Mumbai: State-run lenders to beleaguered Deccan Chronicle Holdings Ltd (DCHL), led by Canara Bank, have alleged that irresponsible lending by some private sector lenders to the company contributed to the ongoing crisis in the group.
Private banks have given big-ticket loans in the past six-nine months, largely on the strength of the March 2011 balance sheet of the company, and the end-use of these funds is not clear, analysts said.
S. Raman, chairman and managing director of Canara Bank, lender of working capital to DCHL, said private bankers were not exercising prudence and were reluctant to share information with other major lenders to DCHL.
“There was no desirable degree of prudence from the part of private sector banks when they loaned large amounts to this company,” Raman said. “There was no sufficient level of transparency and this has put even the existing lenders like us in trouble as far as our exposure to this firm is concerned.”
About Rs.330 crore of loans given by Canara Bank to DCHL have turned bad in the September quarter. Once a company is unable to pay loan instalments for a quarter or 90 days, a debt turns bad and banks are required to set aside money for such loans.
Indian banks have loaned about Rs.5,000 crore to DCHL, the owner of Indian Premier League (IPL) Hyderabad franchise Deccan Chargers and the publisher of the Deccan Chronicle, Financial Chronicle and Asian Age newspapers. Besides Canara Bank, other major lenders to the company include ICICI Bank Ltd, Axis Bank Ltd, Yes Bank Ltd, Andhra Bank and IDBI Bank Ltd.
Spokespersons for ICICI Bank, Axis Bank and Yes Bank did not respond to emails seeking comment. B.A. Prabhakar, chairman of Andhra Bank, was not immediately available for comment.
ICICI Bank has loaned about Rs.500 crore and Axis about Rs.490 crore to DCHL, according to analysts. These numbers could not be independently verified.
Analysts said these loans were given despite lack of clarity in the company’s latest financial details and the end-use of funds. DCHL hasn’t published its balance sheet for the year ended March 2012 and has sought an extension till September.
“It is surprising that significantly huge sums of money were given to Deccan Chronicle by some banks in the last six to nine months,” said Vaibhav Agrawal, vice-president, research, Angel Broking Ltd. “Post this lending, the financials of the company have come under stress. It is not clear where the company deployed the fresh loans. The delay in publishing finanicals for FY12 has created lack of clarity.”
Shares of DCHL have lost at least 72% since January, while India’s benchmark index, the Sensex, has risen 20.14% in the same period. On Thursday, DCHL rose 1.4% to Rs.10.12 while the Sensex fell 0.28%.
According to Canara Bank’s Raman, despite being an existing working capital lender, his bank was not informed about fresh loans from private lenders such as ICICI Bank and Axis Bank.
“There is no consortium model among lenders to DCHL. Banks were operating on the basis of a multiple-lending model, which warrants more responsibility from individual lenders. This was absent in the Deccan Chronicle case,” Raman said. “Things wouldn’t have gone to this extent had there been a consortium model.”
Under consortium lending, a group of banks offers common terms and conditions to the borrower. In a multiple-lending arrangement, the borrower separately negotiates with lenders.
If the borrower fails to repay a bank’s loan, all lenders in the consortium are forced to classify the loan as bad and set aside money for it. But this does not happen under multiple lending.
According to Raman, under current Reserve Bank of India (RBI) norms, major lenders to the same borrower should share information.
State-run bankers raised this issue with financial services secretary D.K. Mittal and RBI deputy governor Subir Gokarn in separate meetings last week, according to bankers familiar with the development.
Analysts blame indiscriminate diversification for the crisis at DCHL. The company ventured into areas such as aviation and book retail besides bidding $107 million for Deccan Chargers in 2008.
DCHL recently approached lenders with a plan to restructure its debt, but bankers are reluctant to play ball and said they would consider doing so only after Canara Bank completes an audit report of the financials of the company.
Adding to the woes of the firm, Tata Capital Ltd, one of the lenders, dragged DCHL to court earlier this month seeking to recover dues of Rs.101 crore.
State-run banks have taken on private sector rivals at a time when a finance ministry panel, consisting of senior bankers and headed by State Bank of India chief financial officer Diwakar Gupta, has recommended consortium lending only for very large accounts—Rs.1,000 crore and above.
There have been several instances in the recent past of companies facing financial stress due to such indiscriminate diversification and expansion. Mumbai-based Sandesara Group, which runs Sterling Biotech Ltd, is one such. The group has about Rs.6,000 crore of debt that could turn bad (a significant part already has). The lenders are both commercial banks and unsecured investors.
Ravindra Sonavane contributed to this story.