank on Monday said the bank plans to raise capital by additional tier- I (AT1) bonds in the overseas market to fund its business growth.

The bank is expected to raise up to USD 1 billion from these dollar denominated bonds.

“We hereby inform you that the bank had approved the issuing of debt instruments in the form of the notes, subject to market conditions,” HDFC Bank said in a regulatory filing.

An offering memorandum (OM) has been prepared and shall be made available to the prospective investors in relation to the contemplated issue of notes, it said.

The notes will not be offered or sold in India under the applicable laws, including the Companies Act, 2013, as amended from time to time, it added.

Earlier in April, the bank had informed that it is planning to raise up Rs 50,000 crore during the next 12 months through issuing bonds.

“The bank proposes to raise funds by issuing perpetual debt instruments (part of additional tier-I capital), tier-II capital bonds and long-term bonds (financing of infrastructure and affordable housing) up to a total amount of Rs 50,000 crore over the period of the next 12 months through the private placement mode,” HDFC Bank had said.

Perpetual bonds carry no maturity date, so they may be treated as equity, not as debt.



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Bankers hopeful of a revival in corporate loan growth as economy opens up, BFSI News, ET BFSI

Banking & Finance

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Bank credit to industry remains muted, falling 1.7% in the year to date, with companies slashing debt and harnessing existing capacities in a demand environment made uncertain by the pandemic. But bankers expect a revival in corporate loan growth as the economy opens up, making a strong business case for capital expenditure.

Chunky industrial loans, which make up about 30% of non-food credit, have witnessed lukewarm demand so far in 2021, latest central bank data showed, underscoring a trend among companies to conserve cash, deleverage as much as possible, and leave under-utilised the respective loan limits sanctioned by lenders. Retail credit demand has expanded, however, through the period of episodic lockdowns and curbs on mobility.

Both analysts and bankers believe credit demand will now pick up as companies invest for the next cycle of growth. In a report published earlier this month, Japanese investment bank Nomura said growing optimism and abundant liquidity should boost loan demand.

“Banks expect an across-the-board improvement in demand through Q1 2022, with optimism levels the highest for retail loans, followed by manufacturing and services, while infrastructure loan demand lags,” Nomura said. “The simultaneous rise in loan demand and easing of loan supply conditions suggest that credit growth should eventually pick up.”

An uncertain business environment led to muted credit demand from traditionally asset-heavy industries, such as industrial metals, metal products, iron and steel, construction and cement. Instead of adding more debt to their balance sheets, several companies in these sectors sought to deleverage, harnessing cash flows to improve their debt profiles.

Incidentally, better profiles should now encourage many companies to add debt as expansion capital.

“We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned … (for) re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity or capital buffers to tap the emerging opportunity,” ICICI Securities said in a note. “Recovery in economic activity and the derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15%-plus growth over FY22-FY25.”

To be sure, cheaper rates in the local and overseas bond markets meant that companies looked to those sources for their short- and medium-term funding needs instead of banks.

Bankers believe that as companies embark on large projects, loan demand will rebound. For instance, Bank of Baroda reported a year-on-year fall of 10% in corporate loans as it shed low-yielding advances in the first quarter. But CEO Sanjiv Chadha said he expects loan growth to pick up this year, helping the bank expand its loan book by 7% to 10%. That would include a 5% to 7% expansion in corporate loans.

“Retail loans will still grow faster than corporate loans but we are seeing an uptick in demand from road projects, city gas projects and renewable energy projects, which will help the demand for loans,” Chadha said during the bank’s first-quarter earnings call.

Retail loans have expanded 12% on-year, helped by a low base and paced by demand for homes and vehicles. Credit card spending fell.

Home loans expanded 10% and vehicle loans 11% despite the lockdowns through April and May. But outstanding credit card loans fell 12% year-on-year as consumer sentiment was hit by localised lockdowns.

State Bank of India (SBI), which reported a 2.3% fall in corporate loans, also expects the situation to improve this fiscal. Chairman Dinesh Khara said he expects demand from companies to improve, boosting its loan margins, as both individual and industrial borrowers add more loans.

To be sure, demand from industry is crucial to prop up overall credit growth.

“We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be the potential triggers,” ICICI Securities said.



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Axis Bank selects AWS to accelerate digital transformation

Banking & Finance

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Private sector lender Axis Bank has selected Amazon Web Services (AWS) to accelerate its digital transformation programme.

“As part of a multi-year agreement, Axis Bank will draw on the breadth and depth of AWS services, including containers, database, and compute, to build a portfolio of new digital financial services to bring advanced banking experiences to customers, including online accounts that can be opened in under six minutes and instant digital payments, helping the bank increase customer satisfaction by 35 per cent and lower costs by 24 per cent,” AWS, an Amazon.com company, said in a statement on Tuesday.

Axis Bank has deployed over 25 mission-critical applications on AWS, including a Buy Now Pay Later product and a new loan management system to support it, Account Aggregator, Video-Know Your Customer, and WhatsApp banking.

Are Indian banks ready to make the ‘digital-first’ transition?

Axis Bank also plans to migrate 70 per cent of its on-premises data centre infrastructure in the next 24 months to further reduce cost, improve agility, and improve customer experience.

Migration to cloud

Subrat Mohanty, Group Executive, Axis Bank, said, “We believe AWS will enhance our agility and resilience to manage two key features that define our digital business — rapid scale and high velocity. We aim to transition 70 per cent of our infrastructure and applications on the cloud.”

Axis Bank has set up a cloud centre of excellence to accelerate its cloud migration and set the digital foundation for innovating new services. At present, 15 per cent of the bank’s applications are already on the cloud.

Axis Bank Q4 net jumps to ₹2,677 cr

“Cloud is transforming the financial industry and we are delighted to help Axis Bank build and grow a suite of digital banking services that evolve with technology changes, introduce new payment modes, and support evolving consumer and business needs in India,” said Puneet Chandok, President, Commercial Business, AWS India and South Asia, AISPL.

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HDFC Bank to enhance digital banking experience with Digital & Enterprise Factory, BFSI News, ET BFSI

Banking & Finance

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To roll out its new digital products and services in the future and augment its IT Infrastructure, HDFC Bank has launched a Digital Factory and an Enterprise Factory. The dual approach of building the Digital Factory along with an Enterprise Factory is part of the bank’s technology transformation agenda to run and transform the bank. The factories will be pivoted on APIs, data and cloud.

The bank proposes to strengthen capabilities for the Digital and Enterprise Factories by hiring up to 500 people over the next two years, from diverse backgrounds such as data analytics, AI, ML, Design Thinking, Cloud and DevOps.

“The Digital and Enterprise Factories will help us realise the strategy of ‘running’ the bank, while ‘building’ the bank for the future.” said Parag Rao, Group Head – Payments, Consumer Finance, Digital Banking & IT, HDFC Bank. “Since inception, we have led the digital transformation of the Indian financial services sector and continue to invest in technologies to improve customer experience and enhance efficiencies. This is changing the paradigm by redefining financial services and designing products and services by always keeping the customer at the centre.’’ he added.

The Enterprise Factory will upgrade legacy infrastructure, decouple existing systems and build its own capabilities by embracing open-source to build resilience and scale. The bank is also developing future-ready IP technologies and moving to a native cloud architecture in collaboration with fintech, niche technology and large IT companies.



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Housing demand structural, here to stay: Deepak Parekh

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Housing Development Finance Corporation (HDFC) Ltd Chairman Deepak Parekh on Thursday said the demand for housing is not pent-up demand but is structural demand and is here to stay.

“In my 44 years of working in the housing sector, I have to say that the strong demand that one has seen for housing in the recent period has certainly surprised on the upside,” he said at the One World One Realty Global Proptech Summit 2021.

The growth in home loans has been aided by low interest rates, softer or stable property prices and continued fiscal benefits on home loans, he further said.

“Technology has enabled developers to virtually showcase their properties and home loan providers, too, have leveraged their digital platforms to continue to serve new and existing customers,” he said.

HDFC enters into co-lending partnership with Indiabulls Housing Finance

According to Parekh, demand for housing is a combination of first time homebuyers, customers moving up the property ladder by shifting to larger homes; acquiring a second home in another location; and the current work from home situation in which proximity to the workplace is perhaps less compelling.

He also noted that the government’s ‘Housing for All’ programme has given a boost to the sector.

Under the Prime Minister’s Awas Yojana, as at March 31, 2021, an estimated 1.13 crore homes have been sanctioned, Parekh said. “This has been a game-changer for the housing sector as the ultimate objective is building a more inclusive and property owning democracy,” he said.

HDFC Bank Q4FY21: What is spooking HDFC Bank’s stock

Meanwhile, noting that infrastructure creation is one way to ensure a sustained recovery, without spiralling inflation, Parekh said that construction and real estate development is going to play a key role in all major global economies.

“And now more than ever before, the role of technology and innovation becomes extremely important,”he said, while pointing out that the construction industry is one of the least digitalised sectors in the world.

Stressing the need for digital infrastructure for the real estate sector, he said prop tech companies can play a big role in accelerating the government’s smart city mission as well as help local level bodies and municipalities in terms of facilitating online approvals of building permits.

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Cabinet approves setting-up of DFI to fund infrastructure, BFSI News, ET BFSI

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The Union Cabinet has approved setting up of development financial institutions (DFI) to fund infrastructure.

The institution will have an initial capital infusion of Rs 20,000 crore.

Finance Minister Nirmala Sitharaman said, “Past attempts to have alternative investment funds were taken up, but for various reasons, we ended up with no bank which could take up long-term risk (which is very high) and fund development.”

She added, “The DFI will help raise long-term funds; Budget2021 will provide initial amount and Capital infusion will be of about Rs. 20,000 Cr this year; initial grant will be Rs. 5,000 Cr, additional increments of grant will be made within the limit of Rs. 5,000 Cr.”

On the constitution of the board of DFI, FM Sitharaman said, “Professional board and 50% of them will be non-official Directors. The Chairperson will be an eminent personality and professional standards will be the ground for the directors recruitment. The board will have a power to appoint WTDs. We will attract best of talents’ and we are looking for longer terms and higher tenures for directors.”

To raise further funds, the DFI could be tapping pension funds, large insurance companies and soverign funds. She said, “Development Finance Institution will also have some tax benefits, being given for a 10-year long period and the Indian Stamp Act too is being amended. With this, we hope to be able to attract big pension funds and sovereign funds.”

On the ownership of the DFI, she said, it will start entirely with government ownership and gradually come down but not less than 26%.

FM in her budget 2021 announcement had said, “Infrastructure needs long term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI. I have provided a sum of `20,000 crores to capitalise this institution. The ambition is to have a lending portfolio of at least `5 lakh crores for this DFI in three years time.”



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NHAI, BFSI News, ET BFSI

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The amount of fraudulent transactions from the NHAI accounts with Kotak Mahindra Bank’s Exhibition Road branch in Patna has increased to Rs 32 crore and may be more against the initial claim of Rs15 crore by Patna police, sources said.

However, Patna police officers are tight-lipped on the matter. More than a month have passed since the fraud was detected on January 2. Only four persons, including former manager of Exhibition Road branch, Sumit Kumar, have been arrested so far.

The fraudulent transactions came to light after one Shubham Kumar Gupta (28) of Jehanabad the branch on January 2 to make an RTGS transfer of Rs11.73 crore from the NHAI account to another bank account.

But the Patna police is still not clear about the total amount of fraudulent withdrawal or the time period of the fraud. When asked, Town DSP Suresh Kumar told TOI over the phone on Saturday that as per his information, the amount transacted fraudulently from the NHAI bank account is Rs28 crore.

“Bank authorities are conducting internal audit after which police will get to know the complete details. However, I have asked the bank to provide a report by Monday,” he said, adding that the bank authorities are expert of audit and not the police.

NHAI regional officer Colonel (retired) Chanda Vats told TOI that fraudulent transactions of Rs32 crore from NHAI accounts have come to light. He said Rs32 crore might only be a tip of the total amount withdrawn fraudulently and more could come to light in future.

“The bank authorities are not cooperating with us. They have not provided us reconciliation statement yet, even though we have sought it,” he said.

Vats also said the fraudulent transactions had taken place actually from two separate NHAI accounts, both with Kotak Mahindra Bank’s Exhibition Road branch. He said one account is for Mokama-Bakhtiyarpur national highways project and another is for Patna-Gaya NH project.

“These bank accounts are opened by joint signature of the project director and the district land acquisition officer (DLAO) concerned. The account is later handled by the DLAO. All disbursals to the beneficiaries concerned against their acquired land are made by the DLAO’s signature,” Vats said.

Vats said he will call the bank’s higher authorities to cooperate with NHAI and give details of all transactions or “we would write to NHAI headquarters urging not to do business with them in future”.

Patna DM Chandrashekhar Singh, when contacted, had found no discrepancies from the district administration side. “DLAO transferred from the bank account only to the beneficiaries against land acquisition,” he had said and added: “Report could be taken from NHAI. Only they can tell what has happened with the accounts.”



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