Tag: supreme court

How safe deposit lockers have become safer

Personal Finance

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Following the Supreme Court’s directions in February 2021, the Reserve Bank of India (RBI) recently came up with revised instructions for safe deposit locker services being offered by banks. The amended guidelines, which supersede the instructions issued in this regard in 2007, creates liability on banks, which now cannot claim ignorance of a locker’s contents.

The revised instructions will come into force with effect from January 1, 2022 and will be applicable to both new and existing lockers. In light of the proposed changes, we help you understand how safe deposit locker services work.

What is the big change in the latest RBI guidelines vs the 2007 instructions?

The apex court, in February 2021, observed that banks cannot leave the customers in the lurch on loss of/damage to content merely by claiming ignorance of the contents of the lockers. Thus, the new RBI guidelines create a liability on banks under certain circumstances.

When there is loss of contents due to theft, fire, damage to building, negligence or due to fraud committed by its employee(s), the bank will be liable be for an amount equivalent to one hundred times the prevailing annual rent of the safe deposit locker.

However, note that the bank shall not be liable for any damage and/or loss of contents of locker arising from natural calamities or Acts of God such as earthquake, floods, lightning and thunderstorm or any act that is attributable to the sole fault or negligence of the customer. Banks are just expected to exercise appropriate care to their locker systems to protect their premises from such catastrophes.

Further, the new guidelines specifically mentioned that banks cannot, directly or indirectly, offer any insurance product to its customers for insurance of locker contents. Be aware that banks do not keep a record of the contents of the locker, and thus they would not be under any liability to insure the contents of the locker against any risk.

What if I don’t pay the locker rent?

Banks have the discretion to break open any locker following due procedure if the rent has not been paid by the customer for three years in a row.

The new RBI guidelines are vocal about this too following the February 2021 SC judgement that the customers have to be informed before a bank breaks open a locker.

As per the new instructions, the bank shall ensure that it notifies the existing locker-hirer prior to any changes in the allotment and give him/her reasonable opportunity to withdraw the articles deposited by him/her.

After breaking open of locker, the contents shall be kept in sealed envelope with detailed inventory until the customer claims it.

While returning the contents of the locker, the bank shall obtain acknowledgement of the customer on the inventory list to avoid any dispute in future.

Who can get a locker and how does locker allotment work?

You can get a safe-locker facility for your precious belongings (except illegal or any hazardous substance), if you are a KYC-compliant customer with a bank. Even if there is no prior relationship with the bank, you may be given the facility subject to KYC compliance.

Banks must maintain a branch-wise list of vacant lockers, as per the new guidelines. SBI Bank seems to have already offering this service.

One can access SBI’s online locker enquiry at https://tinyurl.com/sbilocker, based on selection of state, district and pin code.

To ensure transparency, banks acknowledge all applications received for allotment of locker and give a wait list number, if there is no availability. At the time of allotment of the locker, the bank will enter into an agreement with the customer on a stamped paper.

As per the current guidelines, banks shall display the model locker agreement on the their website along with all the terms & conditions and the standard operating procedures (SOPs) on various aspects for public viewing.

Can the bank ask me for a term-deposit to avail locker services?

Banks are allowed to obtain a term-deposit, at the time of allotment, to ensure prompt payment of locker rent. Note that the term-deposit requested by banks cannot exceed three years’ rent and the charges for breaking open the locker in case of such eventuality. Banks, however, cannot insist on such term deposits from the existing locker holders or those who have a satisfactory operative account.

Is there a nomination facility for locker services?

Yes. The banks shall offer nomination facility in case of safe deposit lockers as well. You may have to go through the bank’s policy to understand the policy for nomination and protection against notice of claims of other persons. To avoid inconvenience and undue hardship to legal heirs or the claimant, the new guidelines by RBI mentioned the time limit before which settlement of claims to be made to nominee in respect of deceased. It says that the claims are to be settled within a period not exceeding 15 days from the date of receipt of the claim, provided, proof of death of the depositor and suitable identification of the claimant(s) with reference to nomination are submitted.

How secure will my belongings be?

Banks are liable to exercise due care and necessary precaution for the protection of the lockers provided to the customer. The new guidelines further stress on this point as the RBI specifically ask banks to take required steps to ensure that the area in which the locker facility is housed is properly secured to prevent break-ins as well as damage from rain or fire.

In case any customer has complained to the bank that his/her locker is opened without her authority, or any theft or security breach is noticed/observed, the bank is also liable to preserve the CCTV recording till the police investigation is completed and the dispute is settled.

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SC directs DoT not to invoke Airtel bank guarantees for non-payment of Videocon’s AGR dues, BFSI News, ET BFSI

Banking & Finance

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The Supreme Court on Tuesday directed the telecom department not to invoke bank guarantees of Bharti Airtel for three weeks over non-payment of adjusted gross revenue (AGR) dues of defunct telco Videocon Telecommunications (VTL).

A three-judge bench led by Justice L Nageswara Rao allowed Bharti Airtel to go to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) for relief over the issue.

“We’ve made it clear we will not review the (main AGR) judgement. He (Airtel) wants to file an application. We will allow. He (Airtel) says after dues are added now, so you hold your hands for some time till he goes before TDSAT,” the bench also comprising Justice SA Nazeer and Justice MR Shah told Solicitor General Tushar Mehta.

Mehta was arguing that the recovery notice served by the Department of Telecommunications (DoT) on Airtel was as per the court’s AGR dues order. He added that he would contest the jurisdiction of the TDSAT to decide the issue.

The DoT had issued a demand notice on August 17, 2020, asking Bharti Airtel to pay AGR dues assessed at Rs 1376 crore within a week or have the bank guarantees invoked. The dues were of Videocon Telecommunications, whose spectrum was acquired by the Sunil Mittal-led carrier in 2016. Videocon had sold rights to use spectrum in the 1,800 MHz band in six circles to Airtel in 2016 for Rs 4,428 crore.

The Sunil Mittal-led telco said that it had so far paid the government Rs 18004 crore by way of AGR dues, which was more than 10 percent of dues to have been paid by March 31, 2021, as per the top court’s order. DoT has demanded Rs43,980 crore from Airtel towards AGR dues.

Senior advocate Shyam Divan, representing Airtel, said that Airtel was not responsible for Videocon’s dues on account of the spectrum trading deal as the law states that the ‘seller shall clear all dues prior to concluding any agreement for spectrum trading’.

“Our agreement date is 16th March 2016. I am the buyer and the effective date is 18th May 2016. If there was a liability not known to parties at the time, the government has discretion to recover jointly or severely. In our case, it’s common ground between us that it was known liability, so we are not in the realm of unknown liability,” argued Diwan. “The liability is of Videocon, full liability is of the seller.”

The bench intervened, saying “We know where you are heading, but we are not going to review this judgement.”

To this, Divan responded: “We don’t want to review the judgement.”

He added that Rs1376 crore were Videocon’s dues and must be paid by that company. “In fact, DoT has claimed this from Videocon in insolvency proceedings,” said Divan.

Divan said that DoT’s “precipitate action,” “totally affects our working” and sought a stay on the government’s demand notice.

The DoT had filed an affidavit in the SC in April, 2021, saying that Airtel had refused to pay the AGR-related dues of Videocon, despite its demand.

In its response, Airtel, through letters dated 16.10.2020 and 4.3.2021, said that DoT’s demand has “no basis in law” and that Airtel cannot be held responsible for Videocon’s past dues given that the buyer of spectrum is not responsible for dues which were ‘known’ at the time of trade.

As per the DoT affidavit, Airtel added that contrary to its current stance, DoT had never raised such demand from Airtel in the past and maintained its position that these dues were solely recoverable from Videocon.

“…given the clear and categorical findings of the Hon’ble Supreme Court, the trading guidelines issued by DoT and DoT’s own understanding, along with the fact that such demand was never raised on Airtel, is ample testimony to the fact that Airtel is not liable for any outstanding dues of Videocon pertaining to the outstanding AGR dues. i.e. License Fees and Spectrum Usage Charges of M/S Videocon,” Airtel said, as per the DoT affidavit.



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Indian banks brace for bad loans with stronger balance sheets, says new S&P report, BFSI News, ET BFSI

Banking & Finance

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Indian banks’ prior efforts to strengthen their balance sheets will help them mitigate the impact of asset quality as bad loans ticked higher in the April-to-June quarter following a deadlier wave of the COVID-19 pandemic, according to a new report by S&P Global Market Intelligence research.

“Banks have been taking steps to fortify their balance sheets over the last year or so to face the asset quality impact. These have been through enhancing capital base, increasing provisioning cover and having adequate amounts of liquidity,” said Krishnan Sitaraman, senior director at CRISIL, a unit of S&P Global Inc.

The June quarter saw gross NPAs rising, mainly in retail and small and medium-sized enterprise portfolios for banks.

“That is because these segments have been impacted more by the pandemic and the lockdown measures. The pandemic’s second wave has had a much larger health impact and geographical spread as compared to the first,” Sitaraman said.

State Bank of India, the country’s largest lender by assets, reported total nonperforming loans of Rs 1.36 lakh crore for the fiscal first quarter that ended on June 30, up from Rs 1.28 lakh crore in the previous three months and Rs 1.31 lakh crore in the same period of 2020.

ICICI Bank, the second-biggest private-sector lender, said its gross nonperforming assets rose by Rs 7231 crore in the first quarter, mainly from its retail and business portfolio. State-run Bank of Baroda reported fresh slippages of Rs 5129 crore in the first quarter, versus Rs 2740 crores in the prior-year period.

During the fiscal first quarter, Indian banks saw higher-than-expected slippages of more than 200% year over year that largely arose from retail and SMEs, according to an Aug. 16 research note from Jefferies.

Slippages were higher than expected as new COVID-19 restrictions affected collections, Jefferies analysts said, adding that some banks have started to recover in July and normalcy may return in the fiscal second or third quarter.

India’s economy took a severe hit during the second wave of the coronavirus, with the number of daily cases peaking above 400,000 in May. Cases have tailed off in recent weeks as the government stepped up vaccinations.

Still, the high number of COVID-19 cases and deaths are expected to have had a bigger impact on the economy in terms of jobs lost and businesses shut. Also, most forbearance measures announced last year, including a Supreme Court order stopping banks from classifying delinquent loans as nonperforming assets had been lifted after the economy recovered from the initial wave of infections.

Banks are now seeing the full extent of borrower stress with a one-time debt restructuring facility and the Supreme Court’s standstill on NPA recognition no longer available.

“In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal [year] for the system, including us,” said Sandeep Bakhshi, CEO of ICICI Bank, during a July 24 earnings call. Bakhshi expects the bank’s gross NPA additions to be lower in the second quarter and “decline more meaningfully in the second half of fiscal 2022,” based on expectations of economic activity.

Stress tests by the Reserve Bank of India indicated that the bad loans of all banks may rise to 9.80% by March 2022 from 7.50% in the same month of this year under a baseline scenario. However, the bad loans ratio could rise to as high as 11.22% by March 2022 under a “severe stress” scenario for key macroeconomic indicators, the central bank said in its biannual Financial Stability Report released July 1.

“Many banks have set aside higher provisioning buffers and raised capital in the last one year or so. This should help them absorb the rising stress in their retail book,” said Nikita Anand, an analyst at S&P Global Ratings.

“On the other hand, banks with lower provisioning buffers and weaker capitalization could see a sharp impact on their profits and capital levels,” Anand said. “This could be more acute for banks with significant underlying exposure to small business owners or unsecured retail products where loss given default could be higher.”



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RBI standardises bank locker rules, BFSI News, ET BFSI

Banking & Finance

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Reserve Bank of India (RBI) has standardised the rules for opening and maintaining bank lockers across banks, in response to directions by a two judge bench of the Supreme Court in February. RBI has asked all bank boards to frame a agreement for safe deposit lockers based on a model locker agreement to be framed by Indian Banks Association (IBA).

Banks have time to comply with the new norms till January 1 2022 and have to renew their locker agreements with existing locker customers by January 2023, RBI said. Banks have been allowed to obtain a term deposit from the locker holder at the time of allotment covering three years’ rent and the charges for breaking open the locker in case of such eventuality to ensure lockers are used and rent paid on time. “Banks, however, shall not insist on such term deposits from the existing locker holders or those who have satisfactory operative account.

The packaging of allotment of locker facility with placement of term deposits beyond what is specifically permitted above will be considered as a restrictive practice,” RBI said. In case the locker rent is collected in advance, the remaining amount from the advance should be refunded to the customers during the surrender of the locker. In case of a merger or closure or shifting of branch warranting physical relocation of the lockers, the bank shall give public notice in two newspapers (including one local daily in vernacular language) and the customers will have to be intimated at least two months in advance along with options for them to change or close the facility.

Banks have also been asked to formulate a policy for nomination and release of contents to nominees. The contents have to be released within 15 days of the death of the depositor. “In order to ensure that the articles left in safe custody and contents of lockers are returned to the genuine nominee, as also to verify the proof of death, banks shall devise their own claim formats, in terms of applicable laws and regulatory guidelines,” RBI said.

Banks have also been directed to maintain a branch-wise list of vacant lockers as well as a wait-list for the purpose of allotment of lockers and ensure transparency in allotment of lockers. Customers who do have any banking relationship with the bank may also be given the facilities of safe deposit locker/safe custody article, RBI said.



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SC bench, which subjected banks to RTI, to hear fresh objections, BFSI News, ET BFSI

Banking & Finance

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New Delhi: The Supreme Court on Tuesday ordered listing of a bunch of petitions by mega banks including SBI and HDFC questioning a court mandate to provide customer and commercial information to RTI querists to a bench headed by Justice L N Rao, which had ruled that the RBI was bound to provide information sought about operations of banks under RTI.

Agreeing with advocate Prashant Bhushan, a bench of Justices S Abdul Nazeer and Krishna Murari ordered that since a bench headed by Justice Rao had dealt with the issue at length and returned a verdict, it would be in the fitness of things to list the fresh pleas by the banks before the same bench.

The leading banks have moved the SC questioning the efficacy of subjecting them to RTI and said, “banking operations and the financial transactions, including the details of individual accounts, are held in confidence by the banks and that the SC judgment would seriously jeopardise the confidential clauses applicable to the banking operations under various statutes.”

On April 29 this year, a bench headed by Justice L N Rao had dismissed applications by major banks, including SBI and HDFC, for recalling the SC’s six-year-old judgment directing the banking regulator RBI to provide information under RTI about functioning of banks under the Act. Solicitor general Tushar Mehta, senior advocate Mukul Rohatgi and K V Vishwanathan had argued –

“How can the bank breach the trust and faith of the account holder just because a RTI activist desires to know what another person’s bank balance is, or what credit lines he has sought for his business empire for a confidential future venture? No one is against transparency in banking operations.

But, why should the banks, mandated by statute to maintain confidentiality, reveal information in breach of account holders’ trust and reveal future business plans to rivals, who could get the information by employing an RTI activist’s services?”

“We know how and who would use the RTI to seek information about business rivals. If the banks reveal to which sector loans are being given, then there will be no commercial confidentiality for any future project envisioned by an industrial house. A nine-judge bench of the SC has ruled that individual privacy is a part of right to life. Should account holders in banks not enjoy privacy about their bank accounts,” they asked.

Bhushan strongly resisted the fresh move by banks to wriggle out of their obligations to provide information sought under RTI through the RBI.



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Voda Idea Q1 net loss widens to Rs 7312.9 crore; ARPU falls to Rs 104, BFSI News, ET BFSI

Personal Finance

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Vodafone Idea (Vi) posted a net loss of Rs 7312.9 crore in the fiscal first quarter compared to Rs 6985.1 crore in the previous quarter, hurt by slowdown in economic activities which dragged down the revenues of the debt laden telco.

The third-largest operator reiterated its viability concerns unless it manages to raise funds, which in turn depends on the status of statutory dues that it owes the government, and also on other factors such as negotiations with lenders on better terms for repayment.

“The Company’s financial performance has impacted its ability to generate the cash flow that it needs to settle/ refinance its liabilities and guarantees as they fall due, which along with its financial condition, is resulting in material uncertainty that casts significant doubt on the Company’s ability to make the payments mentioned therein and continue as a going concern.,” India’s only loss-making private operator said.

Total quarterly revenue for the cash-strapped operator fell to Rs 9152.3 crore in the April-June from Rs 9,607.6 crore when compared sequentially, the company said in a notice to the stock exchanges on Saturday.

Adjusted gross revenue (AGR), is the moot issue between Department of Telecommunications (DoT) and Vi, and the telco has has filed a review petition in the Supreme Court against DoT’s calculation “errors”.

The DoT has asked for Rs 58,254 crore from Vi, of which the telco has paid Rs 7,854 crore. The telco Saturday said that as of June end, its AGR liabilities, including interest, stood at around Rs62,180 crore, according to DoT’s calculations.

Vi said that the total debt of the Group stands at Rs 191,588.8 crore of which the next instalment of the AGR liability – of around Rs9,000 crore – and debt amounting to Rs 16,853.4 crore is payable in next 12 months.

The results are the first after Aditya Birla Group chairman Kumar Mangalam Birla quit as Vodafone Idea non-executive chairman and as a director on the boad. His resignation had come less than two months after he wrote to the government that he is willing to give up his stake in Vi to any government entity, which can ensure the telco’s survival.

Funds are now the telco’s lifeline and the operator on its attempts to raise Rs 25,000 crore said ” We continue to focus on executing our strategy to keep our customers ahead, and our cost optimization plan remains on track to deliver the targeted savings. We are in active discussion with potential investors for fund raising, to achieve our strategic intent,” said Ravinder Takkar, MD & CEO.

Both parents – Vodafone Group and the ABG – though have refused to infuse fresh equity into the cash strapped telco. The company had cash & cash equivalents of Rs. 9.2 billion at June end.

“The said assumption of going concern is essentially dependent on its ability to raise additional funds …successful negotiations with lenders for continued support/additional funding, monetisation of certain assets, outcome of the review petition filed … Supreme Court and clarity of the next instalment amount, acceptance of its deferment request by DoT and generation of cash flow from its operations that it needs to settle/renew its liabilities/guarantees as they fall due,” Vi said.

It added, “As result of earlier rating downgrades, certain lenders had asked for increase of interest rates, and additional margin money/security against existing facilities. The Group has exchanged correspondences and continues to be in discussion with the lenders for the next steps/ waivers”. Also, the company needs to provide additional bank guarantees of Rs 975.7 crore to avail additional moratorium of one year on spectrum installments for November 2012, February 2014 and October 2016 auctions, amounting to Rs 6439.2 crore. Guarantees amounting to Rs 13,358 crore are due to expire during the next 12 months.

In its review petition, Vi said it has “outstanding utilised facilities” of approximately Rs 47,000 crore from banks, non-banking finance companies (NBFCs) and mutual funds, of which Rs 25,000 crore is from public sector banks, over and above the amount due to DoT.

The company said its subscriber base declined by 12.3 million to stand at 255.4 million subscribers as against rivals Jio and Airtel who have 440.6 million and 321.23 million, respectively. The telco said pandemic related lockdowns impacted gross additions but despite that, its 4G user base was steady at 112.9 million 4G customers.

Its quarterly earnings before interest, tax, depreciation & amortization (Ebitda) reduced to Rs 3,707.7 crore from Rs4,408.7 crore.

Ebitda margins contracted to 40.5% from 45.9% in the previous quarter.

The operator’s average revenue per user (ARPU) was Rs 104, lower than Rs 107 clocked in the previous quarter. Rivals Bharti Airtel and Reliance Jio, have posted an ARPU of Rs 146 and Rs 138.4 respectively in the April-June quarter.



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Hold crypto assets? Here’s how you are going to pay income-tax on it, BFSI News, ET BFSI

Personal Finance

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A cryptocurrency is a decentralised digital asset and a medium of exchange. Bitcoin was the world’s first crypto currency launched in 2009. It was created by a software developer under the pseudonym Satoshi Nakamoto. Based on blockchain technology, over 1,500 virtual currencies such as Litecoin, Ripple, Ethereum and Dogecoin are being actively used and traded globally today.

The cryptocurrency space in India has been subject to significant regulatory challenges. It started with a circular issued by the Reserve Bank of India on 6th April 2018, which restricted banking facilities from being offered to participants involved in cryptocurrency transactions. In March 2020, the Supreme Court set aside the RBI circular, on constitutional grounds and affirmed the virtual currency exchanges’ fundamental right to trade. It is estimated that around 5 million traders in India traded across 24 exchanges, with trading volumes in the range of 1,500 Bitcoins a day translating to a volume of Rs 1 billion. According to moneycontrol.com, the trading volume of cryptocurrency in India increased by 400 percent during the nationwide lockdown.

On 24th March, 2021, in what could possibly mark the first move by the government to regulate cryptocurrencies and related transactions in India, the Ministry of Corporate Affairs has made it mandatory for companies dealing with virtual currencies to disclose profit or loss incurred on crypto transactions and the amount of crypto currency they hold in their balance sheets at the reporting date. These amendments were made in schedule III of the Companies Act with effect from April 1, 2021.

The Indian income tax law is still unclear regarding the tax impact on the gains earned from cryptocurrencies. It is worthwhile to note that India’s tax authorities have not yet categorized returns from cryptocurrencies under any specific bracket and there have been no judicial precedents in this regard.

To understand the taxability of the cryptocurrencies, one should examine the classification of cryptocurrency i.e. is it currency or goods/property?

How are tax cryptocurrency transactions in other countries?
USA: The Internal Revenue Service in 2014 decided cryptocurrencies should be treated as “property”, meaning they should be taxed as capital assets other than in situations when cryptos are earned from mining activities.

Singapore: Businesses that trade virtual currencies in the course of their business are taxed on profits as business income. Entities holding cryptocurrencies for long-term investment purposes are not taxed as there is no capital gains tax in Singapore.

UK: If a person buys and sells crypto assets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade, then it will be taxed as trading profit/losses, else it will be subject to capital gains tax.

Taxation of cryptocurrency transactions in India
If cryptocurrency is to be classified as currency, then the said transaction will not be exigible to taxation under the Income Tax Act, 1961 (“ITA”). Cryptocurrencies are not recognized as currency by the RBI and the word ‘income’ as defined under section 2(24) of the ITA provides an inclusive list not covering ‘money’ or ‘currency’. On the other hand, if cryptocurrency is considered as property/goods, then it would fall under the heads of either ‘Capital Gains’ or ‘Profit and Gains from Business or Profession’.

The fact that crypto currency gains will be taxed is now certain with the Minister of State for Finance, Mr. Anurag Singh Thakur clarifying on 28th March 2021 that “the gains resulting from the transfer of cryptocurrencies / assets are subject to tax under a head of income, depending upon the nature of holding of the same”.

Thus, it is settled that cryptocurrencies will not be treated as currency by India and will be exigible to tax. The key issue is whether income from virtual currency is treated as capital gains or business income. If a seller is a trader by occupation, the income should be taxed as business income. If it is not business income, such income would be taxed in the nature of capital gains.

Taxability under ‘Capital Gains’
Crypto currency can be deemed to be a capital asset if it is purchased for the purpose of investment by a taxpayer. As per Section 2(14) of the ITA, a capital asset means a property of any kind held by a person, whether or not connected with his business or profession. The term ‘property’, though has no statutory meaning, yet it signifies every possible interest which a person can acquire, hold or enjoy. Therefore, any gain arising out of the transfer of cryptocurrency may be considered as capital gains, if it is held for investment.

Infrequent crypto transactions could be treated as long or short-term capital gains, depending on the holding period. If investors hold cryptocurrencies for 36 months or more, the gains would be taxable as long-term capital gains, and if less than 36 months, it would be short-term capital gains. Short-term capital gains are taxable as per the slab rates applicable to a taxpayer. And long-term capital gains are taxed at the flat rate of 20% with the benefit of indexation.

Taxability under ‘Profit and Gains from Business or Profession’:
However, if the transactions are substantial and frequent, it could be held that the taxpayer is trading in cryptocurrencies and any profits thereon would be taxable as business income. Similarly, if cryptocurrencies are held as ‘stock in trade’, then income arising therefrom will attract tax under business income. Therefore, the continuous activity of trading in cryptocurrencies and profits realized will be taxable as business income. Although a position can be taken by the revenue authorities that such trading is treated as speculation income which would adversely impact taxpayers.

In conclusion, virtual currencies can boost India’s digital infrastructure and reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance. We still need clarity from the government on cryptocurrency taxation, particularly on issues such as treatment of capital gains or business income, classification as speculative income, allowability of set-off, and carry-forward of losses, and applicability of deemed gift tax provisions.

(The author, Harsh Bhuta, is a Partner at Bhuta Shah and Co LLP. The views are his own)



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Banks to auction over 2,000 residential properties in next 30 days, BFSI News, ET BFSI

Banking & Finance

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Banks are auctioning over 2,000 residential properties and about 549 commercial ones in the next 30 days, according to Indian Banks Auctions Mortgaged Properties Information portal — ibapi.in. Bank of Baroda will hold a mega e-auction on August 18.

Within the next seven days, banks are auctioning 1,101 residential properties, 267 commercial properties and 129 industrial ones.

In the next 30 days, banks have put on auction 2,036 residential properties, 549 commercial properties and 288 industrial ones.

The total residential properties listed for auction are 11,510, commercial properties 2,733, agricultural properties 1,335 while 12 banks are participating in the auction.

Perceptions regarding bank auctions

One of the main attractions of buying a bank auctioned property is that there there is a possibility of getting it at a substantial discount to the prevailing market price.

This is because the banks are interested in selling the property at the earliest and are primarily concerned with recovery of their dues which is usually lower that the value of the property. While on paper this may look attractive, in reality it may not be so.

This is because, while the reserve price may be low, there could be many bidders competing at the auction (especially in case of e-auctions ) and the highest bid could be close to the market price.

Secondly, the original owner of the property (defaulter) is entitled to get the surplus from the sales proceeds after the settlement of bank dues. Hence, it is in his interest that the property is sold at a higher price. An aggrieved defaulter has the right to approach the Debt Tribunal, challenging the action taken by the bank.

In such a case, the matter could get stuck in a long legal dispute which can go right up to Supreme Court. If the action taken by the bank is found to be wrong, the sale may also be cancelled. The bank needs to keep the original owner (defaulter’s) interest in mind while auctioning the property.

Clear title?

Another myth regarding bank auctioned properties is that since one is buying the property directly from the bank, the title would be absolutely clear. It should be noted that the properties are sold in auction on ‘As is where is basis’ and ‘As is what is basis’.

Hence, such properties are not different from the other properties being financed by the bank and the buyer will get the same title as the original owner (defaulter).

There is generally a perception that participation in an auction is a cumbersome process and only people with expertise and deep pockets can participate. This is not true, especially now, with online auction, even a common man can bid for such properties. Also, the ticket size for properties could be as low as Rs 10 lakh or even less.

Another point to be kept in mind is that many times due to financial constraints, the property may not have been properly maintained by the defaulter. Hence the buyer may have to incur substantial expense on repairs and restoration of such property.



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What if Future Group heads to bankruptcy court?, BFSI News, ET BFSI

Banking & Finance

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Future group lenders are staring at legal proceedings following the SC ruling against its deal with Reliance Retail.

They have more to worry about as $14 million of coupons, falling due later this month, could be a trigger for some debt investors to suggest legal measure against the Future Group if the local retailer fails to meet its financial commitment to bondholders.

Bond investors, who own a minority portion of Future Group’s aggregate debt liability of Rs 21,000 crore, may be more eager than banks to initiate legal proceedings in the event of missed coupon payments after the last week’s Supreme Court order stalled a vital deal with Reliance Retail.

Banks, although unsure about the recovery prospects of the bulk of the Rs 21,000-crore of debt they own, fear that the payout could be lower through the insolvency mechanism.

The group has very little immovable property that can be sold. All its assets are in the form of inventory and receivables that are very difficult to recover. The Reliance-led plan is the best option right now because the recovery will be very low in the bankruptcy courts.

The restructuring

Local and overseas banks — 28 of them led by Bank of India — were counting on Reliance Retail’s takeover of the Future Group for recovery of their dues.

In April, the K V Kamath Committee set up by the Reserve Bank of India (RBI) approved a proposal by the lenders to restructure loans to Future Retail and

Future Enterprises, the main units of the Kishore Biyani-led group. Bank of India is the lead lender among the 28 local and overseas financiers that floated the loan recast plan.

According to that deal, Future Group had promised to pay banks Rs 6,900 crore in two tranches by the end of FY22, mainly by selling its small-format stores.

This would allow lenders to convert the short-term loans, non-convertible debentures and overdue working capital loans into term loans, which were to be repaid in two years. The group has not yet identified any buyers for these stores.

Bankers had agreed on the deal as a temporary arrangement on expectations that the Reliance takeover will be completed soon, meaning the lenders would no longer depend upon Future to make the payments.

With this latest court order, all such plans will have to be reconsidered.

The group firms

Future Retail is the largest debtor in the group, with about Rs 10,000 crore of dues. Two other listed companies — Future Enterprises that holds its supply chain, and Future Lifestyle Fashions that houses apparel brands such as Central and Brand Factory — add another Rs 11,000 crore to the debt pile.

Lenders had agreed to an interest moratorium between March 1, 2020 and September 30, 2021. They had also agreed upon waiving all penal interest and charges, default premiums and processing fees unpaid since March 2020 to the date of the implementation of the Reliance Retail takeover.

There is some respite in the central bank’s extension of the timeframe for meeting the financial parameters for companies undergoing restructuring.

What CARE said

Future Enterprise’s liquidity profile has been severely impacted on account of lockdown measures and weakened credit profile of its key customer, Future Retail, CARE Ratings had said in April this year.

“The inability of FEL to realise its debtors during the pandemic and shut down operations during Q1 of FY21 led to a cash crunch, increase in debtor days and subsequently default on its debt service obligations. There have been substantial delays in receipt from group entities and subsequent receipts have not been significant,” CARE had said in April.



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PNB Housing Finance plans to raise Rs 35,000 crore debt as Carlyle deal in abeyance, BFSI News, ET BFSI

Personal Finance

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PNB Housing Finance is now looking to raise Rs 35,000 crore debt, after facing legal hurdles in the Carlyle group deal, days after SAT gave a split verdict in the matter.

The company will seek shareholders’ nod in its annual general meeting (AGM) on September 3, 2021, PNB Housing Finance said in a regulatory filing.

The company said it will seek shareholders’ approval for further fund raising by way of debt issue.

“Shareholders’ approval is being sought in the 33rd AGM for further fund raising by way of debt issue and the shareholders are being requested to authorise the board of directors to offer, from time to time, the subscription of redeemable, secured/unsecured non-convertible debentures aggregating to Rs 35,000 crore in one or more tranches,” it said in the filing.

On Monday, Securities Appellate Tribunal (SAT) gave a split verdict in the company’s appeal to the court in the matter related to Rs 4,000 crore equity fund infusion led by its existing investor Carlyle group, and others through preferential allotment of shares and warrants.

Had the deal not stuck into regulatory and legal hurdles, the company would have been successful in raising the equity capital.

The Carlyle deal

The Carlyle-led deal was announced on May 31, in which a clutch of investors including former HDFC Bank MD&CEO Aditya Puri‘s family investment vehicle Salisbury Investments, were to infuse equity capital in PNB Housing. Puri is also a senior advisor for Carlyle in Asia.

However, the deal soon got into a controversy after a proxy advisory firm raised issues and said it would hurt the interest of the minority shareholders as well the promoter. It said the issue price of Rs 390 apiece was too low vis-a-vis the prevailing stock price.

Subsequently, Sebi asked the company to get the valuation of the issue price done from an independent registered valuer, while the company approached the SAT in June, citing it followed the Sebi guidelines on deciding on the price.

The SAT order

SAT in its order, by the two-member bench of Justice Tarun Agarwala and Justice M T Joshi said:”In view of the difference of opinion between the members of the bench “we direct the interim order dated 21st June, 2021 to continue till further order.” Prevalence of interim order means the company can’t disclose the results of the shareholders’ voting that happened on June 22, to know if they cleared the proposal with requisite majority or not.

The company has been looking to raise funds for the past few years. Also, the Reserve Bank of India earlier this year had barred PNB from infusing capital into its subsidiary.

The Carlyle matter is likely to reach the Supreme Court since the tribunal did not provide a clear verdict on the way forward for the deal.



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