Noose tightens: After Mallya, Mumbai's Tayal Group slapped with wilful defaulter notice

Some of the lenders to Mumbai-based Tayal group, the former promoters of erstwhile Bank of Rjasthan (BoR), have served wilful defaulter notice to Krishna Knitwear Technology Ltd, one of the companies in the textile to real estate business group.

The notice has been served by lenders for default on repayment of a Rs 65 crore loan, part of its total exposure of about Rs 2,500 crore of loans to lenders, according to people familiar with the development. Leading lenders to the group include Punjab National Bank (PNB), Allahabad Bank and Bank of India (BoI), among others.

A response from the bankers was not immediately available on the matter. Pravin Kumar Tayal, head of the group, denied that his group has been served wilful defaulter notice. “There is nothing like that,” Tayal said.

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The development is significant since the loans of Tayal group companies are currently being restructured under the corporate debt restructuring (CDR) mechanism, under which banks offer relaxed repayment terms to a troubled borrower by extending the loan repayment period, slashing the interest rate or offering a repayment holiday (moratorium).

Once a group company is tagged as a wilful defaulter, the loans will be taken out of the CDR facility. Not just that. A wilful defaulter firm and its promoters, group companies, will not even get finance from any other bank or financial institutions.

It is not clear whether the Tayals have replied to the notice.

In September 2013, the Tayal group firms had come under the scanner of income tax department for alleged misappropriations by the group firms in handling bank funds.

“Instead of utilising these loan amount in debt restructuring, Tayal diverted large percentage of loan amount in its real estate projects without informing banks and without paying service tax to the department,” the report said quoting officials.

Under RBI norms, a willful defaulter is a borrower firm, which defaults the repayments to lenders despite having the capacity to do so. In such cases, the promoters either divert the money from stated purpose or engage in other unlawful activities.

In 2010, the Tayal group was in news following which the Reserve Bank of India forced the merger of BoR with ICICI Bank. Market regulator, Securities and exchange board of India had found that Tayals fraudulently raised their stake in BoR through a series of off market transactions.

War against wilful defaulters

In the recent years, banks have intensified their fight against wilful defaulters by aggressively taking on such companies. For instance, 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.

Other banks, including the country’s largest lender, State Bank of India too have acted tough on wily promoters. 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.

Bad loans impact the profitability of banks since they need to set aside more money in the form of provisions to cover such loans. The provision amount ranges from 20 percent to 100 percent for loans that are fully bad and 5 percent for fresh restructured loans.