MUMBAI: Fearing a witch hunt, increasingly wary bankers are doing all they can to shield themselves from the glare of government investigation agencies.
Amid a growing risk-aversion, they are taking joint, unanimous decisions while dealing with large borrowers to escape finger pointing by anyone later; creating security charges on all collaterals and hypothecations to make exposures fully secured; preserving minutes of meetings; and, insisting on quick, corrective action by promoters of borrowing companies if forensic audits reveal uncomfortable observations.
Also, the downsides for a company that is drawing credit are being examined more closely. These are some of the steps that lenders, lead by large banks, are resorting to before releasing the entire money.
“In several meetings in March, banks would together take decisions on sanctioning fresh loans, invoking the strategic debt restructuring clause, or writing off. It would be decisive, swift and united,” a senior banker told ET. “If all lenders to a company arrive at a common stand on an account, there are lesser chances of agencies like CBI, CVC and ED challenging the joint decision in future,” said the person. Officials of state-run banks have missed out on promotions and had their pensions frozen in the course of long-drawn, ham-handed procedures of central agencies with inadequate understanding of lending practices.
For banks, it’s also the time to tie up loose ends to avoid trouble later. For instance, some of the accounts in the total list of 150 corporate accounts downgraded by RBI were not backed by registered mortgage deeds and pledge documents — a situation that could make it tougher for lenders to enforce their rights in the event of default.
“If a borrower simply submits a sale deed of a property or a signed letter of hypothecation and the bank does not bother to register the documents, and no (stamp) duty is paid, then technically loans against such asset documents are unsecured in nature. But there are times when banks disburse loans without completing all these procedures,” said a lawyer.
At a time banks are saddled with a mountain of sticky loans and haunted by the spectre of corporate defaults, the Kingfisher fiasco is making them extra cautious and driving them to complete the unfinished tasks. The measures assume a greater significance as past decisions to rejig loans to the airlines company have come under question.
It is a widely shared perception among bankers that except in a few cases, lending institutions — even though having invoked Mallya’s personal guarantee and moving the court and debt recovery tribunal ( DRT) — are being unfairly targeted. “For the investigating agencies, bank officials are often the soft targets,” said an industry official.
Although banks have reported higher gross non-performing assets — where the loan has not been serviced for a quarter — some analysts believe that there may be hidden stress and a resolution of non-performing assets would require haircuts. According to a Credit Suissereport released a month ago, despite a surge in impairments, corporate asset quality stress for banks is yet to peak.
“While the government has been taking policy measures (MIP, Uday, etc.), these need to be supported by the right sizing of debt. As significant over leverage is now visible in stressed companies, for example, power plants, having witnessed 40-60% cost overrun, would need a breakeven tariff of .`4-6 per MW, which is well above the current merchant tariff and the rate as per their power purchase agreements,” said the report.