Updated on 22 July 2020 at 7.15pm to add response from SBI.

 

State Bank of India (SBI) response to a shareholder have unveiled strange banking practices which suggest a callous disregard for recovering bad debts. The beleaguered Ruchi Soya Industries, whose share prices are rampaging today is a prime example. 

 

In FY2019-20, SBI wrote off Rs746 crore of non-performing assets (NPA) of Ruchi Soya Industries and has not recovered a single rupee from the company. The plan approved under the Insolvency & Bankruptcy Code (IBC) had indicated that SBI would recover Rs883 crore against its admitted claim of Rs1,816 crore. Instead, it made a fresh loan of Rs Rs1,200 crore to Baba Ramdev-led Patanjali Ayurved to help it acquire the company. 

 

SBI was part of a consortium of banks that lent Rs3,200 crore to Patanjali Ayurved for its acquisition.  In fact, several banks led by SBI had made claims of over Rs12,146 crore against Ruchi Soya before the bankruptcy courts. SBI had the highest exposure of Rs1,800 crore, followed by Central Bank of India (Rs 816 crore), PNB (Rs 743 crore), Standard Chartered Bank India (Rs 608 crore) and DBS (Rs 243 crore). It would probably be safe to surmise that other public sector banks (PSBs) in the consortium have made similar write-offs.

 

The question is, why are public sector banks (PSBs) not smart enough to protect their interest by building in some upside while lending to the new borrower, who is expected to achieve a turnaround? Many private banks insist on converting loan to equity in such situations and gain from capital appreciation. In the case of Ruchi Soya, the share price has moved from about Rs3.50 to Rs1,535 a gain of 43,757.14% since Patanjali acquired the company.  

 

Documents shared by SBI to Vivek Velankar, president of Pune-based Sajag Nagrik Manch, and a shareholder of the bank, reveals that there is absolutely no recovery from Ruchi Soya till March 2020. 

 

 

Technically speaking, when debts are written off, they are removed as assets from the balance sheet because the bank does not expect to recover payment. This practice is frowned upon by experts but is routinely done by banks as part of their tax management clean-up process. The beneficiaries are invariably some of our biggest industrialist defaulters. 

 

The news article in The Economic Times dated 29.11.2019, referring "SBI refuses to fund Patanjali's Ruchi Soya Buyout on its own" has been incorrect. The same has been published without verifying the facts@TheOfficialSBI @pnbindia @AllBank1865 @UnionBankTweets @syndicatebank pic.twitter.com/1UXkYdoXvG

— Acharya Balkrishna (@Ach_Balkrishna) November 29, 2019

 

In a regulatory filing in September 2019, Ruchi Soya had said that the National Company Law Tribunal (NCLT) has approved Patanjali's resolution plan of Rs4,350 crore. The order had stated that, Patanjali would “infuse the amount of Rs4,350 crore” in a SPV (special purpose vehicle) called Patanjali Consortium Adhigrah, which will be later amalgamated with Ruchi Soya. 

 

In an exchange filing, Ruchi Soya said the Patanjali group would infuse Rs204.75 crore as equity and Rs3,233.36 crore as debt. Another Rs900 crore will be brought through the subscription to non-convertible debentures and preference shares in the SPV. It would also provide a credit guarantee of nearly Rs11.89 crore.

 

In a reply to an application filed under Right to Information (RTI) Act, the Reserve Bank of India (RBI) had told applicant Saket Gokhale that Ruchi Soya Industries with a debt of Rs2,212 is one of the top 50 defaulters.

 

Patanjali Ayurved was supposed to have paid back Rs4,053.19 crore creditors under the resolution plan. So, either Patanjali Ayurved has repaid part money to creditors or renewed old loans of Ruchi Soya in its account books.

 

As Moneylife had mentioned, during the eight years from FY12-13 to FY19-20, SBI has 'technically/ prudentially written off’ a massive sum of Rs1.23 lakh crore from its books, but manged to recover only 7% or Rs8,969 crore in this period. This makes a mockery of the aggressive claims by a string of high-profile government spokesperson and economic advisors that a ‘technical’ write-off does not stop the recovery process. A former chairman of a PSB told Moneylife as a matter of fact that once a loan turns bad in India, it is almost impossible to recover anything because it has already been ever-greened for several years. (Read: SBI Writes Off Rs1.23 Lakh Crore of Bad Debt, Recovers Paltry Rs8,969 Crore in 8 Years! )

 

When Patanjali completed the acquisition, Ruchi Soya shares were hovering at around Rs3.50 per share on the BSE. Earlier on 24 July 2019, it hit its 52-week low of Rs3.28. From January this year, Ruchi Soya share price started moving up. In fact, on 18 May 2020, it hit a new high of Rs701.25, but slumped till 28th May 2020. After that it started reaching new highs and on 29 June 2020 recorded its 52-week high of Rs1535 per share on the BSE. 

 

 

On Thursday, Ruchi Soya closed 5% down at Rs898.15, while the 30-share Sensex ended the day 1.2% higher at 36,471.  

 

We emailed SBI asking for its clarification on the debt write off and recovery from Ruchi Soya or the company's new owners. We have asked...
1. What attempts SBI made to recover its written off loan of Rs700 crore from Ruchi Soya?
2. What efforts SBI had taken to recover the loan amount from Ruchi Soya through the NCLT proceedings?
3. Since Patanjali Ayurveda took over Ruchi Soya, who owns the responsibility of the Rs700 crore debt given by SBI to Ruchi Soya?
4. How SBI plans to recover its written off debt of Rs700 crore and from whom the amount would be recovered?

 

UPDATE:
However, SBI declined to comment on any of these questions. In an email, a spokesperson from SBI says, "It is the policy of the bank not to comment upon individual account and its treatment".

While the banking regulator and the Union government have been busy clarifying that bad loans written off does not mean a waiver, documents procured by Vivek Velankar from State Bank of India (SBI) reveal minuscule recovery of these bad debts. Information received by Mr Velankar shows that as against a write off of Rs1,23,432 crore, SBI has recovered just over 7% or Rs8,969 crore over the past eight financial years.

 

Mr Velankar, president of Pune-based Sajag Nagrik Manch, says, "I tried obtaining this information under Right to Information (RTI) Act, but SBI denied it claiming that collating this information would be a waste of its resources. Being a shareholder of SBI, I then asked for this information as question for the annual general meeting (AGM). I did not get a chance to ask my question during the AGM, but the bank shared this information, which is quite shocking. This also exposes how the bank writes off loans of 100s of crores of rupees of large defaulters while denying waiver of simple interest on loans for common customers."

 

The Bank’s reply to Mr Velankar shows that during the eight years from FY12-13 to FY19-20, SBI has 'technically/prudentially written off’ a massive sum of Rs1.23 lakh crore from its books, but manged to recover only 7% or Rs8,969 crore in this period. This makes a mockery of the aggressive claims by a string of high profile government spokesperson and economic advisors that a ‘technical’ write-off does not stop the recovery process. The fact is that once a loan turns bad in India, it is almost impossible to recover anything because it has already been ever-greened for several years, said a former bank chairman to Moneylife.

 

(Source: SBI)

 

Technically speaking, when debts are written off, they are removed as assets from the balance sheet because the bank does not expect to recover payment. This practice is frowned upon by experts but is routinely done by banks as part of their tax management clean up process. The beneficiaries are invariably some of our biggest industrialist defaulters. 

 

In contrast, when a bad debt is written down, some of the bad debt value remains as an asset because the bank expects to recover it. However, as SBI has shown, most of the times, there is no recovery or negligible recovery for the amounts written off. 

 

As per the data provided by SBI to Mr Velankar, Bhushan Power & Steel Ltd, IRVCL Ltd and Videocon Industries Ltd are its biggest defaulters, and had not re-paid a single penny. Alok Industries Ltd is the biggest borrower in this list with a written off loan of Rs8,098.05 but has repaid Rs1,703.57 crore to SBI. 

 

Here is the list of loan portfolios worth Rs500 crore and above that were written off by SBI.

 

 

Earlier in April, the Reserve Bank of India (RBI) had said that Indian banks have technically written off a staggering amount of Rs68,607 crore due from 50 top wilful defaulters, including absconding diamantaire Mehul Choksi. RBI had revealed this information in reply to an RTI filed by Saket Gokhale.

 

RBI said that this amount (Rs68,607 crore) comprising outstanding and the amounts technically or prudentially written off till 30 September 2019. 

 

Topping that list of top-50 defaulters to Indian banks, was Mr Choksi's scam-hit company, Gitanjali Gems Ltd, which owed Rs5,492 crore, besides other group companies, Gili India Ltd and Nakshatra Brands Ltd, which had taken loans of Rs1,447 crore and Rs1,109 crore, respectively.

 

Mr Choksi is currently a citizen of Antigua & Barbados Isles, while his nephew and another absconder diamond trader Nirav Modi is in London.

 

The second in the list is REI Agro Ltd, with an amount of Rs4,314 crore, and its directors Sandip Jhujhunwala and Sanjay Jhunjhunwala who are already under the scanner of the Enforcement Directorate (ED) since over a year.

 

The next on the list in the Rs4,000-crore bracket is absconding diamantaire Jatin Mehta's Winsome Diamonds & Jewellery owing Rs4,076 crore and which is being probed by the Central Bureau of Investigation for various bank frands.

 

In the Rs2,000-crore category, there is the Kanpur-based writing instruments giant, Rotomac Global Pvt Ltd, part of the famed Kothari group, which owed Rs2,850 crore.

The Reserve Bank of India (RBI) is trying to find a workable solution in the Punjab and Maharashtra Cooperative (PMC) Bank matter as losses in the bank are very high and have eroded deposits by more than 50%, says RBI governor Shaktikanta Das. However, it has been almost 10 months since RBI has been trying to find out a workable solution in the PMC Bank crisis. 

 

Speaking at the 7th Banking and Economic Conclave organised by State Bank of India, Mr Das, says, "With regard to the PMC Bank, the Reserve Bank is engaged with all stakeholders to find out a workable solution, as losses are very high, eroding deposits by more than 50%."

 

Last month, while enhancing withdrawal limit to Rs1 lakh for PMC Bank customers, the central bank had said that more than 84% of the depositors of the Bank will be able to withdraw their entire account balance.

 

Overall, this was the fifth time the central bank has increased the withdrawal limit after imposing the regulatory restrictions last year under the provisions of the Banking Regulation Act.

 

According to a statement, RBI has been engaging with the stakeholders to explore the possibility of a resolution of the Bank. 

 

"However, the process has been affected due to the lockdown on account of corona virus (COVID19) and the continuing uncertainty around the pandemic. Further, the extent of the negative net worth of the bank, and the legal processes involved in recovery of bad debts also pose challenges or limitations in resolution of the bank."

 

"Nevertheless, consultation with various stake-holders and authorities for resolution of the bank is continuing. It is, therefore, considered necessary to extend the aforesaid Directions for a further period of six months to take the process forward," RBI had said last month.

 

The PMC Bank scam broke after Housing Development and Infrastructure Ltd (HDIL), a single borrower which accounted for 73% of PMC's loan book, went bankrupt. 

 

HDIL, in collusion with PMC Bank executives, created thousands of fake customer accounts to re-route funds to itself.