BS: Covid-19 related provisioning knocks off 45% of top private banks’ profits

31 May 2020: A look at Q4FY20 numbers of top private-sector banks such as HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and IndusInd Bank, shows that Covid-19 related provisioning has dented their profits.

On a cumulative basis, Covid-19-related provisioning at Rs 8,678 crore has shaved off 45 per cent of their pre-tax profit. In other words, had these banks not made the provisions, their combined reported pre-tax profit of Rs 10,792 crore would have stood at Rs 19,740 crore.

Due to a likely deterioration in borrowers’ credit profile, banks were mandated to make provisions in Q4. The Reserve Bank of India (RBI) had earlier announced a 3-month moratorium for repayments due between March to May (now extended to August) and had asked banks to provide at least 10 per cent for such accounts, which were overdue as of March 1, 2020 and have availed moratorium.

Many of these banks have made a higher provisioning based on their own assessment of the impact due to the moratorium following the Covid-19 outbreak and subsequent lockdown. According to data, Axis Bank and ICICI Bank consumed 37-59 per cent of their operating profit for Covid-19 provisioning, while the figure is 24 per cent in case of Kotak Mahindra Bank and 10-12 per cent for IndusInd Bank and HDFC Bank. As a proportion of advances, the Covid-19 provisioning of these lenders stood at 14-61 basis points in Q4.

“Banks have taken prudent step by making provisioning towards Covid-19, which had sharp impact on their bottom-line,” said Anil Gupta, head of financial sector ratings at ICRA. He, however, believes that the provisioning pain would remain elevated in the coming quarters and its impact on banks’ earnings could widen. This is due to uncertainty on the stress that could emerge because of the lockdown’s impact on borrowers’ ability to repay loans as well as the moratorium by the regulator. Banks’ loan book under the moratorium is expected to grow in the coming quarters, as borrowers may choose to conserve liquidity (cash) amid rising uncertainties.

Prakash Aggarwal, head-financial sector ratings, at India Ratings, shares a similar view. According to him, “While the proactive provisioning by banks is in the right direction, more will be needed given the way the pandemic is moving and the extension of the moratorium.”

Analysts at Edelweiss estimate that banks like Axis Bank, Kotak Mahindra Bank and ICICI Bank have 25-30 per cent of their loan book under the moratorium.

In the present situation, when income levels of individuals are getting impacted, either through salary cuts, or job losses, and a rating downgrade of key industries/companies is likely, concerns on asset quality are justifiable.

Credit Suisse also recently increased its credit cost estimates by 20-60 per cent for banks, due to lockdown and moratorium extension.

The silver lining, however, is that private banks have higher and relatively better provision coverage ratio, say experts. The foreign brokerage estimates that Indian banks would need to raise $20 billion in the next 12 months, of which $13 billion would be required by public-sector banks.

Against this backdrop, the position of public-sector banks’ moratorium book, provisioning for Covid-19 stress and management commentary would be critical.

Source: Business Standard

ET: Bankruptcy process at Indu Techzone set aside by NCLAT

29 May 2020: The National Company Law Appellate Tribunal (NCLAT) has set aside the insolvency proceedings at Indu Techzone, providing relief to promoters led by I Syam Prasad Reddy, who is a co-accused in the disproportionate assets case against Andhra Pradesh CM YS Jagan Mohan Reddy.

The tribunal has ordered in favour of the company on the ground that lender IFCI had filed the insolvency petition after missing the deadline as per the Insolvency and Bankruptcy Code.

It allowed Indu Techzone to “function independently through its board of directors with immediate effect”. The May 22 order also provides relief to the Enforcement Directorate, which had attached certain assets of Indu Techzone in the disproportionate assets case and sought to exempt those from the insolvency proceedings.

The firm had approached the NCLAT after the National Company Law Tribunal’s (NCLT’s) Hyderabad bench ordered insolvency proceedings against it in November last year. It argued that the resolution application was barred by limitation — the period within which legal action could be initiated or a right enforced.

The ED had earlier submitted before the NCLT that it had registered a case in August 2011 against Jagan Mohan Reddy and others under the Prevention of Money Laundering Act, wherein Indu Techzone was one of the suspects.

Source: The Economic Times

Moody’s downgrades India Infoline Finance Limited to B1 from Ba3; ratings remain under review for downgrade

29 May 2020: Moody’s Investors Service has downgraded the corporate family rating and senior secured debt rating of India Infoline Finance Limited to B1 from Ba3. Moody’s has also downgraded the senior secured program rating of India Infoline Finance to (P)B1 from (P)Ba3.

At the same time, Moody’s has placed the ratings under review for further downgrade.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. Moody’s expects Indian non-bank finance companies (NBFCs) to be affected by the shock as disruptions to India’s economic activity from the coronavirus outbreak will weaken the credit fundamentals of these companies. Moody’s regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety.

Today’s action follows the review for downgrade initiated on 13 April 2020, and reflects the impact on India Infoline Finance of the breadth and severity of the shock and the deterioration in credit quality it has triggered.

Like other NBFCs, Moody’s expects India Infoline Finance’s funding and liquidity to remain under strain over the next few quarters as the domestic debt markets remain largely closed to many NBFCs. And while the Indian government’s (Baa2 negative) planned support measure to subscribe to INR300 billion of NBFC debt will provide some near-term relief, this will not sufficiently address NBFCs’ funding issues.

Moody’s also expects Indian banks to extend support to the NBFCs via loan moratoriums or by providing new term loans to the companies.

Despite these measures, Moody’s expects India Infoline Finance’s funding and liquidity to remain strained as inflows from assets will materially decline, while the company will continue to need to service interest and principle on liabilities, such as capital markets liabilities, that cannot be rescheduled without default.

India Infoline Finance’s modest liquidity offers limited support if funding conditions do not improve over the next few quarters.

Also, the moratorium on debt repayments can hinder its ability to conduct loan assignments — the outright sale of loans to banks — and securitization, which have been a source of immediate liquidity since mid-2018.

Moody’s expects India Infoline Finance’s asset quality will weaken as loan delinquencies and defaults increase because customers and businesses face a drop in earnings and cash flows due to the economic disruption caused by the coronavirus outbreak.

While the Reserve Bank of India’s forbearance for banks and NBFCs — whereby they can extend 6-month loan repayment moratoriums to customers without affecting the asset classification — will soften some of the near-term strain on asset quality, but the sharp slowdown in India’s economic growth will exacerbate asset quality issues for the company.

Capital remains a credit strength of India Infoline Finance. Moody’s expects capital to remain modestly decline as the company looks to conserve liquidity, with no plans to expand its balance sheets materially unless funding conditions normalize.

This rating action considers the consolidated financials of IIFL Finance Limited, the legal entity that has acquired all of India Infoline Finance Limited’s assets and liabilities as of 01 April 2020.

India Infoline Finance’s ratings remain under a review for downgrade as Moody’s expects near-term stress on its funding and liquidity that could further weaken its credit profile.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the review for downgrade, India Infoline’s ratings are unlikely to be upgraded in the next 12-18 months. Nevertheless, Moody’s will confirm the ratings if the company strengthens its balance by (1) refinancing or raising new funding over the next few quarters, or (2) improving collection rates on its assets such that the company is able to meet its maturing obligations without straining its liquidity.

India Infoline Finance’s rating could be downgraded if the company’s liquidity deteriorates. The rating could also be downgraded if there is a significant deterioration in its asset quality leading to a worsening of its solvency metrics.

Headquartered in Mumbai, India Infoline Finance Limited reported total assets of INR312 billion at 31 December 2019.

List of Affected Ratings:

..Issuer: India Infoline Finance Limited

…. Long-term Corporate Family Rating, Downgraded to B1 from Ba3; Under Review for further Downgrade

….Long-term Senior Secured Medium-Term Note Program (Foreign and Local Currency), Downgraded to (P)B1 from (P)Ba3; Under Review for further Downgrade

….Long-term Senior Secured Debt (Foreign Currency), Downgraded to B1 from Ba3; Under Review for further Downgrade

…Outlook remains ratings under review

Source: Moody’s

LM: Jet Airways receives fresh EoIs ahead of the deadline

28 May 2020: The UK-based Kalrock Capital, Hyderabad-based Turbo Aviation, Alpha Airways and Canadian citizen Siva Rasiah are among the 11 investors who have submitted expressions of interest in the beleagured airline Jet Airways. The deadline for submitting EoI was reported to end on Thursday.

The employees consortium and the South American based Synergy Group have also submitted their interest in the company.

This is the fourth attempt by the airline’s resolution professional to find a suitor for reviving the ailing company. Previously, South American conglomerate Synergy Group and New Delhi-based Prudent ARC were given time to submit a resolution plan but failed to meet the deadline.

“While we have received several interests this time, we are yet to confirm who will qualify for the second round,” said a person aware of the matter. “The timing of these bids is interesting as it comes at a time when the airline industry globally is going through the worst crisis. So we need to verify who are the serious players among them,” he added.

Jet Airways was grounded on 18 April 2019 due to acute fund crunch. On 20 June 2019, the Mumbai bench of the National Company Law Tribunal (NCLT) admitted Jet under the Insolvency and Bankruptcy Code after lenders referred it to the bankruptcy tribunal.

The cash-strapped airline, which was grounded in April 2019, owes more than ₹8,000 crore to banks, with public sector lenders led by State Bank of India.

The resolution process for Jet Airways has been extended multiple times since the airline was admitted for insolvency resolution.

Earlier this month, fresh expressions of interest for the airline were invited and the deadline for submission was set for 28 May. The latest deadline for completion of Jet Airways’s insolvency resolution was recently extended to 21 August because of the ongoing lockdown.

In March, the National Company Law Tribunal (NCLT) had allowed 90 days’ extension for the corporate insolvency resolution process of the airline.

Despite its state of affairs, the grounded airline recently offered two of its Boeing 777 wide-body aircraft for evacuation operations of Indians stranded abroad under the Vande Bharat Mission.

Jet Airways could supply up to four aircraft for evacuation missions within a reasonable period of time, Ashish Chhawchharia, who was appointed as the resolution professional to carry out the insolvency process for the airline by lenders, wrote to corporate affairs secretary Injeti Srinivas, Mint reported.

Source: LiveMint

LM: Govt may need to pump ₹1.5 lakh crore into PSU banks

28 May 2020: India may need to inject up to 1.5 trillion rupees ($19.81 billion) into its state-owned lenders as their pile of soured assets is expected to double during the coronavirus pandemic, three government and banking sources told Reuters.

The government initially considered a budget of around 250 billion rupees for bank recapitalisations but that has risen significantly, a senior government source with direct knowledge of the matter said, with loan defaults likely to rise as businesses take a severe hit from nationwide lockdowns to tackle the coronavirus.

“The situation is very grim,” the source said, adding that banks would require fresh funds soon.

All the sources asked not to be identified as the discussions are private. India’s finance ministry did not respond to a request for comment during working hours on Wednesday.

The capital plans were still being discussed and a final decision could be taken in the second half of the fiscal year, a second government source said. India’s fiscal year runs from April 1.

Indian banks were already saddled with 9.35 trillion rupees of non-performing assets at the end of September 2019, or roughly 9.1% of their total assets at the time.

Reuters reported earlier this month that bad loans would likely rise to 18-20% of total assets by the end of the fiscal year next March, as 20-25% of outstanding loans are considered at risk of default.

A nationwide lockdown entering its third month is expected to lead to a contraction in economic growth in the current financial year, according to several global rating agencies, which have also changed their outlook on the banking sector to negative. Economic recovery is likely to take a long time.

One banking source said it was unlikely the federal government would be able to fund the entire capital injection itself and may rely on indirect measures such as issuing bonds as a means of recapitalisation, a method which it has used previously.

“The amount could also be partly funded through monetisation of the fiscal deficit by the central bank,” the first government source said, adding that finance ministry officials were in talks with the Reserve Bank of India (RBI).

The RBI did not respond to a request for comment.

The government has already pumped in 3.5 trillion rupees to shore up state-owned banks in the last five years. India’s federal budget in February for the 2020-21 financial year made no provision for further capital injections, with lenders encouraged to tap capital markets to raise money instead.

Despite a fall in new loans being made because of the crisis, a senior Indian banker said that the government wanted the banking sector to maintain lending growth of at least 6-7% for this financial year to boost the economy, but raising money from capital markets wasn’t easy in the current environment.

“There will be a ripple effect of the slowing economy that banks will feel and we will need capital to sustain and grow,” he said.

Source: Live Mint

HT: CBI books rice mill, 3 directors in ₹100-cr cheating cases

28 May 2020: The CBI has booked Karnal-based Shakti Basmati Rice Pvt Ltd and its three directors for allegedly cheating the State Bank of India (SBI) to the tune of over Rs 100 crore, officials said on Wednesday.

Directors Shyam Lal, Parveen Kumar and Suresh Kumar allegedly obtained credit facilities from the SBI’s commercial branch in Haryana’s Karnal by misrepresentation of facts, a Central Bureau of Investigation (CBI) spokesperson said.

The company, which manufactured grain mill products (rice), allegedly diverted the loan amount for introduction of share capital, inflated the sale and purchase figures, and devalued stocks to show losses to justify diversion of funds by selling stock out of books, the officials said.

The company allegedly failed to repay the loan amount resulting in the loss of Rs 100.46 crore to the bank. The agency has also booked unnamed public servants in the case, the officials said.

Source: Hindustan Times

TNIE: Money laundering case: DHFL promoters Wadhawans sent to jail

27 May 2020: A special court here on Wednesday remanded DHFL promoters Kapil and Dheeraj Wadhawan, arrested by the ED in connection with money laundering probe against Yes Bank co-founder Rana Kapoor and others, to 14-day judicial custody.

They were arrested earlier this monthunder the provisions of the Prevention of Money Laundering Act (PMLA).

The Wadhawans brotherswere produced before the special court at the end of their Enforcement Directorate (ED) remand. The court sent them to jail after no further remand was sought by the central investigating agency.

The duo, also being probed by the ED in another money laundering probe linked to late gangster Iqbal Mirchi, were summoned by the agency multiple times in the Yes Bank case but they had cited the ongoing COVID-19 travel restrictions to skip appearance.

In April, the Wadhawan brothers and their family members had travelled to Mahabaleshwar, a hill station in Satara district of Maharashtra, in violation of the coronavirus-induced lockdown. Five vehicles used by the family were seized by the ED.

As many as 44 companies belonging to 10 large business entities, including Anil Ambani Group, Essel Group, IL&FS, Dewan Housing Finance Corporation Ltd, Cox & Kings and Bharat Infra, among others, reportedly accounted for bad loans worth Rs 34,000 crore of Yes Bank.

The ED has accused Kapoor, his family members and others of laundering “proceeds of crime” worth Rs 4,300 crore by receiving alleged kickbacks in lieu of extending big loans through the bank that later allegedly turned non-performing assets (NPAs).

Kapoor is currently in the ED’s custody. The Wadhawans are also being probed by the Central Bureau of Investigation (CBI) in connection withthe same case.

Source: The New Indian Express

BS: Govt orders probe against Jaiprakash Associates, Jaypee Infratech

27 May 2020: The Serious Fraud Investigation Office (SFIO) will probe Jaypee group’s flagship firm Jaiprakash Associates and bankruptcy-bound Jaypee Infratech for alleged financial irregularities, according to a source.

The probe agency comes under the corporate affairs ministry. The source said the ministry has ordered an SFIO probe against Jaiprakash Associates and Jaypee Infratech.

Jaypee group, which is into construction, cement, power, real estate, hotel and hospital businesses, has been facing crisis in the last few years due to defaults in debt repayments and huge delays in completion of housing projects in Noida and Greater Noida.

The group has already sold many cement and power plants to reduce its debt.

Jaypee Infratech, which is a subsidiary of Jaiprakash Associates, went into an insolvency process in August 2017. In December last year, the Committee of Creditors (CoC) comprising 13 banks and around 21,000 homebuyers approved the resolution plan of NBCC.

On November 6, 2019, the Supreme Court directed completion of Jaypee Infratech’s insolvency process within 90 days. In December, the CoC approved NBCC’s resolution plan.

Source: Business Standard

MC: NCLT approves IL&FS stake sale in GIFTCL to Gujarat govt

27 May 2020: The National Company Law Tribunal has approved crisis-hit IL&FS to selling its stake in Gujarat International Finance Tec-City Company (GIFTCL) to the Gujarat government. IL&FS has 50 percent stake in GIFTC.

The Gujarat government has agreed to pay a positive equity value of 100 per cent of the IL&FS stake in GIFTCL, by which, the positive equity value of over Rs 32.70 crore will come to IL&FS, according to an NCLT order.

The order said that IL&FS had sought that an amount of Rs 61.84 lakh is excluded as resolution process costs incurred for meeting various expenditures, other applicable taxes from the sale proceeds of the applicant’s shareholding in GIFTCL to the Gujarat government.

The NCLT also permitted IL&FS to withdraw a sum of Rs 3 crore from the escrow account opened to keep sale consideration for meeting the additional process resolution costs that may arise, after approval by the Board of Directors appointed by the tribunal.

“In view of the relief sought by the applicant, this bench hereby approved that sale of shares of GIFTCL held by IL&FS to Governor of State of Gujarat/Gujarat Urban Development Company Limited shall be free and clear from all encumbrances, liens, security interest and third party claims (including any statutory or tax claims) upon receipt of sale consideration from GUDC,” it said.

That sale consideration payable to IL&FS excluding resolution process costs will be credited into a designated Escrow Account intimated by the applicant and such funds will be maintained as interest bearing fixed deposits, the order added.

The National Company Law Appellate Tribunal (NCLAT) had permitted green entities to continue in accordance with the resolution framework subject to the supervision of the Justice (Retd.) D K Jain.

Since GIFTCL has been classified as a “Green” entity, IL&FS commenced the resolution process of GIFTCL.

Source: Money Control

TNIE: Patanjali Ayurved to raise Rs 250 crore through debentures

27 May 2020: Baba Ramdev-led Patanjali Ayurved plans to issue debentures worth Rs 250 crore that will be used to meet its working capital requirements and strengthen supply chain network. This would be the first-ever issuance of debentures by the Haridwar-based firm, which has emerged as one of the leading companies in the FMCG segment in recent years.

The non-convertible debentures (NCDs) will carry a coupon rate of 10.10 per cent with a tenure of three years. The maturity date is May 28, 2023. According to information, the bidding date would start on May 28 for NCDs, which would be listed on the stock exchanges and are redeemable.

“In this pandemic, demand for Ayurveda-based products, which help in boosting immunity, along with other products has gone up by three-folds. That has put constraints in our supply chain, right from manufacturing to distribution. We are raising this (fund) to strengthen this one (supply chain), so that we can smoothen our process from manufacturing to distribution,” Patanjali spokesperson SK Tijarawala told PTI.

The debenture has been rated as AA by Brickwork. Recently, several companies have announced plans to raise money from the market through debentures, as they are facing a liquidity crunch. Companies also need money to meet the costs involved in resuming their production capacity and augmenting their supply pipelines.

In December last year, the Haridwar-based group had completed the acquisition of bankrupt Ruchi Soya for Rs 4,350 crore, maker of soya food brand Nutrela through an insolvency process.

Patanjali won the bid to acquire Ruchi Soya after Adani Wilmar, which sells edible oil under the Fortune brand, withdrew from the race citing significant delays in resolution process that led to deterioration of assets.

Source: The New Indian Express