FE: IDBI to meet RBI this week; seeks to exit PCA framework

16 January 2020: Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent.

LIC-owned IDBI Bank, currently under prompt corrective action since May 2017, is expected to hold meeting with the RBI this week to seek removal of operational restrictions, according to sources. The lender will make a presentation to the Reserve Bank of India on its improved financial position, the sources said, adding the management is hopeful of coming out of the PCA framework by the end of this month. The RBI had placed IDBI Bank in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.

Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent. “The presentation to the RBI will be on the key financial numbers. On the capital front and in terms of net NPAs, we have been able to make progress,” the sources told PTI. A query sent to the bank did not elicit any response.

The PCA norms trigger if a bank’s net NPA crosses 6 per cent or if CRAR (capital to risk weighted assets) is below the regulatory requirement of 10.88 per cent as of March 2019. In the quarter to September 2019, its net NPA stood at 5.97 per cent and tier-1 capital and CRAR improved to 9.52 per cent and 11.98 per cent, respectively. Capital infusion through recap bonds by the government in Q2, and also from LIC, and recovery from stressed accounts have also helped the bank in shoring up its capital position, another person familiar with the matter said.

In the second quarter of FY20, the bank received Rs 4,743 crore from LIC, which holds 51 per cent stake, and Rs 4,557 crore from the government which still owns 47.11 per cent. Another positive is the recovery of close to Rs 3,000 crore from the NCLT resolution of Essar Steel and Ruchi Soya in the third quarter, further strengthening the capital position, the sources said.

The only area where the bank is still lagging is return on assets (RoA) which continues to remain negative for the fourth consecutive year. However, the bank is hoping some relaxation on the RoA front after the RBI eased the same for five other banks last year. In September quarter of this fiscal, IDBI Bank had reported a net loss of Rs 3,459 crore, marginally better than Rs 3,602 crore in the year-ago period.

In FY19, RBI removed five banks — Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank — from the PCA framework in two phases after capital support from government that resulted in improvement in their financial parameters. Capital infusion helped these lenders meet requisite capital thresholds and reduce their net NPA levels to below 6 per cent. The monetary authority as an effort to enhance its supervisory framework had introduced the PCA framework, based on structured early intervention mechanism, in December 2002.

The framework was subsequently reviewed by the RBI keeping in view the international best practices and recommendations of the working group of the Financial Stability and Development Council (FSDC) on resolution regimes for financial institutions and Financial Sector Legislative Reforms Commission. The revised PCA framework was issued on April 13, 2017 and implemented on March 31, 2017.

The Financial Express reported

BQ: Anil Ambani’s Shipyard Risks Insolvency as Banks Spurn Debt Plan

3 September 2019: The shipyard controlled by embattled Indian tycoon Anil Ambani is facing the prospect of bankruptcy after failing to get creditors’ approval for restructuring 70 billion rupees ($970 million) of debt, people familiar with the matter said.

India’s bankruptcy tribunal will consider putting Reliance Naval & Engineering Ltd. in bankruptcy on Wednesday as no new repayment plan was submitted after lenders led by IDBI Bank Ltd. rejected an earlier offer in July, the people said, asking not to be named as the information is not public. The court can also defer the decision on bankruptcy.

Any court ruling favoring the banks would deal another blow to the tycoon’s stressed empire after his wireless carrier slipped into insolvency earlier this year. The revival of the shipyard is crucial for the tycoon, who’s betting on potential cash flows from government defense contracts as Prime Minister Narendra Modi plans billions of dollars in spending on national security.

While IDBI had sought to move Reliance Naval into insolvency in September 2018, a decision was delayed after industry bodies representing power-generating companies, shipyards and sugar mills successfully challenged the RBI directive that required delinquent borrowers to be pushed into bankruptcy. However, the risk of bankruptcy reemerged for the submarine maker after it failed to come up with a repayment plan even under RBI’s relaxed norms.

Representatives for Reliance Naval and IDBI Bank didn’t respond to emails and phone calls seeking comments.

The warship maker’s loan-recast plan that was rejected in July proposed banks converting part of the debt into equity after the RBI eased rules to provide lenders more discretion in dealing with soured debt, the people said. The plan didn’t involve any upfront payments and proposed a transfer of banks’ non-fund exposures such as guarantees and letter of credits from Reliance Naval to another Ambani company Reliance Infrastructure Ltd., the people said.

Meanwhile, Anil Ambani’s wider conglomerate is planning to dispose of assets spanning roads to radio stations, aiming to raise about 217 billion rupees ($3 billion) to help pare debt that has ballooned to about 939 billion rupees at four of its biggest units — excluding the telecom business Reliance Communications Ltd.

Bloomberg Quint reported

NIE: Supreme Court extends status quo by a week on Jaypee’s insolvency resolution process

22 August 2019: The Supreme Court Thursday extended by a week the status quo on the insolvency process on Jaypee Group’s plea challenging the NCLAT order allowing fresh bidding for debt-laden Jaypee Infratech.

A bench of Justices A M Khanwilkar and Dinesh Maheshwari was told by senior advocate Fali S Nariman, appearing for Jaypee Group, that a batch of 18-19 petitions has been filed challenging the new amendments to the Insolvency and Bankruptcy Code (IBC).

The pleas have been listed for September before another bench of the top court, Nariman said.

The bench then enquired about Additional Solicitor General Madhavi Divan, who is assisting the court on behalf of Centre in the case.

A counsel informed the bench that she was arguing a part-heard case in another court, after which the top court posted the matter for further hearing on August 29.

“List after one week. Interim orders to continue till further orders,” the bench said.

On August 2, the Supreme Court had ordered status quo for two weeks on the insolvency proceeding after Jaypee Group challenged the July 30 order of National Company Law Appellate Tribunal (NCLAT), which allowed the fresh bidding for the cash-strapped Jaypee Infratech.

The top court had said that the new resolution plan has to be in accordance with the new amendments in the IBC.

Earlier, Divan had told the bench that Parliament has passed the amendments in Insolvency and Bankruptcy Code (IBC), which would address various concerns of homebuyers.

She had said that a meeting of various stakeholders with the Finance Ministry was scheduled to be held in the first week of August to resolve taxation and other related issues.

On July 30, the NCLAT had allowed fresh bidding for the cash-strapped Jaypee Infratech but barred its promoter Jaypee Group from participating in the auction.

To enable the fresh bidding process, the NCLAT extended the resolution period of Jaypee Infratech for another 90 days, which includes a 45-day window for the resolution professional (RP) and lenders of the debt-ridden firm to invite fresh bids.

The NCLAT direction came in view of lenders rejecting the resolution plan of state-owned NBCC and Suraksha Realty in the second round of bidding.

Jaypee Infratech went into insolvency in August 2017 after the National Company Law Tribunal (NCLT) admitted an application filed by an IDBI Bank-led consortium.

In the first round of insolvency proceedings conducted last year, the Rs 7,350-crore bid of Lakshdeep, part of Suraksha Group, was rejected by lenders.

The NCLAT had asked state-owned NBCC, whose bid was rejected by the CoC of Jaypee Infratech, to submit fresh resolution plan for the debt-ridden company.

The appellate tribunal has also rejected the plea of Jaiprakash Associates Ltd, the promoters of Jaypee Infratech, to be eligible to submit a bid.

On June 18, the Centre had informed the apex court that fresh amendments to the IBC give appropriate weightage to homebuyers to protect their interest.

The Lok Sabha on earlier passed amendments to the Insolvency and Bankruptcy Code, with the government asserting that the spirit behind the law is not to allow companies to die.

Rajya Sabha has already passed the bill and with its passage in the lower house, the Insolvency and Bankruptcy Code is set to be amended.

The top court had earlier said it may use its plenary power under Article 142 of the Constitution to protect the interest of over 21,000 homebuyers in the JIL case if their grievances are not addressed.

The court is hearing a plea which has sought that JIL is not sent into liquidation, although the deadline for the corporate insolvency resolution process is over, as it would cause “irreparable loss” to thousands of homebuyers.

On August 9 last year, the apex court 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 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.

The New Indian Express 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

DNA: Ratnagiri Power on revival path as lenders sign inter-creditor pact

16 August 2019: Ratnagiri Gas and Power Pvt Ltd, which had turned a non-performing asset (NPA) for banks in the fiscal first quarter ended June after Reserve Bank of India (RBI) insisted to downgrade the account, is now on course for a resolution.

Canara Bank, which had taken a dissenting approach from the other lenders and moved the National Company Law Tribunal (NCLT) against the resolution plan of Ratnagiri Gas and Power (RGPPL), has come on board.

All the ten lenders in the consortium have buried their differences and signed the inter-creditor agreement that gives RGPPL, which owns an integrated power generation and regassified liquefied natural gas (LNG) facility, a deep restructuring of its Rs 9,000-crore loan for a repayment cycle of 10 years.

The banks have submitted the resolution plan to RBI and are awaiting approval.

“Canara Bank was the only one which was yet to sign the agreement. As a result, RBI asked all the banks to downgrade the account and classify it as an NPA in the June quarter. Now with all the banks in agreement, we have submitted the proposal to RBI for its final approval. We will abide by whatever the regulator tells us,” said a banker who is involved in the restructuring process.

The Plan

  • Power plant loans will be restructured by the banks
  • LNG business would be demerged into a new company, Konkan LNG Pvt Ltd
  • The demerged entity will be given a loan of Rs 1,500 crore for a breakwater facility
  • The sustainable part of RGPPL’s loan of Rs 9,000 crore would be serviced by the company
  • The unsustainable part will be converted into cumulative redeemable preference shares
  • The sustainable loan will be repaid over a 10-year period at a rate of 10%

The restructuring will involve bifurcating RGPPL’s business into two parts –Power plant whose loans will be restructured by the banks, and demerger of the LNG business into a new company, Konkan LNG Pvt Ltd (KLPL). This demerged entity will be given an additional loan of Rs 1,500 crore for a breakwater facility. In March 2018, National Company Law Appellate Tribunal (NCLAT) had approved the demerger of RGPPL’s LNG business into KLPL.

The debt restructuring will involve dividing RGPPL’s existing loan of Rs 9,000 crore into sustainable, which the company will service, and unsustainable, which will be converted into cumulative redeemable preference shares (CRPS). The sustainable loan will be repaid over a 10-year period with an interest rate of 10%, down from the earlier 13%.

Canara Bank, which had an exposure of Rs 400 crore, had filed two separate cases against RGPPL and KLPL under Section 7 of the Insolvency and Bankruptcy Code (IBC), which had taken the other banks in the consortium by surprise and delayed the resolution plan.

The Dabhol Power company, which is now called RGPPL, was set up in 1992 as a joint venture between Enron as a majority shareholder while GE and Bechtel were minority shareholders. But the construction and operation of the plant were in news for corruption involving political parties, both in India and the US. The central point of the controversy was over the pricing of power, which fixed at Rs 8 per unit was exorbitant compared to the hydroelectricity power, which was at just Rs 0.35 a unit. The power purchase agreement was signed with the Maharashtra State Electricity Board (MSEB). In 1999, the plant began producing energy, but by 2001 MSEB stopped paying for the power and sought to cancel the power purchase agreement. After Enron ran into scandals in the US and finally filed for bankruptcy there, the Dhabhol plant stopped production.

In 2005, it was taken over and revived by converting it into RGPPL, a company owned by the government. The loans and equity were later bought by a consortium of lenders and MSEB, GAIL and NTPC in 2005.

The Konkan-based power plant ran into trouble in 2013 after lower natural gas output from Reliance Industries’ KG D6 basin hit production. Current shareholders of the RGPPL is National Thermal Power Corporation (25.51% stake), GAIL (25.51%) , MSEB (13%), IDBI Bank (12.50%), SBI (10%) and Canara Bank (2.15%).

The DNAIndia reported

FE: Jaypee infra parent moves SC against NCLAT fresh bid order

2 August 2019: Jaiprakash Associates, the parent company of embattled Jaypee Infratech (JIL), on Thursday moved the Supreme Court challenging the National Company Law Appellate Tribunal’s (NCLAT) on Tuesday order that allowed fresh bidding for the debt-laden real estate firm and also barred promoters from participating in the fresh auction.

JAL and Manoj Gaur, the CMD of the suspended management of JIL, in their joint appeal told the apex court that the NCLAT exceeded its jurisdiction and disregarded the strict and mandatory provisions of the IBC by giving another opportunity to the other resolution applicants, including state-owned NBCC and Adani, to resubmit their resolution plans, even though the same have been repeatedly been rejected.

A bench led by justice AM Khanwilar is likely to hear the case on Friday.

While challenging the NCLAT order that held JAL ineligible to submit fresh bids, Gaur asked the apex court to “exercise its extra-ordinary jurisdiction to continue with the restructuring/revival of JIL with an equitable view and consider the settlement proposal” submitted by the promoters wherein they have “strived to optimally utilise the assets of the corporate debtor to run it as going concern and settle the claims of all the stakeholders holistically without providing for any haircuts, while considering the primary objective of the IBC”.

It said that the SC had once permitted JAL to present its proposal before the committee of creditors (CoC) of JIL, but the same was merely rejected as a statutory bar stipulated under the IBC.

JAL had earlier submitted its bid to regain control over its subsidiary and had offered to pay the 100% outstanding amount to creditors without any haircut. It had also offered to complete the unfinished flats within three years.

To enable the fresh bidding process, the NCLAT had also extended the Corporate Insolvency Resolution Process (CIRP) period of JIL for another 90 days, which includes a 45-day window for the resolution professional and lenders of the debt-ridden firm to invite fresh bids. Forty five days would be used to finalise new bids and the rest to cure any discrepancies in the bids.

The appeal stated that the NCLAT had “erroneously and arbitrarily and without any adequate jurisdiction” decided on the exclusion of time especially when an application in this regard was pending before the NCLT. It said that the appellate tribunal had usurped the jurisdiction of the NCLT while holding that total 260 days out of 270 days can be excluded and also by passing an order of exclusion of 90 days from the CIRP of JIL.

Lenders had requested NCLAT to exclude the period from September 17, 2018, from the stipulated period for CIRP, as this time was taken by the NCLT to decide on the voting rights of the homebuyers. However, JAL stated that CIRP of JIL was not stalled at any point of time and this was evident from the fact that the CoC meetings were being duly conducted and decisions with regard to the operations and the resolution process were being taken regularly.

The IDBI Bank-led consortium had initiated insolvency proceedings against JIL for failing to repay debt of around Rs 24,000 crore. The NCLT, Allahabad, had admitted the plea.

In the first round of insolvency proceedings conducted last year, the Rs 7,350-crore bid of Lakshdeep, part of Suraksha Group, was rejected by lenders. In October 2018, the RP had started second round of bidding. While state-owned NBCC’s plan to complete the pending projects was rejected by the lenders, the Adani group is also now in the fray with its unsolicited bid.

Of the total votes polled on the NBCC’s plan, nearly 34.75% of homebuyers had voted in favour, while 1.44% had voted against. As much as 23.8% of the homebuyers had abstained from the voting process. While the homebuyers comprise 59% of the CoC, the 13 banks comprising the other 40.755 had voted against the NBCC’s bid.

The Financial Express reported

LM: NCLAT sets aside order directing return of land to Jaypee Infratech

1 August 2019: The National Company Law Appellate Tribunal on Thursday set aside an NCLT order that directed Jaiprakash Associates Ltd to return 758 acres of land, which was pledged with several banks, to debt-laden Jaypee Infratech.

In May last year, the Allahabad bench of the National Company Law Tribunal (NCLT) had asked JAL to return 758 acres of land to its subsidiary Jaypee Infratech, declaring the transfer of the land as “fraudulent” and “undervalued”. It had directed JAL to release and discharge interest created over the patch of land to lenders.

All the banks and JAL had approached the NCLAT against the NCLT order. A stay was granted to all petitioners.

In its judgement, a two-member NCLAT bench, headed by Chairman Justice S J Mukhopadhaya, allowed the pleas of all banks as well as JAL and said that the transactions were genuine and the allegation of undervaluation was not justified.

“We have held that the transactions were made in the ordinary course of business in absence of any contrary evidence to show that they were made to defraud the creditors of the Jaypee Infratech or for any fraudulent purpose, on mere allegation made by the ‘Resolution Professional,” said the NCLAT.

The appellate tribunal said that “it was not open to the NCLT to hold that mortgage deeds, in question, were made by way of transactions which come within the meaning of ‘fraudulent trading’ or ‘wrongful trading’.”

The NCLAT also said that the Allahabad bench of NCLT had passed the order “on the basis of wrong presumption and error of fact held that transactions in question amount to ‘preferential transactions’.”

“All the appeals are allowed,” said the NCLAT, adding “we set aside the impugned order dated May 16, 2018”.

The petitioner banks are: Axis Bank, Standard Chartered, ICICI Bank, SBI, Bank of Maharashtra, United Bank of India, Central Bank of India’, ‘UCO Bank’, ‘Karur Vyasa Bank , L&T Infrastructure Finance Company, ‘Canara Bank, Karnataka Bank, IFCI, Allahabad Bank, Jammu & Kashmir Bank and The South Indian Bank Ltd.

Meanwhile, the NCLAT clarified that it has made no observations against JAL, against whom some lenders have approached the NCLT to initiate insolvency proceedings.

“However, we make it clear that we have not made any observations with regard to the Promoters or Directors in absence of any appeal preferred on their behalf,” said NCLAT.

Banks have given loans to Jaiprakash Associates, JP Group’s flagship firm against the land bank owned by Jaypee Infratech.

The LiveMint reported

LM: The Jaypee jigsaw: Filling the final pieces

31 July 2019: It will be over someday soon, but, hopefully, not before it has taught a lesson to everyone involved—the government, the judiciary, homebuyers, and the promoters of Jaypee Infratech Ltd (JIL), an arm of the Manoj Gaur-run Jaiprakash Associates Ltd (JAL). It is a classic case of greed versus fear—an ambitious promoter unable to manage risks, and a government content with making rules without attempting to enforce them.

The playground was Jaypee’s 6,175 acres of land spread over five locations in Uttar Pradesh, namely Noida, Mirzapur, Jaganpur, Agra and Tappal, with most of it lying in Noida. The land came to JAL in 2007 as part of an Uttar Pradesh government contract to build a 165 kilometres long expressway between Noida and Agra. Things turned sour in 2012 when the real estate market imploded spectacularly, particularly in the boomtowns that ring fence the National Capital Region. Housing projects ground to a halt. Customer advances got stuck in companies on the verge of insolvency, such as Jaypee. Caught in the vortex are now some 20,000 buyers waiting for their dream home in one of the 12 projects that the Jaypee group planned to construct at its so-called “Wish Town” township.

For some, the wait is now well over five years, even as at least 50 cases do the rounds in the Supreme Court, the National Company Law Appellate Tribunal (NCLAT), the National Company Law Tribunal (NCLT), and various consumer courts. The latest Supreme Court judgment in the Amrapali matter— another case of homebuyers versus an errant builder—has rekindled hope among Jaypee customers of an early resolution.

The apex court last week cancelled the licence of Amrapali Group and asked NBCC (India) Ltd to take over all its ongoing, unfinished housing projects. “The Supreme Court has unequivocally put the homebuyers’ interest at the top of the ladder and we hope other stakeholders and quasi-judiciary bodies take a message from this ruling,” says Aaditya Gutgutia, a 38-year-old homebuyer who put money into a “Wish Town” apartment. “Homebuyers are looking at NBCC and banks with a lot of hope… that our agony will end soon.”

On Monday, the Supreme Court ordered NBCC to take over as a consultant and find a way to complete a slew of unfinished housing projects that belong to Unitech Group, whose promoters are currently in jail for defrauding homebuyers. For the thousands of homebuyers who sunk their hopes on barren patches of land in Noida, the wheels of the system finally seem to be creaking forward.

The Jaypee saga, in particular, will leave ripples across the real estate industry for years to come. It was perhaps the first insolvency case against a real estate developer in India. The slew of court battles that ensued have already resulted in two marquee changes: a homebuyer is on par with a bank or lender in an insolvency court, and there is now the new threat of a public sector entity, like NBCC, taking over incomplete housing projects.

“We are clearly past the wild west bonanza where builders operated on the basis of flimsy business models,” says Arun Maira, a member (urban affairs) at the erstwhile Planning Commission. The era of zero finance from the builder, where customers paid money upfront, is over, Maira says, and adds that significant changes in law and regulations are inevitable going forward since the Supreme Court has clearly set a precedent by siding with the weaker party, the consumer.

But even as those fairer terms of engagement, between homeowner and developer, await to be written, for those trapped in the middle, the immediate concern is: who will build the houses and when will it be built? One critical difference between the Amrapali case and Jaypee case is that there are still assets (like the Yamuna Expressway) lying with Jaypee, all of which can be monetized. That has resulted in homeowners and banks fighting pitched battles in the halls of bankruptcy tribunals. Banks would, after all, like to liquidate the assets and recover as much money as possible, while homebuyers would want someone to build them a home. In August, the Jaypee liquidation drama would cross 350 days since it began last year. And all eyes, unsurprisingly, are on the Supreme Court. “As the matter is already before the Supreme Court, it can take a very radical approach,” says Manoj Kumar, partner at legal and corporate advisory firm Corporate Professionals.

While it is one particular case involving a single developer, the outcome may have wide-ranging fallout in a country where an estimated 500,000 houses remain unfinished for well over six years in the top seven cities alone.

Boom and bust

J.S. Bedi, 43, who works a medical representative for a pharmaceutical company, had booked a ₹74-lakh four-bedroom house in 2011 at Kensington Boulevard, one of those 12 housing projects at Wish Town. It’s a daily struggle for Bedi, who lives in a rented house at Ashram Chowk in Delhi with his wife and two children. “I have already paid ₹67 lakh. My wife can’t go out to work as she has to look after her father. I earn little and pay most of it as EMIs,” he says.

It was the heydays of the first decade of this century, with all asset classes booming—equities, gold, commodities, and, of course, real estate. Gaur then, coming into his own after his father and founder of the Jaypee group had ceded day-to-day operations, was a businessman on overdrive. The group went into major expansion in power and cement capacities between 2005 and 2012. At one point, JAL was the third largest cement manufacturer in the country with an annual capacity of 33 million tonnes.

Rumoured to have close ties to the then Uttar Pradesh chief minister and Bahujan Samaj Party chief Mayawati, every tender that Gaur touched turned into gold. That fetched him the expressway order that would eventually prove to be his nemesis. JIL was JAL’s special purpose vehicle (SPV) that would develop, operate and maintain the expressway that arguably is one of the best pieces of infrastructure created in the country. A Formula 1 track on the expressway, besides a hospital, a school and a college came up alongside.

Over the next four to five years, the group would go on to announce as many as 27 real estate projects—split between JAL and JIL—comprising flats and villas of various sizes to cater to classes ranging from the middle-income groups to the super rich. The group would run full-page advertisements in leading newspapers, offering dream homes at five locations in Uttar Pradesh. Many non-residents, either returning to India or those remitting money, bought into the promise.

“We met a lot of people… friends, bankers who had and who did not have exposure to the group. And all advised us to book a house. We were looking for a spacious living in a greener, more secure area,” says 62-year-old Ajoy Shah.

And then came the collapse of the real estate sector, somewhere around 2012-13. The Noida region was the worst-hit. Banks curtailed lending and consumers withdrew. The industry went into a tailspin as the Narendra Modi government went after black money. To make matters worse, an adverse ruling in 2015 by the National Green Tribunal, banning all construction within a kilometre of the Okhla Bird Sanctuary, an area not far from Noida, further affected sentiment. The November 2016 demonetization sucked the remaining life out of the informal sector, a key component of the real estate boom.

As the banking sector stared at mounting bad debts, the government enacted the Insolvency and Bankruptcy Code, 2016 to help lenders explore all options to recover their money within a time frame. The law set a 270-day deadline to find a resolution. JIL found its name in a list of 12 companies the Reserve Bank of India (RBI) had prepared and sent to the banks in June 2017 to invoke bankruptcy proceedings. Gaur was caught napping while he had been trying to work out a deal with IDBI Bank, one of the lenders. But now, the only recourse was the NCLT, Allahabad, where the case would proceed.

It dealt a body blow to the likes of Ajoy Shah. Having booked his house in 2010, he paid his last equated monthly instalment (EMI) this year but awaits his dream house—a three-room flat in Kensington Boulevard. “There is no communication from the firm. We last got a letter from them in 2013 that the delivery would happen three years later. We are still waiting for the handover as we go around doing the rounds of the Supreme Court, the NCLT and the consumer courts,” he says.

Bankruptcy battle

Jaypee’s bankruptcy case was unique as it affected not just the banks, but also around 26,000 homebuyers, as per figures then. All other cases in the RBI’s early list were mostly industries or infrastructure companies. Hence, Jaypee quickly became a matter of public interest.

“It’s very painful,” says Ajai Kaul, a 55-year-old director of technology at a multinational corporation. “We were thrown out of our own home state, Kashmir, in the 1990s. Thirty years ago, I slept on the floor at various migrant shelters in Delhi. I made it on my own through sheer hard work. I paid ₹40 lakh upfront for my house and another ₹10 lakh for a shop there. I have two brothers who also booked houses there and each paid as much. None of us has got any flat. Banks seem to be in collusion with the builder.”

A forensic audit report by T.R. Chadha & Co. Llp for the period between 1 April 2014 to 31 March 2017 found banks ever-greening the group’s loans and imposing inexplicably high penalties for pre-payment, a strange occurrence given that JIL was in trouble and thousands still awaited the handover of homes.

“JAL and JIL were both ripped-off by banks. Banks have already recovered their principal amount. The litigation has been on for two years now and I believe the case should be settled outside the court,” says Krishan Mitroo, a 75-year-old homebuyer and a former air force pilot.

With nearly a decade of their life gone, even the homebuyers are now divided. Earlier, nine resident groups had been set up just to fight the court battles, but now, some are in favour of a settlement—as long as they get the promised apartment. With almost a 60% strength in the ongoing arbitration process, homebuyers have been pushing for a government entity to take over and end the uncertainty. The Noida Development Authority has also given early indication of setting up a “stress fund” to disburse seed money to kick-start stalled projects. While NBCC taking over Jaypee sites as well and using the stress fund to get things started is one option, there are already growing concerns about what these thousands of unfinished homes may do to the balance sheet of the publicly listed company.

Irrespective of how exactly the Jaypee saga drags towards a resolution, the case has changed the real estate industry’s outlook forever. “If we consider trends in residential real estate over the last two years, demand for ready-to-move-in properties spiked significantly across cities, primarily led by the end users,” says Anuj Puri, chairman of Anarock Property Consultants.

The Real Estate Regulatory Authority (Rera) is also helping the cause, bringing some trust back into the system. “Rera has created a sense of discipline and accountability in developers,” Puri says.

Way forward

But Rera, an entity formed after Jaypee was admitted as a bankruptcy case, offers no hope to the its stranded buyers. They continue to fight their battle at the NCLAT and the Supreme Court.

Awaiting the Supreme Court order, Jaypee cannot be liquidated, which is otherwise a certain outcome in all insolvency cases where no resolution is found. While a mail sent to the company remained unanswered, a top official at the company cited, like Mitroo, Gaur’s handing over of the flats in the interim as proof of his commitment. He was not willing to come on record as the matter is sub judice.

The third round of bidding is underway as this story is published, the first two having failed as the banks were unwilling to accept the low quotes offered by the bidders. Mitroo remains sceptical. “I wonder how a new buyer will come and complete the projects when Jaypee is best positioned to do it. After all, the new buyer will also want a return,” he says. Between Mitroo and the Shahs and the Kauls is the story of the Indian real estate buyer. Everything rests on hope but nobody knows who the enemy is. As Kaul says, “I don’t care who builds it. I want my house. I feel I am back to where I started 30 years ago.”

The LiveMint reported

BI: Jaypee Infratech resolution time extended by 90 days, NCLAT invites new bids

30 July 2019: New Delhi, The National Company Law Appellate Tribunal (NCLAT) on Tuesday extended the resolution process of Jaypee Infratech (JIL) by 90 days, thereby allowing submission of fresh bids for the bankrupt realty company.

The extension would come into effect with the receipt of the appellate tribunal’s order.

The two-judge Bench, headed by NCLAT Chairman S.J. Mukhopadhaya, however, barred Jayprakash Associates (JAL), the parent company of JIL, from bidding.

The order said the process of bidding and approval of a resolution plan by the committee of creditors (CoC) should conclude in 45 days.

The 90-day extension comes amid the lenders’ request to exclude around 250 days, from September 17, 2018 to June 4, 2019, from the stipulated period for corporate insolvency resolution process, as during this period no bid could be voted upon in view of the confusion regarding the voting rights of the homebuyers.

Under the Insolvency and Bankruptcy Code (IBC), the resolution process of a company is mandated to be concluded within 270 days, failing which the company has to go for liquidation. The 270-day deadline for Jaypee Infratech ended on May 6.

As reported on BusinessInsider

ET: Ind-Ra downgrades IDBI Bank’s rating outlook to negative

24 July 2019: India Ratings and Research (Ind-Ra) has revised IDBI’s long-term issuer rating at IND A and short-term issuer rating at IND A1 besides changing the rating outlook from ‘rating watch negative’ to ‘negative.’

The action comes a few days after the Enforcement Directorate conducted searches in connection with a Rs 743 crore IDBI Bank fraud where an accused created ghost projects in Andhra Pradesh and Telangana to siphon off the loan amount.

Ind-Ra said the negative outlook reflects its expectation that the bank is likely to require sizeable equity infusion over 2020-21. While LIC has articulated its commitment to the same, the quantum and timing are not known at present.

“The outlook also reflects the continued pressure on the bank’s franchise and its inability to materially grow its asset book, which could result in its operating buffers facing recovery challenges,” said the rating agency.

In addition, the negative outlook factors in Ind-Ra’s expectation that IDBI will continue to grapple under the Reserve Bank of India’s prompt corrective action framework (which will continue to weigh on its share of systemic assets and liabilities) and credit costs over corporate accounts in spite of a high coverage ratio.

“Its gross non-performing assets are among the highest in its peer group (27.47 per cent at end-FY19). There has been a weakening in IDBI’s standalone franchise, a continued fall in its share of systemic assets and liabilities, and a sharp deterioration in its asset quality. These three factors are likely to persist at least until the resolution of asset quality issues and the stabilisation of capital buffers,” said Ind-Ra.

“These concerns could ease out over medium-term if the expected strategy with LIC plays out and the franchise starts gaining market share,” it added.

The Economic Times reported