Companies & Sectors
Vijay Mallya’s offer is a very good deal if he sticks to it
Mallya’s offer will mean only a 7% loss, calculates Religare, and could prompt other wilful defaulters and stressed companies to clear their dues – a key positive for banks
 
The offer from beleaguered liquor baron Vijay Mallya to pay Rs4,000 crore for settling outstanding dues against the grounded Kingfisher Airlines is not a bad deal for the consortium of 13 banks headed by the State Bank of India (SBI), says a research report.
 
According to the note from Religare Capital Markets Ltd, the offer for settlement will curb banks' actual losses to about Rs500 crore, translating to a loss-given-default (LGD) rate of 7%, which is much lower than the Reserve Bank of India (RBI)'s LGD estimate of 36% over a business cycle on average.
 
"Mallya’s capitulation in the face of tremendous pressure from banks, the government and the RBI could prompt other wilful defaulters and stressed companies to clear their dues as well – a key positive for banks," the report says.
 
Mallya has defaulted on loans totalling Rs7,000 crore, of which banks have recovered Rs2,500 crore. A further one-time settlement of Rs4,000 crore would lower banks’ actual losses to about Rs500 crore or a 7% haircut.
 
1. Religare says, most banks have fully written off the loans outstanding to Kingfisher Airlines and hence any recovery will directly flow into profits. As per media reports, lenders with the highest exposure to Kingfisher Airlines are SBI (Rs1,650 crore), Punjab National Bank (PNB) and IDBI Bank (Rs800 crore each), Bank of India (Rs650 crore), Bank of Baroda (Rs550 crore), United Bank of India (Rs430 crore), Central Bank of India (Rs410 crore), UCO Bank (Rs320 crore) and Corporation Bank (Rs310 crore).
 
The RBI, in its dynamic provisioning report, has estimated the loss given default for various categories of loans based on data obtained from the top 15 banks, mix of public and private sector banks. LGD is a measure of actual loss to banks at the time of default. The RBI has provided two LGD benchmark rates for corporate loans – 36% over a business cycle and 79% over a down cycle on average. 
 
Religare says, "In the case of Kingfisher Airlines, the actual loss if banks accept Mallya’s proposal will be just 7% on principal– far lower than both LGD benchmarks."
 
In the past, there have been instances where banks have waived off penalties and interest on delayed payments to facilitate the settlement of cases. Tax authorities in India widely follow this practice to avoid a protracted legal process and to ensure early recovery of dues. In fact, the recent union budget provides a one-time dispute resolution scheme for direct taxes where the part or full penalty will be waived if the disputed tax demand is paid along with interest till the date of assessment. Thus, we do not think it will be unfair of banks to accept the offer, the research note added.

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COMMENTS

Ramesh Bajaj

1 year ago

Go ahead and finish the settlement; IF THE AUTHORITIES ARE 100% SURE THAT THIS MONEY WILL BE PAID ON TIME, (WITHOUT FURTHER DELAY) and no further settlements if there is default.
This is the only way forward.

Param

1 year ago

am i the only one who thinks this whole episode is a wonderful way for mallya & co. to make money by betting on bank stocks? especially if you can control what gets published when to drive the stock prices...

Dr Anantha K Ramdas

1 year ago

Vijay Mallya is trying to do what Donald Trump did! Pay back as little as he can and then declare bankruptcy... like Donald, start all over again...

Banks are suckers because all of them were vying with each other to lend money and when going is bad, they would naturally jump on the "victim" like poor vijay mallya!

Law must take its course; collect whatever is available and have a lien over all his property in India and abroad.

No discounts on loans taken..they have to be collected. Will somebody, in the meantime, like CBI or whoever, check on all the guys and dolls who gave away all these loans?

D S Ranga Rao

1 year ago

Fine. Get back as much as you can do. But, let the prosecution stand till the last penny is retrieved. After all, Mallya's offer is no favor, nor alms to banks. He ought to repay the debt he owed. It's all public money, not the pocket money of any minister, nor a banker; so, every rupee of it has to be accounted for. We've already had enough of write- offs of our hard-earned tax money stashed away abroad by all sorts of crooks without any prospect of its recovery. The citizens of this country, already frustrated with the government's failure to bring back the hidden wealth from abroad, are now keenly watching this drama. No need of any sympathies nor any concessions to any of the defaulters, please.

REPLY

Vaidyanathan K Iyer

In Reply to D S Ranga Rao 1 year ago

Exquisite indeed. Behind every fortune there is a crime is a novel but in reality I see here

Suketu Shah

In Reply to D S Ranga Rao 1 year ago

Perfectly said.He shd be made to pay every rupee including interest.Not one rupee waived as this wl set a bad precedent.No deals,no negotiations,nothing with him as mind you it wl set a very bad precedent.

D S Ranga Rao

In Reply to Suketu Shah 1 year ago

Exactly. All those defaulters, corrupt and inept bankers and all those who aided and abetted these fellows, howsoever high and mighty, should be ruthlessly pursued to the hilt and every penny recovered. The government cannot have any excuses for not doing so as all the loot and plunder happened right under their noses and right before their eyes, unlike in the case of so called black money stashed abroad stealthily.

Merchant M S

1 year ago

In the current situation collect as much as you can. A bird in hand is worth many in the bush. Any takers?

REPLY

D S Ranga Rao

In Reply to Merchant M S 1 year ago

Of course. But for the balance unpaid, the defaulter has to face the law. No exception, please. And no write-offs, at all.

Kumar Swamy

In Reply to D S Ranga Rao 1 year ago

Don't trust the above numbers until we know Mallya's exact proposal.

D S Ranga Rao

In Reply to Kumar Swamy 1 year ago

Yes, that's what i said in my direct comment:"...let the prosecution stand till the last penny is retrieved. After all, Mallya's offer is no favor, nor alms to banks. He ought to repay the debt he owed. ......."

Allahabad HC grants interim relief to 'Freedom 251' makers
New Delhi : In some respite to India's cheapest smartphone makers, the Allahabad High Court on Wednesday granted interim relief to Ringing Bells Pvt Ltd -- the Noida-based firm that created a global buzz after announcing the launch of the controversial Rs.251 "Freedom 251" smartphone last month.
 
While hearing the plea, the division bench of Justice B.K. Narayan and justice Shashi Kant ordered the UP state government to furnish a status report on an urgent basis by April 5, further directing that no coercive steps be taken till then against the three top accused - directors Mohit Goel and Dharna Garg and president Ashok Chadha.
 
A first information report (FIR) was registered last week against Goel and company president Ashok Chaddha under Section 420 of the Indian Penal Code (IPC) as well as the Information Technology (IT) Act on a complaint filed by BJP leader Kirit Somaiya.
 
The court also directed the petitioners to submit their passports to SSP Noida within 24 hours.
 
According to lawyer Abhishek Vikram representing Ringing Bells, the three petitioners will "fully comply with the orders of the court by submitting their passport and will provide full cooperation to the investigation agency".
 
"We have nothing to hide. We are committed to affordable smartphones to people of this country and we shall achieve that. We will stick to fair practices and comply with regulations of our great country," Mohit Goel, director, Ringing Bells, told IANS.
 
"We remain committed to cooperate with any government agency that may need to inquire our organisation for any reason or suspicion. We have already done so with authorities/agencies that have so required," Goel added.
 
"I do maintain that we will deliver the most affordable quality products to our customers through our range of smartphones including 'Freedom 251'," Goel added. 
 
Ringing Bells launched the product last month in the presence of veteran BJP leader Murli Manohar Joshi. 
 
It distributed some "prototypes" of the product to the media which turned out to be Adcom handsets. However, the company maintained that the device has been developed "with immense support" from the government.
 
According to the company, 'Freedom 251' will run on Android 5.1 operating system and will sport a 4-inch qHD IPS display, a 3.2-megapixel primary and a 0.3-megapixel front camera.
 
However, doubts were raised after assessments of the viability of the handset found that such a device cannot be offered for less than Rs.2,300-2,400.
 
Ringing Bells had received 30,000 orders on the first day.
 
The rest of the customers for the first 25 lakh handsets were to be selected on first-come-first-served basis as the company received about seven crore registrations before the payment gateway crashed. 
 
Later, the company decided to return the money to the customers who pre-booked the Rs.251 device on the first day of the sale. 
 
The company said it planned to give 25 lakh handsets in the first phase before June 30.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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RBI's amended MCLR norms negative for banks
Since working capital loans will now be linked to MCLR, it will make them rate sensitive and affect margins in a downward interest-rate environment for banks, according to Religare
 
The Reserve Bank of India (RBI) has made four changes to the marginal cost of funds-based lending rate (MCLR) system which comes into effect from 1 April 2016. However, since fixed-rate loans up to three years will be linked to MCLR, it would be clearly negative for banks, says a research report.
 
Religare Capital Markets Ltd, in the note says, "Our interaction with bankers suggests that banks were thinking of using the fixed-rate loan approach to price working capital loans in order to avoid the margin impact. However, most of the working capital loans will now be linked to MCLR, making them rate sensitive. This will affect margins in a downward interest-rate environment."
 
As per the earlier guidelines, all fixed-rate loans were exempt from being linked to MCLR as the benchmark for determining interest rates. It has now been decided that fixed-rate loans up to three years shall be priced with reference to MCLR. Fixed-rate loans of tenor above three years will continue to be exempt.
 
As per the amended MCLR norms, banks will have flexibility in computing marginal cost of funds, which according to Religare is technical relief and its impact on net interest margin (NIM) would be minimal. 
 
Earlier, to compute the marginal cost of funds, banks were asked to reckon the balances of deposits and other borrowings outstanding as on the previous day of reviewing the MCLR. Now banks have been given the option to reckon the outstanding balances of deposits and other borrowings as on any day not more than seven calendar days prior to the date from which the MCLR becomes effective. The chosen time lag shall be maintained consistently for a period of not less than one year.
 
Religare says even the method for calculating tenor of MCLR is more technical in nature. As per the amended norms, MCLR calculated shall correspond to the tenor of funds in the single largest maturity bucket, provided this is more than 30% of the entire funds reckoned for determining the MCLR, and the weighted average tenor of two or more maturity buckets that together account for more than 30%, if no single maturity bucket accounts for over 30% of the funds. The maturity bucket shall be arrived at by calculating the cumulative weightage based on the descending order of maturity time buckets.
 
Similarly, the prevailing date of disbursement is also more technical in nature as MCLR prevailing on the date of disbursement will apply on floating rate loans. The RBI has intimated that floating rate loans will be priced at the MCLR prevailing on the date of first disbursement (be it partial or full) instead of the date of sanction guided earlier. These loans will continue to be priced at that rate till future reset dates are determined. Religare says it continues to maintain its negative stance on the banking sector.

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COMMENTS

s kumar

1 year ago

RBI should make MCLR applicable to NBFCs and MFIs too.

B. Yerram Raju

1 year ago

Religare's apprehension apparently seems not well founded as the MSME loan portfolio is not of the size of the corporate debt. Second, several MSME loans beyond Rs.10lakh limit are collateralised and most of these loans are being classified as NPAs almost at the drop of the hat. Several of the MSMEs are vendors to the corporates supplying intermediary products. With the corporate defaulting on payments of bills according to the tenor and the MSMEs mostly operating in captive markets end up as NPAs.
They have no systemic recourse. Most PSBs have slapped the SAFRAESI Act provisions on the collateralised loans and the RBI should have redefined the NPA scheduling for this sector within Rs.10lakhs to Rs.100lakhs. Up to Rs.10lakhs several banks are lending against CGTMSE cover which factor has not been reckoned in the latest instructions.
Treating all loans beyond Rs.10lakhs up to Rs.2500lakhs with the same brush is patently wrong.
No Bank has been implementing the Corrective Action Plan although such instruction has been in vogue from 2nd June 2015 as per the guidelines issued by the MSME Ministry.
Most of the PSBs are ruthless in applying the rule and impounding the assets when it comes to the MSMEs because the later do not have the ability to fight.

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