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

FE: McLeod Russel urges NCLT to quash ‘status quo’ order

19 September 2019: Debt-laden McLeod Russel on Wednesday urged the Kolkata-bench of the National Company Law Tribunal (NCLT) not to continue the interim order of “status quo” against its assets as it has very “serious repercussion” and negative “ramifications” for the operations of the bulk tea producer.

On September 3, the NCLT Kolkata bench passed an interim order of status quo of assets of the Kolkata-based company – once the biggest bulk tea producer in the world – as disclosed in the financial statement for the year ending March 31, 2019, till the next date of hearing.

The order was passed after one of the company’s financial creditors, Techno Electric & Engineering, apprehended disposal of the assets of the corporate debtor (McLeod) for defeating its interest.

Earlier, Techno Electric filed a petition for Corporate Insolvency Resolution Process (CIRP) before the tribunal under Section 7 of the IBC against the tea maker after it had defaulted on repayments of Rs 100-crore loan. “The documents referred to us add strength to the apprehension on the side of the applicant that if an ad interim order is not passed, there is every chance of removal of the assets of the CD (corporate debtor) for defeating the very purpose of (CIRP) resolution if any passed in favour of the applicant,” a two-member bench of Justices Jinan KR and Harish Chander Suri observed while passing the interim order.

On Wednesday, in his submission before the bench, Joy Saha, the counsel for McLeod Russel, said: “My entire line of credit will dry up because of this order. I am not able to pay the wages to around 65,000 workers of our tea gardens. It will have a catastrophic effect on the operations of the respondent company and likely to cause unrest amongst the workers. So far, as the interim order of injunction is concerned, this has very serious repercussion.”

According to Saha, each of the assets over which Techno Electric has asked for injunction are already mortgaged in favour of the banks. Stating that banks were considering a restructuring of loans proposal, Saha said, “All the banks, in common words, have been chastising me because I have not been defended the claim of an unsecured creditor.”

According to the latest annual report of McLeod Russel, part of the Williamson Magor Group, its financial creditors are ICICI Bank, HDFC Bank, State Bank of India, Yes Bank, RBL Bank, Axis Bank, Allahabad Bank, Uco Bank and United Bank of India.

The counsel for the tea company contended that the operational creditor now has taken the driver seat, while the banks, which are the the secured creditors and want to enter into loan restructuring agreement, are now “languishing in the background”.

“If an asset be mortgaged, can it be sold?” asked Saha, adding that as the assets were already mortgaged, the operational creditor would not need further protection from the tribunal. Saha urged the bench not to continue the interim order of ‘status quo’ against the company’s assets.

In his counter-argument, seeking continuation of status quo against McLeod’s assets, Techno Electric & Engineering’s counsel Ratnanko Banerjee said: “In one year, the corporate debtor sold Rs 500 crore worth of assets, even assets were mortgaged. For the purpose of the insolvency resolution process, their assets have to be preserved. I have expressed apprehensions that they will sell their assets, that is why the injunction is required.”

Banerjee allegedly said the Williamson Magor Group had siphoned off money from one group company to other group company. “This is a case for a forensic audit when the time comes,” he added.

Hearing the argument and counter argument, Justice Jinan KR said the bench was “only concerned” about whether the interim order required a ‘modification’ or not. “We are not going to confirm the order, we are not going to set aside the order,” he averred.

The Financial Express reported

TTI: Debt recast prescribed for McLeod

9 September 2019: ICICI Bank, the lead lender to troubled bulk tea producer McLeod Russel India Ltd (MRIL), has appointed SBI Capital Markets to carry out a comprehensive restructuring of McLeod’s debt .

SBI Caps is mandated to look for a solution outside the corporate insolvency resolution process under Insolvency & Bankruptcy Code, 2016, as the debt on the balance sheet of McLeod has ballooned, making the company vulnerable to operate as a going concern.

The total borrowings on MRIL books stand at around Rs 2,000 crore, which include working capital loans. McLeod is pleading with the banks to convert the short-term borrowings into longer maturities.

The broad contours of the package will also involve selling more tea gardens to bring in fresh funds into the company. If the lenders agree, an inter-creditors’ agreement (ICA) will be signed among them, persons aware of the matter said.

McLeod, as well as the entire Willamson Magor group led by the Brij Mohan Khaitan family, are under severe financial stress on multiple accounts, but mainly because of the ever increasing exposure to loss-making engineering, procurement and contract company McNally Bharat Engineering Ltd. Moreover, none of the core businesses of the group — tea and battery — are generating enough cash to sustain the loss, forcing the owners to borrow heavily by pledging shares, gardens and land.

The recently published annual report revealed that current borrowings have gone up to Rs 900 crore in the last fiscal alone. The management cited high finance cost as one of the reasons why McLeod ended up in the red.

“A comprehensive restructuring package is in the works. The ICA will involve converting short-term loans into long term ones and sale of assets. Plus, an overall group restructuring is also underway,” a person familiar with the matter said.

The group restructuring will be required as McLeod has lent heavily to group firms. Independent auditor to the company in the last fiscal, Deloitte Haskins & Sells LLP, has put out an adverse opinion to the financial statement of the company before quitting.

According to Deloitte, the company understated losses for the last fiscal by Rs 1,821.71 crore, citing unrealised large debt to group firms as one of the reasons.

Temporary setback

McLeod, however, will have to deal with a legal move made by one of the financial creditors to the company.

A company law court in Calcutta has imposed a temporary stay on the bulk tea producer on further sale of assets.

Following an application filed by Techno Electric & Engineering Co Ltd, the Calcutta bench of the National Company Law Tribunal has passed an order of status quo on the sale of assets of MRIL till further hearing.

The matter will again come up before the tribunal on September 18 when the bench would hear the application of Techno to initiate bankruptcy proceedings.

Padam Prakash Gupta’s Techno had filed a case before the NCLT under section 7 of IBC to start the corporate insolvency resolution process (CIRP) earlier this year.

The matter was first heard on July 15 when the tribunal asked the creditor to serve the notice of admission to McLeod, and set a date for the next hearing on September 18.

However, Techno moved a fresh application, seeking stay on the sale pressing the urgency of the case.

“The documents referred to us add strength to the apprehension on the side of the applicant that if an ad interim order is not passed, there is every chance of removal of the assets of the corporate debtor (MRIL), defeating the very purpose of resolution if any passed in favour of the applicant. It requires larger evidence and hearing so as to answer the objections raised on the side of the respondent/CD.

“Therefore, the interest of justice demands to pass an order of status quo of the assets as disclosed in the financial statement for the year ending March 31, 2019, till the next day of hearing.

“Accordingly, we are passing an order of status quo against the assets of the CD disclosed in the financial statement for the year ending 31.03.2019,” the bench comprising Justice K.R. Jinan and member Harish Chander Suri said.

Techno case

On September 22, 2018, Saffron Enclave Private Ltd, a group firm of Techno, had executed a non-binding term sheet to buy four tea estates — Addaborai, Dirai, Mahakali and Rajmali in Assam — from McLeod.

Six days later, Techno lent Rs 100 crore to MRIL on the condition that the money would be used to repay the loans due to banks and financial institutions relating to those four estates. The term sheet was valid for 120 days.

Under the loan agreement, McLeod was to hand over the title deeds of the four estates, the collateral against the loan, within 90 days. Techno alleged that McLeod failed to do so.

Moreover, McLeod informed the bourses on April 22, 2019, that it had executed an agreement for the sale of the Addabarie, Dirai and Mahakali estates to Luxmi Tea for Rs 150.45 crore after the non-binding term sheet with Saffron Enclave expired on March 31, 2019.

Techno moved the Calcutta high court soon, which stayed the sale of only the Rajmali tea estate, apart from a property on Sunny Park on which collateral was given.

The Telegraph India reported

ET: Lanco Thermal Power gets financial claims worth Rs 24,000 crore

20 August 2019: Lanco Thermal Power, the holding company for investments in thermal power plants by Lanco Group, has received financial claims of Rs 24,000 crore, said two people with direct knowledge of the matter.

Among the 15-20 lenders to the company are Andhra Bank, ICICI Bank, Axis Bank, Canara Bank, and IDBI Bank, sources said. The NCLT’s Hyderabad chapter admitted the case for insolvency proceedings on May 9 this year. Andhra Bank moved the petition under the Insolvency and Bankruptcy Code.

Parveen Bansal, designated partner of Delhi-based AAA Insolvency Professionals LLP, was appointed the resolution professional. Bansal confirmed the quantum of financial claims to ET. Emails sent to individual lenders remained unanswered. Axis Bank declined to comment.

About 99% of the claims have been submitted by banks/financial institutions marked as indirect lenders, which extended loans to holding, subsidiary and associate companies. Most of these companies are undergoing insolvency process or are under liquidation. Direct lenders, with 1% of the claims, loaned funds to the holding company.

“The corporate debtor secured these loans by extending corporate guarantee or by pledge of share investments,” an executive linked to the resolution process said. Lanco Thermal Power also invested in a 10MW hydel plant located in Himachal Pradesh.

With no single bidder officially submitting any interest to buy all the assets, lenders may have to wait for liquidation to receive their dues. Bids were sought on July 24. “Preliminary interest has been shown by investors for submission of expression of interest. Nothing can be said at this stage about their seriousness for investments,” Bansal told ET.

The Economic Times reported

FE: NCLAT stays NCLT order to liquidate Adhunik

23 July 2019: The National Company Law Appellate Tribunal (NCLAT) has stayed the order of the Cuttack Bench of the National Company Law Tribunal (NCLT) to liquidate Adhunik Metaliks (AML) after Liberty House Group moved the appellate tribunal against the liquidation order.

Earlier this month, the Cuttack Bench of the NCLT had ordered liquidation of the bankrupt steel maker after cancelling the resolution plan of Sanjeev Gupta-led Liberty House Group, with the UK-based group failing to implement the resolution plan submitted by it for bankrupt AML under the corporate insolvency resolution process (CIRP).

In a stock exchange filing on Monday, AML said, “Liberty House Group preferred appeals before the NCLAT against the liquidation order dated July 9, passed by the adjudicating authority, NCLT Cuttack Bench, in the matter of Adhunik Metaliks.”

In its order dated July 17, the NCLAT said, “Until further orders, operation of the impugned order of liquidation shall remain stayed.”

According to the order, the advocate appearing for State Bank of India (SBI), the lead lender, may file reply affidavit within two weeks. Rejoinder, if any, can be filed within two weeks thereafter. The appellate tribunal has directed to list the matter on August 28. Lenders to Adhunik Metaliks are SBI, PNB, ICICI Bank, IFCI, Punjab & Sind Bank, UCO Bank, Allahabad Bank, BoB, Corporation Bank and Srei Infrastructure Finance, among others.

Earlier, after Liberty House had failed to make the upfront cash payment of Rs 410 crore within the extended timeline to acquire AML, the Committee of Creditors (CoC), led by SBI, had filed an application before the Cuttack Bench of the NCLT to cancel the resolution plan of the LHG stating that it had “committed breach” in implementation of the plan.

In his submission before Justice Madan B Gosavi of the NCLT Cuttack Bench, the counsel for CoC had appealed to revive the CIRP by excluding period vested by LHG by not implementing the resolution plan as the group had not paid the required upfront cash payment to lenders within the stipulated deadline set by the NCLAT. The CoC’s counsel had also requested the Bench to allow them to consider the resolution plan submitted earlier by the H2 bidder, Maharashtra Seamless.

Notably, there had been only two resolution applicants for the debt-ridden steel manufacturing company — Liberty House and Maharashtra Seamless of the DP Jindal Group. LHG had been identified as the highest bidder (H1) by the creditors, while the plan of Maharashtra Seamless had been rejected as it had been offering less value than the liquidation value of the company.

During the hearing by the Cuttack Bench, Liberty House counsel Arvind Kumar Gupta had requested it to give directions to the CoC, the monitoring committee and the managing committee for the corporate debtor to cooperate with them in implementing the resolution plan in proper prospective as per the terms laid down in the plan. The Kolkata Bench of the NCLT had in July last year approved the resolution plan submitted by Liberty House, with lenders agreeing to take a haircut of around 92% and settling for Rs 410 crore against their outstanding dues of Rs 5,370 crore.

The Financial Express reported

FE: Jaypee homebuyers matter: SC asks Centre to come out with uniform proposal

9 July 2019: The Supreme Court on Tuesday asked the Centre to come out with a “uniform” proposal for all cases to resolve the difficulties being faced by lakhs of homebuyers who have not yet got possession of flats despite paying huge amounts of money to real estate builders. The apex court, which was hearing a homebuyers matter related to Jaypee Infratech Ltd, said the issue concerns lakhs of flat buyers and the Centre should give a proposal to resolve it.

“We want suggestions from the Union of India which could be uniform for all such cases,” a bench comprising justices A M Khanwilkar and Dinesh Maheshwari said. “This issue will be bothering lakhs of homebuyers. Within the IBC (Insolvency and Bankruptcy Code), we cannot do anything. But outside it, you (Centre) can suggest something. We can consider that,” the bench told Additional Solicitor General (ASG+) Madhavi Divan, who was appearing for the Centre.

The bench made the observation while hearing a plea which has sought that Jaypee Infratech Ltd (JIL) be not sent into liquidation, although the deadline for the corporate inlpsolvency resolution process is over, as it would cause “irreparable loss” to thousands of home buyers. The ASG told the court that proper authority to respond to the plea would be the resolution professional or the bank concerned.

“Can some other arrangement be suggested by the Union of India without disturbing the ongoing process?,” the bench asked, adding, “We are keen to know whether you have something to suggest”. “Policy issue has to be resolved by the Union of India,” the bench said and posted the matter for hearing on July 11.

The apex court had on August 9 last year ordered re-commencement of the resolution process against JIL and barred the firm, its holding company and promoters from participating in the fresh bidding process. It had also allowed the Reserve Bank of India to direct banks to initiate corporate insolvency resolution proceedings (CIRP) against Jaiprakash Associates Ltd (JAL), the holding company of JIL, under the IBC.

It had said there was “no manner of doubt” that JAL and JIL lacked financial capacity and resources to complete unfinished housing projects in which over 21,000 home buyers had not been given the possession of their flats till then.

The fresh plea filed in the top court has sought a direction that an “independent and thorough forensic audit” of JIL should be conducted from the date of its incorporation.

Referring to the apex court’s last year order, the plea has said, “The court had made a conscious effort to avoid liquidation of Jaypee Infratech Limited. However, the events as have unfolded subsequent to the passing of the judgment have frustrated the efforts as made by the court.” As per apex court’s direction, the 270 days for completion of CIRP have concluded on May 6, it has said.

“Till date only two serious bids have been received by the Committee of Creditors. One bid has been submitted by National Buildings Construction Corporation Limited, whereas the other has been submitted by Suraksha ARC. None of the said bids have been accepted by the Committee of Creditors till date,” the plea has said, claiming that “threat” of JIL going into liquidation is “turning into a reality with each passing day”.

It said if no resolution plan is accepted till May 6, JIL would “automatically go into liquidation”, leaving thousands of home buyers without any remedy. Seeking forensic audit of JIL, the plea alleged that “diversion of funds in the present case is on an even larger scale than that of projects developed by Amrapali Group of Companies”.

The Financial Express reported

ET: NCLAT directs NCLT to decide on IBC plea against JP Associates in 6 weeks

1 July 2019: The NCLAT Monday directed the National Company Law Tribunal to decide the insolvency plea filed by ICICI Bank against Jaiprakash Associates in six weeks.

The private sector lender had approached the National Company Law Appellate Tribunal ( NCLAT), seeking a direction to NCLT Allahabad-bench to expedite the hearing on its insolvency petition against Jaypee Group firm Jaiprakash Associates Ltd (JAL).

Hearing the matter, a three-judge bench of the NCLAT headed by Chairman Justice S J Mukhopadhyaya directed the NCLT Allahabad to decide on admitting the plea preferably in six weeks.

In September 2018, ICICI Bank had filed a petition before the NCLT Allahabad bench seeking to start insolvency proceedings against JAL, which is into infrastructure and real estate space.

In its plea before the appellate tribunal, the bank had submitted that there has been no progress in its petition filed before the NCLT Allahabad in last nine months.

JAL’s subsidiary Jaypee Infratech is already going through corporate insolvency resolution process (CIRP).

According to the bank, JAL owes around Rs 1,296 crore and it had approached the NCLT to recover the dues by filing an insolvency plea against JAL, under section 7 of Insolvency & Bankruptcy Code ( IBC).

However, JAL challenged the petition before the Allahabad High Court but the same was rejected. JAL then moved the Supreme Court, which too refused to stay the application.

The Economic Times reported

FE: Adhunik Metaliks: NCLT reserves order on lenders’ petition to restart CIRP

20 June 2019: The Cuttack bench of the National Company Law Tribunal (NCLT) has reserved its order on a plea by lenders seeking reinitiation of the corporate insolvency resolution process (CIRP) against bankrupt Adhunik Metaliks (AML). The plea was filed after UK-based Liberty House allegedly failed to make the upfront cash payment of Rs 410 crore even within the extended timeline to acquire the debt-ridden company.

After hearing arguments from counsels for the committee of creditors (CoC) for AML and Liberty House, Justice MB Gosavi on Tuesday reserved his order on all applications, including reinitiation of the CIRP process for the steelmaker.

Earlier, in his submission before the tribunal, the CoC counsel had appealed to re-initiate the CIRP process as Sanjeev Gupta-led Liberty House had not paid the required upfront cash payment of Rs 410 crore to lenders by April 14, the stipulated deadline set by the National Company Law Appellate Tribunal (NCLAT), for acquisition of AML.

In response, Liberty House’s counsel had said the group would need more time to make the payment as regulatory approvals were still pending for Adhunik Metaliks under the insolvency resolution process.

Lenders to Adhunik Metaliks are SBI, PNB, ICICI Bank, IFCI, Punjab & Sind Bank, UCO Bank, Allahabad Bank, Bank of Baroda, Corporation Bank and SREI Infrastructure Finance, among others.

The Kolkata bench of the NCLT had in July last year approved the resolution plan submitted by Liberty House, with lenders agreeing to take a haircut of around 92% and settling for Rs 410 crore against their outstanding dues of Rs 5,370 crore. There were only two resolution applicants for the debt-ridden steel manufacturing company — Liberty House and Maharashtra Seamless of the DP Jindal Group. LHG was identified as the highest bidder by the creditors, while the plan of Maharashtra Seamless was rejected as it was offering less value than the liquidation value of the firm.

Notably, the LHG had earlier failed to meet the deadline for payment under CIRP within the stipulated time for Amtek Auto, prompting the Chandigarh bench of the NCLT to allow its lenders to go for a fresh round of bidding.

Last month, the Insolvency and Bankruptcy Board of India (IBBI) filed a criminal complaint against Liberty House Group for withdrawing after successfully bidding for Amtek Auto.

The Financial Express reported

ET: Yes Bank’s AT1 yields soar as analysts worry about thin trade

18 June 2019: Yes Bank’s additional tier-1 (AT1) bond yield soared past 13 per cent, mirroring investor worry the lender’s equity position may get dented with more provisioning for bad loans. Though thinly-traded, the lack of demand for these bonds puts the focus on the bank’s urgent needs for capital.

Yes Bank has been issuing AT1 bonds since 2010. These bonds have been issued in different years their yields have spiked recently. The yield on the 9.50 per cent bond issued on December 23, 2016, for example, jumped to 13.60 per cent, though trading is thin. It was trading at 9.95 per cent in January this year.

Analysts said the sharp jump in the yields is not an accurate reflection of the bond because trades are very thin. On Monday a total of 80 bonds were traded at varied prices. While 30 bonds changed hands at a price of 97.74, 50 bonds changed owners at 94.60, reflecting the sharp movement in prices and hence yields. Bond prices and yields move in opposite directions.

Yes Bank’s AT1 bond yield spike opened up a gap with larger banking peers. Comparatively, ICICI Bank and HDFC Bank are trading at around 9.25 per cent, while SBI is around 8.90 per cent. ICICI was issued at 9.70 per cent in March 2018. “Risk perception for lenders below AAA is clearly higher now. But it is still far from a stage when the central bank says it’s a point of being nonviable. Investors are cautious and it is showing in the yields,” said Karthik Srinivasan, senior vice president, at ratings firm ICRA.

The Economic Times reported

LM: ICICI Bank moves NCLAT to expedite insolvency plea against Jaiprakash Associates

17 June 2019: Private sector lender ICICI Bank Monday approached the National Company Law Appellate Tribunal (NCLAT), seeking a direction to NCLT, Allahabad to expedite the hearing on its insolvency petition against Jaypee group firm Jaiprakash Associates Ltd (JAL).

In September 2018, ICICI Bank had filed a petition before the Allahabad bench of National Company Law Tribunal (NCLT) seeking to start insolvency proceedings of JAL, which is into infrastructure and real estate.

In its plea before the appellate tribunal, ICICI Bank submitted that there has been no progress in its petition filed before the NCLT Allahabad in last nine months.

Hearing the matter, a single member NCLT bench of Justice Bansi Lal Bhat directed to list ICICI Bank’s plea on 1 July for hearing.

JAL’s subsidiary Jaypee Infratech is already going through a corporate insolvency resolution process (CIRP).

According to ICICI Bank, JAL owes around ₹1,296 crore and the bank had approached NCLT to recover the dues, by filing an insolvency plea against JAL, under section 7 of Insolvency & Bankruptcy Code (IBC).

However, JAL challenged the ICICI Bank petition before the Allahabad High Court but the same was rejected.

JAL then moved Supreme Court, which too refused to stay the application.

“However, despite this, there is no development in this matter,” said ICICI Bank counsel on Monday.

“We want direction to NCLT to expedite the matter,” the counsel said, adding that the proceedings before NCLT are being played into the hands of the JAL promoters.

The counsel further alleged that JAL is creating legal hurdles in the IBC proceedings.

The LiveMint reported