Tag: nclt

NCLT orders liquidation of Siva Industries, BFSI News, ET BFSI

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The National Company Law Tribunal (NCLT) Chennai has dismissed the C Sivasankaran application and ordered the liquidation of Siva Industries.

NCLT said that Sivasankaran application under section 12 (A) does not stand. NCLT has also dismissed the SBI application.

Siva Industries and Holdings Limited (Siva Industries) will go into liquidation after the NCLT rejected the application.

This is as per provisions of the Insolvency and Bankruptcy Code where 90 per cent of the lenders had not given approval.

Lenders of Siva Industries and Holdings Limited (Siva Industries), founded by C. Sivasankaran (the former promoter of Aircel) had filed application under Section 12A of Insolvency and Bankruptcy Code 2016 (IBC) in National Company Law Tribunal (NCLT), Chennai Bench for withdrawing the insolvency proceedings against Siva Industries.
Siva Industries and Holding owes Lenders approx Rs 5,000 crore.

The settlement

The lenders to Siva Industries had told the National Company Law Tribunal that they will get 26% of their dues after taking into account third-party guarantors. Operational creditors were to get part of their dues under the settlement plan.

The deal had raised eyebrows as such offers by promoters were rejected in the past.
On the reason why they approved the 12A petition of promoters banks had told the court that if a company is liquidated or in a resolution plan involving a third party, all operational creditors, including tax authorities, are wiped out.

Also, the IDBI Bank‘s claim of Rs 644 crore will be paid while Blackstone-backed International ARC will get an additional amount of Rs 510 crore via land sale, they had said.

Unusual deal

Bankruptcy experts had termed the settlement unusual, citing the rejection of such offers by promoters in the past.
The acceptance of Sivasankaran’s offer differed from the usual pattern of rejection by creditors of such deals proposed by promoters seeking to withdraw their companies from bankruptcy proceedings.

Atul Punj of Punj Lloyd, Videocon’s Venugopal Dhoot, Sanjay Singal of Bhushan Power and Steel, and the Ruias of Essar Steel had all made offers to creditors to persuade them to drop bankruptcy proceedings. All were rejected.
In DHFL’s case, the promoter Kapil Wadhawan had offered to repay the debt in full, but the lenders ruled in favour of Piramal.



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Sanjiv Chadha, Bank of Baroda, BFSI News, ET BFSI

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The CASA ratio moved up from 39% to nearly 40% over last 12 months. That is one abiding benefit for the bank, not only in terms of margins for this quarter but also going ahead, said Sanjiv Chadha, MD & CEO, Bank of Baroda. Edited excerpts:

Congratulations on a healthy quarter in a tough environment. What has led BoB back to profits with low slippages in the first quarter, as well as lower credit cost on a sequential basis?
There are two major aspects which I think have had CASA improve things. One is on the structural side where we have had very tight discipline both in terms of managing liability franchise and also on the asset side. So, on the liability side, when you have abundant liquidity, it is very impossible that you allow deposit growth to run too far ahead of loan growth which creates pressure on margins. We have tried to be disciplined, make sure that our deposits grow in line with our loan growth.

Because we were choosy there, we have been able to make sure that most of the growth has come from CASA deposits. So, the CASA ratio moved up within a year from 39% to nearly 40% over last 12 months. That is one abiding benefit for the bank, not only in terms of margins for this quarter but also going ahead. Similarly on the asset side, there is a lot of liquidity sloshing around, pressure on margins. We are trying to be disciplined there also.

While both slippages as well as credit cost has been lower sequentially, what is the kind of slippages as well as credit cost that you expect? Where do you see gross net NPAs settle at for the financial year close?
We had guided even before the second wave that we would expect slippages to be below 2% and credit cost to be between 1.5% to 2% and bearing towards the lower end of that scale. We believe that despite the second wave we should be able to deliver on the guidance.

Your overall exposure to NCLT accounts is a little over Rs 48,000 crore and the PCR is 94%. To what extent of this amount do you see resolution? What are the overall recoveries and upgrades you expect for the whole bank and from these NCLT accounts as well?
The NCLT accounts tend to be the very highly provided; upwards of 90%. In terms of you might say anticipating in which quarter would it happen is always very difficult and so we do look forward to the resolutions of NCLT accounts. We are making sure that in terms of our recovery efforts and in terms of our recovery budgeting, we are looking beyond the NCLT accounts also. It is very tough to say what will come in which quarter, but I would believe that there are some accounts which probably will happen within this year and they will contribute significantly to the recoveries.

What is your exposure funded and non-funded to Vodafone Idea, how much you have provided for and what is the provision you expected to make?
Our exposure is relatively small, so it is not something which could significantly impact the improvement in the corporate credit cycle we have knocked off.

Let us talk about return ratios and profits from a two-year perspective. What is the improvement that you can expect on those two fronts and how do you see yourself competing with the modern day players that are coming in and making waves in the space?
The question might have two segments, one in the terms of the improvement in the profitability. I think that is something which is likely to be sustained over the next two years simply because we have built strengths in terms of the business both on the asset and liability side. On the liability side in terms of a CASA ratio, which now pretty much compares with the best in the business. Or on the asset side in terms of retail growth, which again have been better than market. So, we are very positive in terms of the structural story.

As we discussed, the improvement in the corporate credit cycle is likely to sustain over the next two years despite the second wave. We have seen even in this quarter the impact on corporate has been very marginal, therefore we can be fairly confident that the improvement that we have seen should continue going ahead.

The structural improvements in the balance of the bank, the earning power that has accrued to the bank from new businesses, and also the cyclical story should again help us have sustainable improvement and get back to return ratios which are very respectable. Coming back to the second part, in terms of the challenge of fintechs, I think it is an opportunity for banks and it is a great opportunity for us to collaborate with fintechs to create new businesses. Even as we speak, we have a very significant digital initiative which is being rolled out where we are collaborating with a large number of fintechs.

We expect that a large part, particularly on the retail side, should be digitised over the next 12 to 18 months and all of this will happen in collaboration with fintechs who would be our partners. I do not see any competition with fintechs as a zero-sum gain which is at the cost of banks, I think it is a great opportunity for the banks to in fact become much more efficient.



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Parliamentary panel that includes former PM Manmohan Singh wants IBC overhaul, BFSI News, ET BFSI

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A parliamentary standing committee led by former Union minister Jayant Sinha set up to examine the workings of the Insolvency and Bankruptcy Code (IBC) has recommended an overhaul of the present system including a threshold rate of haircut for creditors.

The 29 member committee includes former prime minister Manmohan Singh.

Low recovery rates with haircuts as much as 95% and 71% of the cases pending beyond the 180 days timeframe envisaged by the law point towards a

deviation from the original objective of the Code.

“As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of “hair-cut”, comparable to global

standards,” the committee said without specifying what this benchmark could be.

It noted that though the new code has helped in substantially improving credit culture, there are long delays in cases due to the time taken to admit cases, allowing bidders even after the deadline and various challenges to the NCLT judgements.

The committee also expressed apprehension about fresh graduates being appointed as resolution professionals (RPs) expressing doubts over their handling of large cases. It pointed out that regulatory action has been taken in 123 out of the 203 cases examined by the Insolvency and Bankruptcy Board of India (IBBI).

The panel’s suggestions

Only high court judges be appointed to the National Company Law Tribunal (NCLT) to ensure quicker disposal of cases.

Instead of having multiple insolvency professional agencies (IPAs) a single body may be formed to oversee and regulate RPs.

Bring a professional code of conduct for the committee of credtors (CoC) the main decision making body approving a resolution plan and also a set of guidelines for the appointment of RPs to ensure transparency in the CoC.

NCLT should accept defaulters within 30 days and transfer control to a resolution process within this time period.

IBC needs to be amended so that no post hoc bids are allowed during the resolution process.

Involving national law schools so that conduct research, training and also provide support in the form of law clerks.

It has suggested dedicated benches of the IBC within the NCLT and also special benches for micro and small enterprises for quicker disposal of cases.

RPs should also be allowed to sell company assets depending on the demand, in parts to multiple bidders rather than in a block to get maximum value.



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Financial creditors’ insolvency plea valid even after three years, rules SC, BFSI News, ET BFSI

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The Supreme Court has ruled that plea by a financial creditor for initiation of insolvency resolution process against a corporate debtor before the adjudicating authority will not get time barred on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account as NPA.

A two-judge bench set aside an order of National Company Law Appellate Tribunal (NCLAT) by which it had said that application under section 7 of Insolvency and Bankruptcy Code (IBC) of Dena Bank (now Bank of Baroda) for initiation of insolvency process was time barred.

The bench said, “To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years”.

It said that the impugned judgement and order of NCLAT is unsustainable in law and facts and allowed the appeal of Dena Bank.

The case

Dena Bank has moved the top court in appeal against December 18, 2019 order of NCLAT setting aside an order of March 21, 2019 passed by NCLT, Bengaluru admitting the application of the bank for initiation of insolvency proceedings against company Kaveri Telecom Infrastructure Limited and its director C Shivakumar Reddy.

By a letter dated December 23, 2011 the Bank had sanctioned term loan and Letter of Credit Cum Buyers’ Credit in favour of the company, with an upper limit of Rs 45 Crores.

The said term loan was to be repaid in 24 quarterly instalments of Rs 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire term loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.

On September 20, 2013 the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was therefore declared Non Performing Asset (NPA) on December 31, 2013

The rationale

The bench said that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under the provision of the IBC in Form-1.

“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the adjudicating authority committed any illegality or error in permitting the appellant bank to file additional documents,” it said.

The top court, however, said that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

“In our considered view, the decision of the adjudicating authority to entertain and/or to allow the request of the appellant bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal,” it said.

Fresh cause of action

The top court said that a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.

It said that in the instant case the balance sheets and financial statements of the Corporate Debtor for 2016-2017, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the appellant bank in May 2017.

It said that the National Company Law Tribunal (NCLT), Bengaluru had rightly admitted the application of the bank by its order dated March 21, 2019.

Limitation Act

It said that there is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but an application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the schedule of the said Act.

“There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default,” it said.



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Parliamentary panel that includes former PM Manmohan Singh wants IBC overhaul, BFSI News, ET BFSI

Banking & Finance

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A parliamentary standing committee led by former Union minister Jayant Sinha set up to examine the workings of the Insolvency and Bankruptcy Code (IBC) has recommended an overhaul of the present system including a threshold rate of haircut for creditors.

The 29 member committee includes former prime minister Manmohan Singh.

Low recovery rates with haircuts as much as 95% and 71% of the cases pending beyond the 180 days timeframe envisaged by the law point towards a deviation from the original objective of the Code.

“As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of “hair-cut”, comparable to global standards,” the committee said without specifying what this benchmark could be.

It noted that though the new code has helped in substantially improving credit culture, there are long delays in cases due to the time taken to admit cases, allowing bidders even after the deadline and various challenges to the NCLT judgements.

The committee also expressed apprehension about fresh graduates being appointed as resolution professionals (RPs) expressing doubts over their handling of large cases. It pointed out that regulatory action has been taken in 123 out of the 203 cases examined by the Insolvency and Bankruptcy Board of India (IBBI).

The panel’s suggestions

Only high court judges be appointed to the National Company Law Tribunal (NCLT) to ensure quicker disposal of cases.

Instead of having multiple insolvency professional agencies (IPAs) a single body may be formed to oversee and regulate RPs.

Bring a professional code of conduct for the committee of credtors (CoC) the main decision making body approving a resolution plan and also a set of guidelines for the appointment of RPs to ensure transparency in the CoC.

NCLT should accept defaulters within 30 days and transfer control to a resolution process within this time period.

IBC needs to be amended so that no post hoc bids are allowed during the resolution process.

Involving national law schools so that conduct research, training and also provide support in the form of law clerks.

It has suggested dedicated benches of the IBC within the NCLT and also special benches for micro and small enterprises for quicker disposal of cases.

RPs should also be allowed to sell company assets depending on the demand, in parts to multiple bidders rather than in a block to get maximum value.



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Financial creditors’ insolvency plea valid even after three years, rules SC, BFSI News, ET BFSI

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The Supreme Court has ruled that plea by a financial creditor for initiation of insolvency resolution process against a corporate debtor before the adjudicating authority will not get time barred on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account as NPA.

A two-judge bench set aside an order of National Company Law Appellate Tribunal (NCLAT) by which it had said that application under section 7 of Insolvency and Bankruptcy Code (IBC) of Dena Bank (now Bank of Baroda) for initiation of insolvency process was time barred.

The bench said, “To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years”.

It said that the impugned judgement and order of NCLAT is unsustainable in law and facts and allowed the appeal of Dena Bank.

The case

Dena Bank has moved the top court in appeal against December 18, 2019 order of NCLAT setting aside an order of March 21, 2019 passed by NCLT, Bengaluru admitting the application of the bank for initiation of insolvency proceedings against company Kaveri Telecom Infrastructure Limited and its director C Shivakumar Reddy.

By a letter dated December 23, 2011 the Bank had sanctioned term loan and Letter of Credit Cum Buyers’ Credit in favour of the company, with an upper limit of Rs 45 Crores.

The said term loan was to be repaid in 24 quarterly instalments of Rs 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire term loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.

On September 20, 2013 the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was therefore declared Non Performing Asset (NPA) on December 31, 2013

The rationale

The bench said that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under the provision of the IBC in Form-1.

“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the adjudicating authority committed any illegality or error in permitting the appellant bank to file additional documents,” it said.

The top court, however, said that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

“In our considered view, the decision of the adjudicating authority to entertain and/or to allow the request of the appellant bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal,” it said.

Fresh cause of action

The top court said that a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.

It said that in the instant case the balance sheets and financial statements of the Corporate Debtor for 2016-2017, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the appellant bank in May 2017.

It said that the National Company Law Tribunal (NCLT), Bengaluru had rightly admitted the application of the bank by its order dated March 21, 2019.

Limitation Act

It said that there is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but an application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the schedule of the said Act.

“There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default,” it said.



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Parliamentary panel suggests capping ‘haircuts’ after furore over Videocon, Siva settlements, BFSI News, ET BFSI

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A parliamentary panel has suggested having a benchmark for the “quantum of haircut” in an insolvency process amid instances of financial creditors taking steep haircuts on their exposure to stressed companies.

Besides, the committee has pitched for measures to prevent protracted litigations with respect to an insolvency resolution process.

The Insolvency and Bankruptcy Code (IBC), which came into effect in 2016, provides for a market-linked and time-bound resolution of stressed assets.

Emphasising that the fundamental aim of the Code is to secure creditor rights which would lower borrowing costs as the risks decline, the panel said there is a need for greater clarity in purpose with regard to strengthening creditor rights through the mechanism devised in the Code.

On haircuts

The committee flagged that “the low recovery rates with haircuts as much as 95 per cent and the delay in resolution process with more than 71 per cent cases pending for more than 180 days clearly point towards a deviation from the original objectives of the Code intended by Parliament”.

The committee particularly mentioned about the “disproportionately large and unsustainable ‘haircuts’ taken by the financial creditors over the years”.

In some insolvency resolution processes, the haircuts taken by creditors were more than 90 per cent.

“As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of ‘haircut’ comparable to global standards,” it noted.

A haircut refers to losses incurred by creditors on resolution of a stressed asset.

The suggestions have been made by the Standing Committee on Finance in its report on the ‘Implementation of Insolvency and Bankruptcy Code – Pitfalls and Solutions’. The report was tabled in Parliament on Tuesday.

On delays

It is a matter of grave concern for the committee that the insolvency process has been stymied by long delays far beyond the statutory limits. It is disconcerting that even admission of cases in NCLT has been taking an unduly long time, which thus defeats the very purpose of the Code, the panel noted.

After about half a dozen amendments in five years, the IBC seems to have deviated from its original objectives, thanks to inordinate delay in resolution and the low recovery rate with haircuts running up to 95% in few cases, the Parliamentary Standing Committee on Finance said in a report.

As many as 13,170 insolvency cases involving claims of Rs 9 lakh crore are awaiting resolution before the National Company Law Tribunal (NCLT), the report tabled in the Lok Sabha on Tuesday said.

The committee also pointed out that there have been instances of frivolous appeals, which further drags the resolution/ recovery process leading to severe erosion of asset value.

Abuse of provisions

The panel said it would therefore recommend that misuse/ abuse of well-intended provisions and processes should be prevented by ensuring an element of finality within the statutory stipulated period without protracted litigation.

There have been six amendments to the Code so far.

According to the committee, any legislative enactment and implementation need to constantly evolve to meet the challenges in the ever-changing ecosystem.

However, the panel said it is of the opinion that “the actual operationalisation of amendments made so far may have altered and even digressed from the basic design of the statute and given a different orientation to the Code not originally envisioned”.



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PNB expects recovery of Rs 14,000 cr in 3 qtrs; Rs 4-6K cr profit in FY22, BFSI News, ET BFSI

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New Delhi, Aug 3 (PTI) State-owned Punjab National Bank (PNB) on Tuesday said it expects a recovery of Rs 14,000 crore from bad loans during the three quarters and earn a profit of Rs 4,000-6,000 crore in 2021-22 aided by rationalisation of expenses along with robust recovery. Controlling the expenditure has got multiple dimensions, one of them is rationalisation of branches, PNB managing director S S Mallikarjuna Rao told reporters.

“We have succeeded in rationalising more than 500 branches. We are expecting to rationalise 1,000 branches by March 2022, which will give huge amount of reduction in the operational expenditure,” he said.

Currently, the bank has about 10,641 branches across the country.

On the recovery side, he said, the bank expects Rs 5,000-5,200 crore from NCLT cases by March 2022. This will help reduce bad debt or non-performing assets by about Rs 12,000 crore.

“In normal recovery we generally get around Rs 3,000 crore per quarter. So, another Rs 9,000-10,000 crore we are expecting in normal recovery,” he said.

Rao exuded the confidence that the bank should earn annual profit between Rs 4,000 crore and Rs 6,000 crore aided by strong recovery and cost rationalisation during the current financial year.

“Guidance for 2021-22 would be Rs 4,000-6,000 crore…at the balancesheet level the cost of deposits have been reduced drastically, cost to income ratio has been reduced, yield on advances has come down,” he said.

Besides, recoveries from NPAs where provision coverage ratio is 80 per cent, these will be write back, he said.

“So 50 per cent of profit will be contributed by the write back during the year. So profit would come from mix of cost rationalisation and write back,” he said.

With regard to further capital raising, he said, if you look at the capital adequacy ratio, it is 15.19 which is adequate to take care of 8-10 per cent credit growth.

“However, PNB, being a big bank, in order to insulate itself from the capital requirement for future and not to depend on the government, we will definitely look at discuss about it one month or so and take a call on that,” he said.

This exercise would be with a view to generating buffers not for meeting business requirement, he said. Currently, the government holds 73.1 per cent in the bank.

On the perceived threat on the telecom sector due to the AGR order of the Supreme Court, he said all the telecom players are requesting the government to look at it. “So the developments in the last few days are areas of concern for the banking industry,” he said.

PNB’s exposure is not very high that is going to impact the balance sheet, he said, adding “however, we will be definitely discussing with other bankers to see what kind of action we need to take going forward considering the statement of K M Birla only yesterday.”

The Supreme Court last month said it would pass orders on applications filed by telecom majors-Vodafone Idea, Bharti Airtel and Tata Tele Services Ltd-raising the issue of alleged errors in calculation in the figure of adjusted gross revenue (AGR)-related dues.

The apex court in September last year had given 10 years time to telecom service providers struggling to pay Rs 93,520 crore of AGR-related dues to clear their outstanding amount to the government.

Rao also said PNB will divest its stake in Canara HSBC OBC Life Insurance Company in the next 12 months.

The city-headquartered state-owned bank had acquired a stake in the life insurer post amalgamation of the erstwhile Oriental Bank of Commerce (OBC) into itself last fiscal year. The erstwhile OBC held 23 per cent stake in the life insurer, which by virtue of amalgamation has come to PNB.

Canara Bank owns 51 per cent stake, while HSBC Insurance (Asia Pacific) Holdings Ltd as a foreign partner owns 26 per cent.

It is also a promoter of another insurer PNB Metlife Insurance, owning the highest stake of 30 per cent. The company was set up in 2001, in which other shareholders include US-based Metlife with 26 per cent, Elpro (21 per cent) and M Pallonji & Company (18 per cent).

As per extant insurance guidelines of Insurance Regulatory and Development Authority of India (Irdai), one promoter cannot hold more than 10 per cent stake in two insurance ventures. PTI DP MR MR



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McNally Bharat gets lender’s notice on ‘wilful defaulter’ tag, BFSI News, ET BFSI

Banking & Finance

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McNally Bharat Engineering (MBE) of financially stressed Williamson Magor group has received a notice from one of its lenders to show cause as to why the company or its promoters and directors should not be included in the list of wilful defaulters as per the Reserve Bank of India’s (RBI) guidelines.

In a stock exchange filing on Monday, MBE informed that it received the show-cause notice from the lender on July 30, and the company is taking necessary action in this regard and will submit a “suitable reply” to the lender.

The group got a major relief in October 2019, when the Kolkata bench of the National Company Law Tribunal (NCLT) had allowed a financial creditor to withdraw its insolvency petition against MBE even after admitting the petition to order the commencement of the insolvency resolution process for the company. The matter had been settled with Trinetra Electronics, the creditor, out of court as it was a small amount.

Apart from Trinetra Electronics, a few financial creditors, including Tata Capital Financial Services, and some operational creditors had also filed insolvency petitions against McNally Bharat.

According to McNally’s annual report, its bankers are: State Bank of India, Punjab National Bank, ICICI Bank, Union Bank of India, Bank of India, IDBI Bank, Axis Bank, Bank of Baroda and Canara Bank, among others.



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Equitas SFB, BFSI News, ET BFSI

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PN Vasudevan, MD & CEO, Equitas SFB, talks about the impact of Covid second wave on collection efficiency. However, he believes that the impact is not going to be long term or structural. Edited excerpts:

It has been a relatively better quarter in a very tough environment and this is on account of the second wave of the Covid-19 pandemic but NIMs have improved compared with the last quarter and operating profit has also improved. There is some stress can you take us through the performance that you have seen?
Yes, I mean we all know that most of the first quarter was really under lockdown because of the wave-2 and people were not able to go out, customers were not able to open their shops, so it was definitely a lot of stress period during this period. Unlike last year, the level of health impact was much higher even though the time period of the wave was so much shorter but the health impact was higher so people were definitely not to take any risk of going out during that time. So, all that did have its impact on our business and collections.

On top of that, this year RBI had announced restructuring program but they had not announced a moratorium period. In our case most of our borrowers are small business people, who when they open their shop, make money and they repay the loans, when they cannot open their shops there is very little that they actually can do. Last year, because of moratorium they were not moved into NPA, they just went under moratorium but this year, since there was no moratorium they either had to pay or ask for a restructuring or their DPD just keeps moving up so that was the scenario this year. We did see an increase in NPA, we went up from 3.6 to 4.6% and we did see a slippage of about 375 crores which was lower than the previous quarter, but still one of the highest that we have seen in the past but very significantly what we have to see, is the level of upgrades. We had an upgrade of nearly about 150 crores.

Can you give us the sense of what the slippages and the recoveries are going to be over the next couple of quarters, I know it is going to be hard to predict but quite a few of the financiers that we have spoken to have said that stress continues in the segments that you operate in?
So, historically our annual slippages have been in the range of around 3-4%, that has been historically our trend of slippages and recoveries used to be around 2%-2.5%. This year, this first quarter we had a spike in the slippage, but we also had a good strong recovery upgrade also happening. So, going forward into the second and the subsequent quarters of the current financial year, we believe that we are mostly through with our wave-2 impact on the books. We have rescheduled about 900 crores between first quarter and July and we have also indicated that we might have a potential restructuring of another between 500 to 700 crores for the rest of the year.

I think mostly the stressed customers should have been fully supported and taken care of and provided for. So, we do not really expect much of slippages like what we saw in the first quarter, we do not really expect that to continue in the second and the subsequent quarters while the upgrades should keep the momentum going because the quality of NPA is much better than what it has normally traditionally been and so we do expect better upgrades but the slippages should significantly come down going forward.

Want to talk about your book and your approach to growing the book, a lot of companies have taken a very cautious stance in light of the current scenario. What approach are you going to take?
If you look at our client profile, most of them are small business people and practically all of them are first time borrowers in the formal financial sector. We have been dealing with this segment of people now for more than 11 years. So, we understand the segment very well and we have a very strong cash flow based credit assessment program which is running on the ground and so we can take a very nuanced call in terms of the credit decision for this profile of borrowers. We are very comfortable with our customer segment. These stresses that we are seeing are all definitely an event triggered temporary kind of a disruption. We do not see it as a structural or a long term kind of an issue in the market or at the customer profile segment. We should continue to be looking to pursue growth as and when the market opens up and supports our operations on the ground.

So, we are not really going to take a call in terms of cutting back or pulling back for fresh disbursement or anything like that. These customers have proven their track record with us for over 10 years and so that is a very strong indication of the quality of these borrowers. So we will continue to keep looking for opportunities to disburse whenever the market is conducive. In terms of credit growth, I think last year we had a 15% credit growth, this year should probably be slightly better than that.

Your liability franchise has been one of the best compared to the other small finance banks, you have strong deposit momentum as well as your CASA ratio is best at 40%. What has actually led to this strong performance here?
Liability has been silver lining in terms of our performance for the last few quarters not just the last one. It has come about, because of a lot of initiatives which were taken by the team and put in place over the last may be six quarters or so. Offering 7% rate for certain buckets of savings pool is just one of them, it is not the only. You know we have put in multiple channels to reach out to specific set of customers. Our NRI segment is doing really well, we had more last year into our VRM channel, that is virtual relationship manager channels, we are now providing a relationship manager service to a set of depositors at a level–where there have not been services through our RM channel in the other banks.

We are able to do that on cost effective basis through our VRM channel and our map book on the high net worth individuals also has been growing very strongly. So, we have improved and increased our product offerings and range to depositors. Today, our product holding of more than two product per client is in the range of around 70% of our depositors, so there have been multiple efforts done and to top up all of this is our digital foray which we commenced last year in the month of Jan-Feb.

We have launched our Selfe savings account programme, where people can open an account online in a matter of a few minutes and that has been doing well and then we had a tie up with the fintech company also about few months back, adding further momentum to the whole CASA story.

One of the factors that the street has been keenly watching is the merger of Equitas holdings and Equitas Small Finance Bank. Can you take us through what we can expect and how this is going to take place?
So, we have got an approval from RBI that we are to apply for the merger before the end of our five year period. Our five year ends on 4th of September this year, we had a board meeting last week and the board of both the companies have approved the merger with the swap ratio of 226 shares of the bank for every 100 shares of the holding company held by the shareholders of the holding company. So, the applications have been made to the stock exchanges and RBI and we need to get the RBI approval, we need to get the exchanges approval, we also need to get the SEBI approval and once we get all these approvals, then we would have to apply to NCLT and then convene shareholders meeting and shareholders’ approval will be taken and subsequently NCLT will have to approve, so all of these approvals we believe could take about an year’s time. We can bring this entire merger process to your completion by then and the shareholder of the holding company when we went public in 2016, we had made it clear right then also that at the end of five years, the hold co. will seek to merger of the bank because we never intent that the hold co. will do any business of its own and so continue to exist independently. We had always indicated that as our way forward and I think today what we are doing is really a culmination of that process and hopefully we should be able to deliver on the promise that we have made in our 2016 IPO of the hold co.

Can you take us through what is your overall growth strategy over the next three to five years also is there an intent to convert to a universal finance bank?
You know we are eligible to apply as per RBI guidelines, we are eligible to apply for a universal bank licence at the end of five years. As I mentioned, we will be completing five years by 4th of September this year, and post that the board will take a call and subsequent approval by the board, we should be applying to RBI for converting into universal bank. We really do not know exactly what will be the procedure that will be followed, so we are probably the first finance bank which will be seeking conversion into universal bank, so we will have to figure out how the process will work.

We really do not have an idea in terms of how long it will take etc. but be that as it may, as far as the bank is concerned, whether we are a universal bank or small finance bank, I do not see any particular change in our strategy or positioning at all. Our focus on the different profile of borrowers will continue to remain exactly where it is, we have built a very strong strength in funding and in understanding the credit capabilities and collection mechanisms of the low income group, so, our focus will continue to remain on that and we will continue to build on our strength that we have built over the last 10-12 years. Over a three year-five year period, if you look at it we should be continuing to grow at around 20-25% growth, that is something that we should continue to look at going forward on a sustainable basis. Historically, we have seen as high as 35 percent growth. Even if we get the licence of universal bank, I do not think that is going to change the focus of our business.



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