"Titanic Defaults" Are Likely to Do Irreparable Damages To
Indian Banking Industry - Forget About Decent Wage Hikes
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[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,
(b) Kingfisher Airlines Debacle : Mallya Abroad, Son Hunts for Calendar Girls,
Employees in Lurch
(c) Kingfisher Airlines lenders say recovery last option
Chronicle Holdings Limited (DCHL:
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
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
(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
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
(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
(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
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
(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
(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.
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
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
(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
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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