State Bank Lends Rs1,200 Crore to Patanjali to buy Ruchi Soya, Despite Zero recovery and Rs746 Crore Write Off
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.
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".
bala.shanbhag
7 months agoI feel, there should be responsiblity while commenting. Ruchi Soya, there is recovery,
I understand.
beckhem18
7 months agoPublic banks are free money scheme for some political thugs. Baba's fund management is from next level.
tillan2k
7 months agoWe have become land of sadhu thugs
monish211
7 months agoAnother scam in the making. Sponsored by the ruling party. Its a shame.
bala.shanbhag
In Reply to monish211 7 months agoI understand, there is recovery in Ruchi Soya. Tell the correspondent to confirm.
MDT
In Reply to bala.shanbhag 7 months agoThanks for your comment, Sir. This article is written based on information as shared by SBI with a shareholder. If SBI itself states there is no recovery (till March 2020), we need to accept it. In addition, we have sent emails to SBI top executives, but have not heard from them on this subject of written off debt of Ruchi Soya and recovery. Any idea, why SBI is keeping mum on this?
Jose Koshy
7 months agoAbsolute Ponzi Scheme..Legally use NCLT to clean all Sins and ever green using the same Banks....Wah Kya Idea hai...All Paid by Tax Payers sweat ! Atmanirbhar ! Indeed
hamungel
7 months agoIt was very simple to ask for equity for the written off Rs.746 crores. Why was this not done is perplexing.
jvp0101
7 months agoThis thief is Feku’s benami partner.
guptha2001
7 months agoSBI has written off the debt from the Books, it has not waived off the debt. Unit is running and recovery is happening. Moneylife may need to better phrase the sentences. Thanks
beckhem18
In Reply to guptha2001 7 months agoHow much recovered since last 8 years. At this rate govt will take next 50 Years to recover till last paisa.
bala.shanbhag
In Reply to beckhem18 7 months agoSir, all loans are not covered by the securiteis. Hardly, there will be full recovery. It is the very nature of any loan. Even if one gives to one's friend! Banks give loan on loan documents, not fully secured as per the guidelines, like Housing loan. There may be about 5% NPA in any debts/loans. However, between 2004 to 2014 it crossed 12% due to reckless lending, where banks land in trouble.
jvp0101
In Reply to guptha2001 7 months agoGupathaji, please stop lying like Feku Chaiwala. The readers are not cowdung eaters like Andha bhakts. Ha ha has.
prime
In Reply to guptha2001 7 months agoOk, then if recovery is happening then why write off the debt?
muditsrivstv
In Reply to prime 7 months agoLoan write off doesn't mean that the bank will cease it's efforts to recover the funds. The article itself explains the meaning of write off an account.
in4tunio
7 months agoAnother question about Ruchi Soya: how was equity reduction in the ratio 100:1 allowed without repricing the stock?
yerramr
7 months agoThis is a classic case of behest lending and irresponsible too. When we request for helping revival of viable MSMEs in the State, it refuses to move despite Subordinate Debt offering by GoI in its Atma Nirbhar Bharat Abhiyan package for stressed assets. Even if they cherry pick the MSMEs for revival, with Rs.1200cr at least 10000 manufacturing micro and small enterprises can be revived!!
s5rwav
7 months agoMr Shaktikanta Das the Incumbent Governor of RBI is Publicly Requested to Recover Lost Public Money from the Board of Directors of State Bank of India Headed by Mr RajnishKumar. I am Babubhai Vaghela from Ahmedabad on Whatsapp Number 9409475783. I am also Shareholder of State Bank of India. Thanks.
harinishanth
7 months ago1.2 lakh crore from 1 bank. If collectively all bank put together......so much of taxpayers money is wasted.. We would be a trillion dollar economy long before had there been strong governance. Can Modiji do anything to protect his people?
kalpakjoshi666
In Reply to harinishanth 7 months agoSimple answer, haha NO.
He might have done something probably initially, if he was so careful for the concerned matter.
veera.kumar1960
In Reply to harinishanth 7 months agoModi government has to set right this trend otherwise private business houses will plunder more and more tax payers money and this country will be bankrupt like our terrorist neighbors Pakistan.
prime
In Reply to veera.kumar1960 7 months agoThe rot is not just private borrowers. It is as much the elected representatives, and then the bank employees.
bala.mathur
7 months agoWhy am I not surprised? Because it has happened so many times before. And it will continue to happen. That, my friends, is Vikas..
sudhanva
7 months agoTake a deep breath and relax.
vkparam29
In Reply to sudhanva 7 months agoBaba is new poster boy of present regime. He will get finance for dead horse also. No wonder. Take deep breath and relax
kumarindiacool
In Reply to vkparam29 7 months agotrue