Here’s a warning from bankers that India Inc should sit up and take notice.

Bankers say a promoter whose company has intentionally defaulted on loan repayments could face repercussions, with fresh funds being choked to his other group companies.

This warning comes in the backdrop of rising bad loans in the banking system.

Situation matters

To a specific question on how banks will tackle the situation whereby (say) three companies have a common promoter but one of them is a defaulter, State Bank of India Deputy Managing Director R, Venkatachalam, said: “Suppose the same person is also the owner/promoter of other companies then definitely we will have a look at their standing.”

The second aspect that needs to be looked into is whether the default is intentional or because of the circumstances.

“So, we have to examine all these factors before we come to a conclusion. But wherever there is a bad intention then certainly we will have to take a second look at the companies owned by the promoter,” said Venkatachalam.

SBI Chairman Pratip Chaudhuri said if a promoter has a number of companies then default in ‘A’ company does not automatically mean a default in B, C and D companies.

But if this promoter gets classified as a director in a defaulting company, then it becomes difficult or almost impossible to lend further amounts to the other companies. So, further exposure definitely gets curtailed, added the SBI chief.

“It (fresh loans) would also depend on whether there are personal guarantees and other mitigating factors.

“But our basic approach to any fresh lending is: any company where we have taken a hair cut or we have done compromise and suffered a loss, we do not lend to that any fresh money,” said Chaudhuri.

Mid-corporate lending

SBI has considerably strengthened the credit policy processes in view of the pressure of bad loans in the mid-corporate segment. “We have raised the entry barriers. Earlier we used to give enhancement in limits based on provisional financials.

“Now we have totally stopped that. Now enhancements are based only on audited financial results,” said Chaudhuri.

And whenever there is a funding involved in restructuring, the bank is insisting on promoter’s equity being pledged.

“We are also insisting that all the unencumbered assets be mortgaged with us. So, eligibility, scrutiny and security norms have been considerably tightened,” said Chaudhuri.

Ramkumar.k@thehindu.co.in

(This article was published on February 14, 2013)
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