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?
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".