Battle on bad loans intensifies: Winsome, Zoom, Koutons, KSL tagged wilful defaulters

Government-owned Punjab National Bank has launched a major attack on wilful defaulters or companies, whose promoters have the money to pay back loans to lenders but won’t deliberately do so for reasons ranging from fund diversion and financial fraud.

PNB has classified companies including Winsome Diamonds and Jewellery, Zoom Developers, Koutons Retail and Mumbai-based Tayal Group-promoted KSL & Industries.

Winsome Diamonds owes Rs 6,500 crore to a clutch of banks including Axis Bank, Canara Bank, Bank of India and Bank of Maharashtra. About Rs 900 crore is balance to PNB going by the information from the bank.

Zoom Developers, which owes about Rs 2,600 crore to banks, has an outstanding of Rs 410 crore to the Mumbai-branch of PNB, while Koutons has Rs 88 crore balance.

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Mumbai-based Tayal group, the former promoters of erstwhile Bank of Rajasthan, which has interests in textile to real estate, has about Rs 2,500 crore to pay back to banks.

The wilful default by the firm happened at PNB’s Hong Kong branch. The outstanding payment to the overseas branch is about Rs 53 crore, according to the wilful default list of PNB.

In 2010, Tayals were under investigation for fraudulently hiking their promoter holding in Bank of Rajasthan through a series of off-market transactions, while simultaneously stating in public that the holding has come down.

As ofJune 2014, PNB has a total of 267 companies in the wilful defaulter list. Wilful defaulter tag is the worst punishment that can happen to any company since it virtually ostracises itfrom the financial system.

Once a group company is tagged as a wilful defaulter, the company and its promoters won’t get any money from any financial institutions thereafter. Also, the promoters cannot be part of any new businesses for a period of five years.

Indian banks have been intensifying their battle against wilful defaulters in the recent years after falling neck-deep into chronic bad debt.

Banks, especially state-run lenders, are under immense pressure by the Reserve Bank of India (RBI) and the government to cut bad debt. Baddebts weakens the financial health of banking industry and multiplies the capital required by these banks.

India’s banking system is dominated by state-run banks, which control 70 percent of the assets of the industry and has over 90 percent of the total bad loans of the banking system emerging from their balance sheets.

Hence, the capital burden of the current stressed asset situation primarily falls up on the government, the majority owner in these banks. Besides the capital needs for bad loan, banks also need capital to meet the Basel-III capital norms.

Under norms, banks are required to set aside between 20 percent to 100 percent of the loan amount as provision, which turns bad and 5 percent for the newly restructured loans. This impacts their profitability.

Indian banks’ total gross non-performing assets (NPAs) until June end, stood at Rs 2.5 lakh crore, while amount of restructured loans in the banking system is estimated around Rs 5 to Rs 6 lakh crore. Together, stressed assets constitute about 14 per cent of the total bad loans given by Indian banks till June.

In the recent years, banks, including country’s largest lender, State Bank of India, too have acted tough on wily promoters. The lender has over Rs 10,000 crore worth of loans under the wilful defaulter category.

In September, RBI governor Raghuram Rajan had said that wilful defaulter tag’ is a powerful weapon in the hands of banks for resolving bad loans but banks are still finding it tough to implement the tool on account of the intervention of judiciary.

Recently, Kolkata-based United Bank of India had tagged liquor baron, Vijay Mallya as a wilful defaulter for defaulting payments to the tune of Rs 7,000 crore to a clutch of banks for his now-defunct airline, Kingfisher Airlines.

The airline subsequently secured a stay from Kolkata High court against the bank’s action. The matter is in the court.