Hyderabad: On the heels of an unfavourable interim order by the Andhra Pradesh high court in a litigation over currency derivative transactions, ICICI Bank Ltd has proposed an out-of-court settlement with NCS Sugars Ltd, the Hyderabad-based sugar producer said.
The court on Wednesday restrained ICICI Bank from treating the amounts as non-performing assets, or NPAs.
“Following the court orders, the bank officials are now approaching us for an out-of-court settlement. However, we are yet to take a decision on this,” NCS Sugars managing director N. Nageswara Rao told Mint.
NCS had told the court that “if the respondent (ICICI Bank) is allowed to declare the petitioner (NCS) as a non-performing asset, the petitioner would suffer serious loss and damage due to the resultant disability of enhancement of its credit facilities with other bankers.”
NCS has urged the court to declare all the contracts that the company has entered into with the ICICI Bank on foreign exchange transactions as null and void and not binding on the company.
An ICICI Bank spokesperson declined to comment. However, another official of the bank said on condition of anonymity: “The court’s interim order suits us since we need not show the amounts as NPAs in our books.”
NCS, which has annual revenues of Rs300 crore, filed a suit against India’s largest private sector lender alleging that the bank mis-sold complex foreign exchange derivatives products without fully explaining their implications or the underlying possibility of huge losses due to currency fluctuations.
NCS also alleged that ICICI Bank crossed the prescribed limits of Rs5.8 crore for such transactions by reaching a level of around Rs80 crore and claiming losses of around Rs8 crore on account of currency variations.
The company also said it was never interested in speculation and had opened the forex hedging account only to insulate the company from possible foreign exchange losses in its export and import transactions. According to Rao, most of the transactions that ICICI Bank executed appeared speculative in nature and involved cross-currency deals inconsistent with covering the risks of foreign exchange transactions of the company.
“The management was completely unaware of the transactions the ICICI Bank officials did by associating with one of our officials, who was not authorized to do so. There were no board authorizations for the transactions that ICICI Bank said it had executed for the company,” Rao said. NCS further said the bank was uncooperative. “When we asked the bank to furnish the full and necessary details on the transactions and losses being claimed, the bank virtually turned hostile to us,” Rao maintained.
He said the bank misled the company into the area of speculation and exposed it to the unwarranted effects of the foreign exchange fluctuations and finally made the company victim of the circumstances, which were in the knowledge of the bank but not disclosed to the company.
“We had to move court when the bank insisted that we enhanced our exposure limits to derivatives transactions along with furnishing collateral security,” he said. “While insisting that we should pay the losses that were said to have been incurred in the process of derivatives transactions, the bank has also warned us that it would consider the amounts as non-performing assets if the company refuses to pay them.”