MC: NCLAT asks Raheja Developers to settle dispute with financial creditors

28 August 2019: The National Company Law Appellate Tribunal (NCLAT) has asked realty firm Raheja Developers to settle its dispute with homebuyers, after the company challenged the NCLT’s order to initiate insolvency proceedings against it.

A three-member NCLAT bench, headed by Chairperson S J Mukhopadhaya, directed the interim resolution professional (IRP) appointed by the National Company Law Tribunal (NCLT) not to issue any public notice and also not to constitute a committee of creditors.

The NCLAT directed to list the appeal filed by the realty firm on September 3, 2019, for orders.

The appellate tribunal’s direction came over a petition filed by Raheja Developers challenging the order of NCLT that directed to initiate insolvency proceedings on a petition filed by flat buyers.

Homebuyers are now considered as financial creditors under the Insolvency and Bankruptcy Code.

Last week, a two-member principal bench of the NCLT, headed by President M M Kumar, ordered start of insolvency proceedings and appointed an IRP to take over the management of the company.

The tribunal had said “a default has occurred” by Raheja Developers in giving possession of apartments, and rejected the contention of the realty firm that the delay was caused because of lack of infrastructure in the area to be provided by the state government authorities.

The NCLT’s order came over a petition filed by a flat buyer of Raheja Developers.

The petitioner had booked an apartment in the residential project Raheja Sampada developed by the corporate debtor (Raheja Developers).

Raheja Developers had issued a joint allotment letter on August 3, 2012, and executed a flat buyer’s agreement. According to the agreement, possession was to be delivered within 36 months, which was not fulfilled.

The buyers had made a payment of Rs 86.62 lakh to the company on various dates and sought a refund along with 18 per cent interest rate, claiming default after possession was not handed over within the stipulated time frame.

The NCLT observed that the 36-month period came to an end on August 3, 2015, and construction was not complete.

Raheja Developers had contended that there was no default from its part as the handing of possession was subject to provisioning of the infrastructure by the government in the area and it has received the occupation certificate in 2016.

According to the realty firm, till date, water and sewer pipelines have not been provided.

“The vague arguments made by the corporate debtor-respondent hardly need to be noticed. The other objections are also lame excuses to deny the claim of the financial creditor,” the NCLT had said.

Moneycontrol reported

LM: Moody’s downgrades Yes Bank rating; outlook negative

28 August 2019: Global rating agency Moody’s Investors Service on Wednesday downgraded YES Bank’s long-term foreign-currency issuer rating, citing lower than expected amount of capital raised and a sharp fall in its stock price which “will challenge its ability to raise sufficient capital to maintain the rating at its previous level.”

Moody’s downgraded YES Bank’s foreign currency issuer rating to Ba3 from Ba1, long term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN program rating to (P)Ba3 from (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA to b1 from ba2.

It said the outlook on the bank’s ratings, where applicable, was negative. The negative outlook primarily reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through asset quality issues and rebuilds its loss absorbing buffers

In August, the lender has raised around $270 million via qualified institutional placement, and plans to raise $600 million more from large investors to bolster its capital buffers. The board will meet on 30 August to mull raising funds via equities.

YES Bank stock has declined over 85% so far in 2019 due to asset quality concerns. At 3.10 pm, the scrip traded at ₹59.30 on BSE, down 7.8% from its previous close.

Following the downgrade, private lender’s 3.75% USD notes, due February 2023, fell 3.1 cents on the dollar to 86.4 cents as of 05:07 pm in Hong Kong, set for the biggest decline since 28 November, according to prices compiled by Bloomberg.

Moody’s also expects the bulk of YES Bank’s operating profits to get consumed by loan loss provisions over the next 12-18 months, and thus will be unable to support internal capital generation. “This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in Moody’s opinion is becoming more challenging given the substantial decline in its share price.”

It noted that YES Bank’s asset quality deteriorated in the June quarter, with gross non performing loan ration rising to 5% from 3.2% a quarter ago. Around ₹10,000 crore of loans or 4% of its total loans remain on a watchlist – meaning that these watchlist loans may turn into non-performing assets over the next 2-3 quarters. In addition, around ₹7,500 crore of bond investments or 10% of its total investment holdings have experienced rating downgrades in the past quarters.

Though the bank’s funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India.

Moody’s has maintained a negative adjustment for corporate behavior in YES Bank’s BCA, which results in a one-notch negative adjustment to the bank’s BCA when compared to its financial profile.

The LiveMint reported

ET: RBI’s ‘undeclared’ NBFC review akin to banks’

28 August 2019: Reserve Bank of India (RBI) Governor Shaktikanta Das may have ruled out an Asset Quality Review for NBFCs, but an ongoing central bank inspection of the books of non-bank companies shows that the exercise is as stringent as the official scrutiny that had earlier pushed high-street lenders to declare higher bad loans.

The RBI engagement is so intense that even some of auditor-accepted practices of bad loans are given a go by and inspectors are insisting on classifying even good loans as bad, said sources. RBI has increased the scrutiny on NBFCs exposures, quality of assets and asset-liability mismatches (ALM). NBFCs have faced tough liquidity conditions due to an increase in funding costs and difficulties in market access.

The Asset Quality Review of the RBI had opened a can of worms for banks. It ended the practice of banks and businesses sugar-coating bad practices as social necessity. Since 2014-15, NBFCs have expanded credit rapidly when banks were battling bad loans. They benefitted from easy liquidity. “Today audit is more detailed than in the past,” said Umesh Revankar, CEO, Shriram Transport Finance. “Earlier, they were looking at credit quality… now they are looking more indepth. RBI is asking for top 50-100 assets that have gone bad. It gets into the details, including deviations.”

Asset classification has been brought on a par with banks, and asset quality has deteriorated over the past financial year. Gross NPAs of the NBFC sector as a percentage of total advances have increased from 5.8 per cent in 2017-18 to 6.6 per cent in 2018-19.

“RBI never looked at the ALM root cause until the DHFL crisis, and it started asking for the ALM report frequently,” said the CEO of an NBFC.

The Economic Times reported

ET: Credit Suisse warns of a new wave of bad loans

28 August 2018: Fears of a bad loan spike in the banking sector have returned with a likely surge in defaults in NBFCs and lower-rated companies, amid tight credit conditions. Debt of Rs 2.4 lakh crore is currently being put through the central bank’s June 7 framework to resolve stressed assets but what is worrying analysts is that at least 70 per cent of this is chronically stressed and could lead to another wave of bad loans.

Bank NPAs declined from 11.7 per cent in March 2018 to 9.6 per cent in the first quarter of the current fiscal year. But a Credit Suisse analysis sees stressed loans again exceeding 12 per cent as 2.8 per cent of bank loans are likely to see fresh wave of inter-creditor agreements (ICA) being signed. “ICAs reflect (a) second wave of stress. It is the only restructuring framework available to banks. Debt of Rs 2.4 lakh crore across 16 stressed corporates is being put through this, partly as IBC (Insolvency and Bankruptcy Code) outcomes have also slowed,” said Ashish Gupta, a research analyst at Credit Suisse. “Of the current ICAs, 50 per cent is related to financials, while 70 per cent of non-NBFC debt under ICA is chronically stressed which was earlier under CDR, SDR and S4A (various debtresolution frameworks).”

According to a report by Credit Suisse, the share of debt with companies having an interest coverage ratio of less than 1 was 42 per cent at the end of the June quarter. Interest coverage ratio is a measure of a company’s ability to make interest payments through its earnings. The Indian economy grew at its slowest pace in five years in the last quarter of fiscal 2019, reflecting the stress faced by businesses. Consumption is hit with non-bank lenders’ loan growth slipping into the negative territory — credit outstanding shrank nearly 2 per cent in the quarter ended June 30.

Credit profiles of companies also worsened to a 19-month low in July, according to a CARE Ratings index that tracks 1,601local firms.

“(The) debt quality index fell sharply in June 2019, mainly due to moderation in the liquidity scenario for NBFCs and HFCs (housing finance companies) resulting in sharp rating migration, and declined further in July,” the ratings firm said in a report.

The Economic Times reported