Mumbai: Banks may have to classify the Rs3,037 crore lent to Maytas Infra Ltd, the troubled infrastructure firm, as bad debt for the quarter ending 31 December and set aside money to cover it.
This is because of delays in sewing up a second corporate debt restructuring, or CDR, package that’s being negotiated by Maytas Infra’s new promoter Infrastructure Leasing and Financial Services Ltd (IL&FS). The first CDR lapsed because it was not implemented within the stipulated 120 days of it being finalized.
Typically, lenders relax repayment norms and give more time to a distressed borrower to repay and even bring down interest rates to help it tide over hard times.
Axis Bank Ltd, one of the lenders, has already classified the debt to Maytas Infra as a non-performing asset, or NPA. A senior official from the bank refused to disclose how much it had lent to the troubled infrastructure company, but confirmed that it has already classified this exposure as an NPA and provided for it. “We classified it as NPA in September,’’ said this official, who spoke on condition of anonymity.
Maytas, promoted by the family of B. Ramalinga Raju, has been in trouble since he confessed to the country’s biggest accounting fraud at his software firm Satyam Computer Services Ltd in January. Maytas lost several key contracts before the Company Law Board on 31 August ruled that IL&FS, which had worked closely with Maytas as a partner in projects, a stakeholder and financial adviser, would be its new promoter
Nineteen lenders have exposure to Maytas Infra. One of them, the country’s largest bank, State Bank of India, has Rs290 crore of exposure to the company. Its closest private sector rival ICICI Bank Ltd has lent the company Rs800 crore.
The consortium of banks has a fund-based exposure of Rs1,730 crore to Maytas Infra, of which Rs269 crore is a working capital facility. Their non-fund-based exposure is Rs1,307 crore.
Fund-based exposure is money loaned to the company for various purposes, including working capital. Non-fund based exposure includes derivatives sold by banks to companies to hedge foreign exchange risks and guarantees for loans raised from others.
A senior State Bank of India official said the bank’s exposure to Maytas Infra had not been classified as non-performing yet and “it continues to be a standard asset”. An ICICI Bank spokesperson said, “We do not comment on client-specific issues.’’
IL&FS is in the process of finalizing a new debt restructuring package. Maytas Infra was promoted by B. Teja Raju, son of Ramalinga Raju.
IL&FS wasn’t in control of the company when the earlier debt restructuring package was finalized. According to the terms of that package, the banks would have converted a large part of their fund-based exposure—Rs1,461 crore—into long-term loans and extended its tenure to seven years, excluding a moratorium of two-and-a-half years, thereby effectively making the tenure of the loan nine-and-a-half years. The banks had also agreed to convert the interest overdue into a term loan.
“We acquired the company when the old CDR package was passed by the lenders. We wanted some more time to understand the books and the CDR scheme lapsed; now we are renegotiating for a new CDR package,” said a senior IL&FS official who did not want to be identified because he is not authorised to speak to the media.
Under the Indian central bank’s norms, banks classify an asset as an NPA when the payment of interest or principal remains overdue for a period of more than 90 days. But when they restructure troubled loans in a CDR package, they do not need to classify them as NPAs. For an NPA, they need to set aside between 10% and 100% of the asset, depending on its quality and age.
“Since the first CDR scheme has lapsed, banks will have to classify this asset as NPA. ICICI Bank and State Bank are contemplating approaching the Reserve Bank of India (RBI) seeking the central bank’s permission to classify this exposure as standard asset,’’ said a private sector bank official who is a member of the CDR scheme.
If they actually approach RBI, there is no certainty that the regulator will allow banks to treat this exposure as a standard asset. There have been instances of RBI making exceptions to the rule, but normally they are done for a group of firms and not one company.
In November 2008, the central bank, as a one-time measure, asked banks to undertake an exclusive fresh financial viability study for seven core sector projects in order to assess their eligibility for restructuring.
In January, after Ramalinga Raju confessed to cooking Satyam’s books to the tune of at least Rs7,136 crore over several years, Maytas Infra also came under the regulatory scanner.
The Company Law Board in March appointed four government nominees to run the company, and K. Ramalingam, former chairman of the Airports Authority of India, was appointed chairman. The government nominees negotiated the CDR package with banks that lapsed.