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Banks set for higher provisioning hit as Vodafone Idea totters, BFSI News, ET BFSI

August 9, 2021 root Banking & Finance

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Banks are going for higher provisioning for the Vodafone Idea account even as the future of the company hangs by a thread.

IDFC First Bank has marked the account of VIL as stressed and has made provisions of 15 per cent (Rs 487 crore) against the outstanding exposure of Rs 3,244 crore (funded and non-funded).

“This provision translates to 24 per cent of the funded exposure on this account. The said account is current and has no overdues as of June 30, 2021,” the lender said in its Q1 FY’22 investor presentation, referring to the account as “one large telecom account”.

According to official data, VIL had an adjusted gross revenue (AGR) liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore and Rs 50,399.63 crore is outstanding.

The company’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021. The amount included deferred spectrum payment obligations of Rs 96,270 crore and debt from banks and financial institutions of Rs 23,080 crore apart from the AGR liability.

More banks may go for provisioning in the next couple of quarters for the account as troubles mount for the company.

Discussions with banks

The Department of Telecommunications (DoT) has initiated discussions with banks to address financial stress in the telecom sector, particularly Vodafone Idea Ltd (VIL) that urgently requires fund infusion to stay afloat.

There was a meeting of DOT officials and senior bankers on Friday on the issue of Vodafone, sources said, adding that banks have been asked to look for a solution within the prudential guidelines.

According to sources, senior officials from the country’s biggest lenders State Bank of India and Bank of Baroda were also present among others in the meeting.

More such meetings are expected to take place in the coming days, they said.

Meanwhile, the finance ministry has asked public sector banks to collate and submit data related to their debt exposure to the telecom sector in general and VIL in particular.

Lenders, both public and private, stare at a loss of Rs 1.8 lakh crore in case VIL collapses. A large part of the loans to the lender is in the form of guarantees with public sector banks having a lion’s share of the debt. Among the private-sector lenders, Yes Bank and IDFC First Bank may be impacted the most. As a precursor, some private lenders with a funded exposure have already started making provisions.

Promoters in bind

In a backdrop of such large liabilities, both the promoter Vodafone Plc (45 per cent stake) and Aditya Birla Group (27 per cent stake) expressed their inability to bring in additional capital.

Writing a letter to Cabinet Secretary Rajiv Gauba in June, Aditya Birla Group Chairman Kumar Mangalam Birla said investors are not willing to invest in the company in the absence of clarity on AGR liability, adequate moratorium on spectrum payments and most importantly floor pricing regime being above the cost of service.

“It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity-public sector/government /domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in the letter.

Birla has quit the post of non-executive chairman post of the floundering telecom giant last week.

Giving relief to Vodafone on one front, the government has proposed to withdraw all back tax demands on companies with passage of ‘The Taxation Laws (Amendment) Bill, 2021’.

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Leave a comment Department of Telecommunications, finance ministry, state bank of india, VIL, Vodafone, vodafone idea ltd, Yes Bank

Bankers in talks as court rulings threaten over $6 billion in loans, BFSI News, ET BFSI

August 9, 2021 root Banking & Finance

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Informal talks are taking place to deal with the fall-out from two rulings by Supreme Court that threaten the repayment of loans totalling nearly 500 billion rupees ($6.73 billion) to some of India’s largest banks, bankers close to the matter say.

Any failure to recoup the money adds to stress in the banking sector, which is already dealing with an increased level of bad loans and reduced profits because of the impact of the pandemic.

Last week, Supreme Court effectively blocked Future Group’s $3.4 billion sale of retail assets to Reliance Industries, jeopardising nearly $2.69 billion the retail conglomerate owes to Indian banks.

That ruling was delivered days after the Supreme Court rejected a petition to allow telecom companies to approach the Department of Telecommunications to renegotiate outstanding dues in a long-runinng dispute with Indian telecom players.

That raises concerns, bankers say, over whether Vodafone Idea will repay some 300 billion rupees ($4.04 billion) it owes to Indian banks and billions of dollars more in long-term dues to the government.

FUTURE OF FUTURE?

Two bankers, speaking on condition of anonymity said negotiations were taking place to try to limit potentially severe consequences.

Loans to Future worth nearly 200 billion rupees were restructured earlier this year, giving it more time to come up with repayments due over the next two years, but that was on the premise that Reliance would bail it out, the bankers said.

Future group did not immediately respond to a request for comment.

Should Future be taken to a bankruptcy court, bankers say they are concerned they will have to take haircuts on the loans of more than 75%.

“The immediate apprehension is that the restructuring deal will fall through for banks by December,” said a banker at a public sector bank that has lent money to Future.

Future’s leading financial creditors include India’s largest lender State Bank of India, along with smaller rivals Bank of Baroda and Bank of India.

Bank of India, the lead bank in consortium lending to Future, did not immediately respond to an emailed request for comment.

VODAFONE IDEA

Banks have also started discussing Vodafone’s debt to lenders of nearly 300 billion rupees. Top lenders to Vodafone include Yes Bank, IDFC First Bank and IndusInd Bank, as well as other private and state-owned lenders.

Vodafone, Yes Bank, IDFC First Bank and IndusInd did not immediately respond to a request seeking comment.

“Even though banks have the option of restructuring loans in case the company defaults, it will only make sense if there is clear cash flow visibility, which is not the case right now,” a senior banker at a public sector bank said on condition of anonymity.

Already, at the end of March, Indian banks had total non-performing assets of 8.34 trillion rupees ($112.48 billion), the government has said. It has yet to provide more updated figures.

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Leave a comment bank of india, Department of Telecommunications, IDFC First Bank, IndusInd Bank, Reliance, state bank of india, supreme court, Vodafone, Yes Bank

Yes Bank board okays prosecution of Rana Kapoor, BFSI News, ET BFSI

August 8, 2021 root Banking & Finance

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Troubled lender Yes Bank’s board has given sanction to prosecute its jailed promoter Rana Kapoor under the Prevention of Corruption Act (PCA).

This came following a requisition by the Central Bureau of Investigation (CBI), which informed a local magistrate’s court of the development and filed a supplementary chargesheet in the Yes Bank fraud case earlier this week.

The central agency has charged R Anand, the then area sales manager, as well as a junior ex-employee of Yes Bank in the case, sources privy to the development told ET.

Last year, the CBI had sought the board’s approval after a special CBI court in Mumbai rejected its charge sheet against the banker under PCA as it lacked prosecution sanction.

The special court remitted the case to a lower court for cognisance under sections related to cheating and criminal conspiracy of the Indian Penal Code (IPC), which attract lesser punishment.

Prior sanction from a competent authority is mandatory to an accused public servant to stand trial under PCA, as per an amendment to the Act notified in 2018.

“Once the consent was accorded by the board, the lower court was intimated and since the sections invoked under PCA attract punishment of over seven years, the case papers have been sent to the Sessions court. A supplementary chargesheet has also been submitted before the Sessions court and cognisance is awaited,” a senior official told ET.

The sanction to prosecute Kapoor was granted by the Yes Bank board, while that for Anand was given by the managing director of the bank, the source added. The agency is probing Kapoor and Dewan Housing Finance Corporation Ltd’s (DHFL) promoters Kapil and Dheeraj Wadhawan in an alleged corruption case of over Rs 600 crore.

“During the course of the probe, it was found that Anand and another junior employee acted on the advice of Kapoor and overruled the recommendations given by the risk management committee against loans sanctioned to DHFL,” the official added.

The committee, in its recommendation, had highlighted that the Letter of Intent was not made to the company that applied for the loan, but in the name of a different company.

The project for which the loan was sought did not have the requisite sanction from the local authorities, including MHADA, and the tenants were not evicted, the official added.

“These over-rulings are discussed on email exchanged between the three and the same has been found during the course of the probe which has been detailed out in the chargesheet,” the source said.

According to the CBI’s first chargesheet, in June 2018, Kapoor, the then head of Yes Bank’s management credit committee, sanctioned a loan of `750 crore on an application by the promoters of DHFL in the name of Belief Realtors Pvt Ltd to develop the Bandra Reclamation Project.

This amount was advanced to RKW Developers, a company controlled by Dheeraj Wadhawan, though the bank’s risk management team had pointed out multiple issues with the proposal.

The agency’s probe revealed that the loan was not utilised for the stated purpose.

Simultaneously, Kapil Wadhawan is alleged to have paid a kickback of `600 crore to Kapoor and his family members in the garb of a builder loan from DHFL to DOIT Urban Ventures (India) Private Ltd (DUVPL).

Rana Kapoor’s daughter Roshni is one of the directors of DUVPL. After deducting a processing fee, Rs 632 crore was transferred to RKW Developers.

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Leave a comment Dewan Housing Finance Corporation, Dewan Housing Finance Corporation Ltd, Mhada, pca, Rana Kapoor, RKW Developers, sessions, Yes Bank

Bankers view on RBI’s policy, BFSI News, ET BFSI

August 7, 2021 root Banking & Finance

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Dinesh Khara, Chairman, SBI said, “The RBI policy is pragmatic and strikes a fine balance between stance and strategy. While the policy stance continues to be accommodative to continuously support growth, a strategy of careful recalibration of liquidity management is clearly indicated with the roll out of VRRR.

Dinesh Khara

The policy has also nudged banks to shift to an alternate reference rate with the discontinuation of LIBOR. The extension of the on-tap TLTRO scheme and the deferral of the deadline for meeting the operational parameters for stressed entities will help corporates navigate through the pandemic with a degree of certainty.”

Rajni Thakur, Chief Economist, RBL Bank said, “MPC announcements were pretty much on expected lines with key rates held constant and upward revision of inflation forecasts for the current fiscal year.

Policy bias in favour of nurturing growth continues and there was a strong denial of any urgency to scale back monetary support on account of higher inflation or potential global normalisation.

While enhanced VRRR quantum and one voice of dissent can be seen by market as mildly dovish, in all likelihood, RBI has kept its options open to support growth should the third wave disrupt nascent momentum or to use monetary tools to begin normalisation if growth -inflation dynamics start to get complicated.”

On similar lines, Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank said, “While the status quo on rates with a 6-0 voting and continued “accommodative” stance were on expected lines, the split voting as regards the policy stance was a modest surprise. Still, the overall tone of policy continued to focus clearly on supporting growth recovery.”

“Given higher global commodity prices, sticky food inflation and rise in domestic fuel prices, inflation may stay higher than for the RBI’s comfort. However, with the tentative and uneven nature of recovery, one expects the MPC to continue prioritizing supporting growth in the coming months.”

Indranil Pan, Chief Economist – YES BANK said, “RBI has attempted and managed to balance the contradicting objectives of managing inflation expectations while also communicating the need for sustained policy accommodation.

Even as the inflation forecasts for the current FY have been raised, the communication continues to be that the hump in inflation is supply-led and thus ‘transitory’ wherein the demand side push for inflation is almost absent. This is the reason for RBI to have been able to see-through the current high inflation levels.

RBI continues to highlight that any pre-emptive tightening can kill the nascent and hesitant recovery that is taking shape. In cognizance with an extremely uncertain growth climate, we think that the RBI will maintain its accommodative policy and not move on any form of tightening – be it on the rates side or on the liquidity side – till the end of the current FY.”

While A. K. Das, Managing Director & CEO, Bank of India has a positive outlook. He said, “Continued accommodative stance of RBI is expected to catalyze growth in real segments in a strong, broad based and sustained manner”.

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Leave a comment Bandhan Bank, bank of india, Dinesh Khara, MPC, rbi policy, RBL Bank, reserve bank of india, sbi, Yes Bank