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"Titanic Defaults"  Are Likely to Do Irreparable Damages  To Indian Banking Industry - Forget About Decent Wage Hikes

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Rajesh Goyal 



[The total employees in the banking sector (private as well as public sector) are about 9,00,000. Do you know that  how much loss of Rs 10,000 crores will work out per employee of banking industry as a whole.  I t is about Rs 1,11,000/-.  Thus, if  banks fail to recover from these companies, then each one of you (each peon, each clerk and each officer in the banking industry) will lose more than Rs 1 lakh.    This has happened only due to collusion of CMDs / EDs / GMs of Banks and Board of Directors, with management of these companies, who have miserably failed to watch the interests of shareholders and employees.   This is the reason that these are TITANIC  DEFAULTS ].   Read full article to know facts.


In last few days, banking sector has been in news for wrong reasons.     Two major account (total exposure of banks is above Rs 12,000 crores) which have repeatedly hit the headlines and are now under media scanner are Kingfisher Airlines and Deccan Chronicles Holding Ltd.    Some of the headlines which really disturbed me last week were :--


Kingfisher Airlines :


              (a) ) While Kingfisher is Sinking the Mallyas become invisible on Facebook, Twitter

              (b) Kingfisher Airlines Debacle : Mallya Abroad, Son Hunts for Calendar Girls, Employees in Lurch

              (c)  Kingfisher Airlines lenders say recovery last option


Deccan Chronicle Holdings Limited (DCHL:


           (a) Private Banks Imprudent Lenders to DCHL,

               (b)  Deccan Chronicle debt recast plan off the table;

              (c)   Banks may have to write off Deccan Chronicle Holding Loans


Each one of us have certainly heard about 'Titanic' - thanks to the wonderful movie by the same name - which was seen by almost all  of us with awe inspite of this being a tragedy.    It is a human nature that people enjoy larger than life size events, even if they are terrible  tragedies, provided they or none of their near ones suffered in that tragedy.   Whether it was Titanic or Hindonsburg or 9/11 Twin Tower Crash - each one is seen with awe by general public and they are ready to see the same again and again on their big screen or TV sets. 


The people behind and the concept supported by the management of  above two accounts  were projected as Large Than Life and as Dream Projects for Indians.      Vijay Mallya was always shown as busy with glitz, glam, bikini clad models, booze, and F1.   Similarly, DCHL got its boost after entering into cricket arena under the brand of "Deccan Chargers".   Huge stadiums,  flood lights, Cheer-Girls shown through hitherto unknown camera angles were part of the Brand called  Deccan Chargers of IPL fame. 


Both the above referred companies are now on the verge of collapse and this will result in TITANIC DEFAULT for bankers.  These two companies together have exposure of over Rs 12,000,00,00,000 (Rs12,000  crores.).  A decade ago this figure must have sent chill in the spine of any top banker.   However, now it is being taken as a matter of routine and no one seems to be worried except fools like me.   The reason are obvious.  After charges of corruption running in lakhs of crores, people are becoming immune and slowly giving up some resistant they early at least thought of.


I still remember when in mid 1990s, the charge of payment of Rs 1 crore as bribe by Harshad Mehta to then Prime Minister of India was a big issue and most of us believed that Rs 1 crore is big enough for even PM.   Now, a union minister says that charge of bungling to the tune of Rs 71 lakh on a union minister is not worth believing. 


All bankers are well aware of the alarming situation on NPA front, but top management has been trying hard to bury the same under sand and put up a brave face that 'all is well".    The syndrome of 'all is well'  is repeatedly shown by our politicians and others who are in power.



The TITANIC DEFAULTS are likely to appear now regularly - KF and Deccan are only the starting points for mega defaults.   I call them TITANIC DEFAULT as the losses on slippage of these accounts will be huge and large scale infirmities will be exposed.   BUT certainly NO HEADS WILL ROLL,  unlike in small loans of few thousands where BM is invariably charge sheeted for not preparing the CR of a farmer or Housing Loanee or failing to assess properly the market value of a collateral of one or two lakh rupees.

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Bankers have read the news about the above defaults,  but must have found it difficult to assimilate the facts - due to paucity of data and time.   Now I summarise some of the facts which I have gathered from various news items of last few days,  but are glaring and EVERY  BANKER  MUST  KNOW  THESE FACTS :-


About  KingFisher Airlines :


(i)  DGCA has recently suspended the licence of the financially troubled airlines.  


(ii) The banks restructured loans worth Rs 6,500 crore in November 2010.    A consortium of 13 lenders to Kingfisher Airlines took 23.37%  stake in the airline as part of a debt restructuring deal. The consortium includes SBI,  ICICI Bank, IDBI Bank, BoB and PNB.  According to September-end shareholding pattern, SBI, ICICI Bank, Bank of India and IDBI Bank have sizeable exposure in Kingfisher Airlines.  [Now within less than two years, KF is again asking for more  while its net debt had increased by   Rs 900 crores.   Everybody agrees that Indian banks were too lenient on this borrower and put Rs 900 crores more in drains by allowing restructuring in 2010].


Whiling boosting his shareholders, Mallya in a letter sent to shareholders as late as September 2011 he informed that banks had converted 30 percent of their outstanding loans into preferential and equity capital. Lenders were befooled by allotting 116 million shares at a price of 64.48 rupees a share on March 31, 2011.  Now shares are quoted around Rs 10 per share.   In that round of debt restructuring, lenders had reduced Kingfisher’s interest rate by three percentage points to 11 percent, according to the firm’s annual report for that year.


(iii) KFA is saddled with a loss of Rs 8,000 crore and a debt burden of another Rs 7,524 crore, a large part of which it has not paid since January 2012. 


(iv)  At best bankers will be able to recover just 10-15 perecent of the total exposure if banks decide to monetise the pledged securiies.  Thus, initiation of recovery measures will be only done as a last recourse.    In July 2012, the lenders had appointed HDFC Securities to value two properties - the Kingfisher Villa in Goa and KF house in Mumbai, which are pledged as collaterals and as per market sources, these two properties at best fetch Rs 180 crores;


(d) The promoters have pledged Brand KingFisher for a consideration of Rs.4,000 crores, besides most of the shares of group companies as collaterals;




About  Deccan Chronicle Holdings Limited (DCHL:


(i) The DCHL failed to  Rs 100 crores to BCCI resulting in the explusion of Deccan Chargers, the IPL team owned by DCHL a few days back .   DCHL sought arbitration and was given time to pay up but the Mumbai High Court refused to stay the expulsion stating that the arbitrator had no power to give status quo    Supreme Court on 19th October, 2012, refused to stay the termination of the Hyderabad team by the Indian Cricket Board. 


(ii) The DCHL, Hyderabad-based publisher of three English newspapers and one vernacular daily defaulted on its repayment of Rs 5,000 crore loans, taken from a consortium of about 11 banks.  The Finance Minister has already appointed a two member committee to look into the loans given to the DCHL.


 (iii) Canara Bank had commissioned the forensic audit of Deccan Chronicle Holdings by  Deloitte and there are speculations that the audit report may indicate about certain frauds by the said company; Now Canara Bank CMD associated with all recent sanctions and monitoring  has retired.  The appointment of the new head is still pending,


(iv) Rs 2300 crore debt of Deccan Chronicle Holdings Ltd (DCHL) was supposed to be restructured but it has been put on hold as many of the banks wanted to wait till the forensic financial audit by Deolite is completed.  ICICI Bank, the leading lender to the group has withdrawn the proposal;  Axis Bank had classified the loan as NPA in the quarter ended September 2012.


 (v) Banks may be forced to write off about three-fourths of their Rs 4,000-crore loans to media company  due to skimpy collateral, and slow progress in the investigation into possible fraud.  Lenders, including Canara Bank, Axis Bank, ICICI Bank, Corporation Bank, and Yes Bank, are wrangling over what could be recovered.  Bankers feel that even banks can  recover funds from the sale of Deccan Chargers, the recovery could be just about Rs 1,000 crore," on the assumption that they will be to sell the cricket franchise."   In the changed scenario even that looks a distant possibility.


Any banker who has fair knowledge of credit will be shocked to read the above.   Frankly speaking it is rightly said that we are treading across 'unchartered territory' with 'unprecedented spike' in restructured loans, which all started in big way in 2008.   Corporate knew it well that in the name of growth story of India, they can loot the resources of the country.   They knew it very well that they can take a risk and create wealth for themselves but would not have to bear the costs of those risks.   If they failed or were able to show that they have failed, everything will be free.    Today, nobody knows how much of this will go bad as the banks were very lenient and in order to cover up their past misdeeds are trying to find out new ways to put these under carpet.



What is Likely in Store in Near Future and Lessons to be Learnt :


The signals for this mess have already been noticed by number of analysts, credit rating agencies and some freelance authors like us.  From time to time they have tried to highlight these but nobody listens and they are dubbed as anti-national and creators of pessimism.  Bankers will remember that when rating agencies downgraded India and some banks, our former FM, now President, jumped into fray and wanted to expel some of such agencies.  I strongly feel now the water in the swimming pool has reached the level of lips and can cover nose any time.  What bankers are trying is to reduce the level by throwing some water out of the pool by the actions of their hands and arms.  What worries me is :


(a) the sheer extent of the exposure to such accounts.   Losses to the tune of Rs 10,000 crores in just two accounts will shaken the whole industry.  Even the wage revision due from November 2012 will be affected and bankers may have to forget a decent raise;


(b) the pathetic attitude of CMDs, EDs, independent Directors, Govt appointed Directors adopted at the time of sanction, monitoring and restructuring.   I am sure in such big accounts, nobody below the level of General Manager has any say.   Lower functionaries are supposed to prepare the proposals as directed by General Managers and above .Whatever kickbacks have been paid in such cases are certainly not shared by anybody below the ranks of General Managers.   At the most, lower functionaries might have attended some grand parties at consortium meetings which small gifts at the end of such meetings.


(c) the value of collaterals.   In the above two accounts, collaterals were mere in the minds of the top management and in thin air only.   If I have read the details in the media correctly, KingFisher's brand value was taken as Rs 4,000 crores.  What is brand value ?  There is nothing physical.  Everything is in thin air.  One stroke to your reputation can vanish the whole value.   With a kind of person like Mallaya at the helm of affairs of KF, this could have happened any time.   Given a chance, some CMDs might have assessed the brand value of Kingfisher calender to be in the range of Rs 1000 to Rs 1500 crores !!    Even in case of Deccan Charger, the paper given for franchise appears to have been valued as worth Rs 2,000 crores.    With the cancellation of franchise,  the paper may be worth the amount that may be paid by Lord's museum.   Great assessment by great bankers.


(d) Herd mentality in banking.  Across the world, now Indian are competing with the best brains.  The above loans were consortium or multi-banking loans and almost every major bank has some share of exposure in these two accounts.  What is glaring is that  top bankers, across public and private sectors,  did not find any issues in financing such huge amounts based on collaterals which were physically non existent.  This is an example of herd mentality whereby small bankers merely  follow the bigger banks on the plea that due diligence must have been done by banks which have entered the fray at initial stage.   If a junior / middle level bankers ever dares to question something, top bosses at the level of GMs, and even EDs and CMDs retort by saying 'are you the only one intelligent person when banks like SBI and ICICI have already sanctioned hundreds of crores of rupees'.  This is nothing but herd mentality.


(e) the level of corruption and money that must have changed hands in these accounts in last few years.   The booty must have been shared right from the level of Ministry officials, political class and top bankers.


(f) that inspite of huge losses, no big heads are likely to roll.   Some CMDs / EDs and GMs have already retired and others will retire by the time some action starts on this front.  Other GMs / EDs who have obliged these companies have already been promoted and  enjoyed their life.   Now any belated action is hardly going to affect them.   For such corrupt people, terminal dues are peanuts. 



In view of the above, these TITANIC DEFAULTS will be seen by general public with awe and there is not likely to be any backlash against these companies.   A man on the street will merely talk as to how foolish were bankers  but will not demand any action against the owners as they had larger than life image and  are viewed with awe.    It will be the bankers who will suffer - more pressures for profits, denial of decent wage hike,  no updation of bank pension etc.   Thus,  there is an immediate need to bring changes by the regulator i.e. Reserve Bank of India, whereby  CMDs / EDs, and members of Board are liable for such defaults  so that the real guilty top bosses are punished.   Let certain big heads roll.  But this is likely to be only wishlist for bankers at large.  



I wish you forward this article to as many friends as possible so that every banker reads this and knows that how these defaults are going to hitting their salary and perks.   If you fail, you are doing disservice to banking fraternity.   Union leaders should not remain spectators or merely issue a statement.  Let them agitate as it directly hits their cadre too.   Let us bury our differences and fight for rooting out corruption from banking industry by spreading the message.






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