BackGovernment worried about loans to miners
Banks have been asked to collate information on such debt; some lenders already looking closely at their books
Premium(Noah Seelam/AFP)
Mumbai/New Delhi: The government is worried that loans given by banks to companies being investigated over irregularities in the allotment of coal mines may turn bad, and has asked them to collate information on such debt.
“We are aware of the situation and have asked banks for details. We are collecting the data through Indian Banks’ Association. We should get it in a few days," said a senior government official directly involved in the discussions with banks.
Mint couldn’t ascertain the quantum of the exposure of banks to companies that have been allotted coal blocks.
Indeed, some banks have already started looking closely at their books. “We are examining what is the impact, but it is a bit early to estimate it, given the complexity and evolving nature of the issue," said S. Raman, chairman and managing director (CMD), Canara Bank.
Bankers insist there is no cause for alarm.
“We are not reacting in a knee-jerk fashion; we are monitoring the outcome of the issue to chart our course of action. Obviously, when such an issue comes, we will have to check our books," said K.R. Kamath, CMD, Punjab National Bank.
Still, there’s no denying the risks. Some analysts are already beginning to compare this issue with the so-called 2G scam where telecom licences and spectrum was awarded to some companies on favourable terms, and banks loaned money to the companies against these. Negative publicity, an investigation by the Central Bureau of Investigation (CBI), and a ruling by the Supreme Court cancelling all 122 licences awarded thus have meant that banks have become reluctant to lend to any telco.
One Mumbai-based banker admitted that this is indeed the case with coal.
“What can we do when licences allotted get cancelled after five years? This is irresponsible, and if banks are sitting with bad loans, nobody should blame us," said an executive director with a big public sector bank, who didn’t want to be named. “It is like telecom lending. We loaned (money) on faith and now we are holding the can."
How the issue can be resolved isn’t clear.
“A lot of banks have loaned money to developers on the basis of these captive coal blocks. In the event of cancellation of the blocks to be decided by the inter-ministerial group, what happens to those loans?" said a person aware of banks’ exposure to companies allotted coal blocks and who spoke on condition of anonymity.
A case in point concerns the Abhijeet Group, which is in the eye of the coal storm. A draft red herring prospectus for Abhijeet Power Ltd reviewed by Mint states that it was incorporated as Abhijeet Infrastructure Capital Pvt. Ltd and that “for the Banka Power Project, we have received sanction letters/underwriting arrangements for an amount of ₹ 74,000.00 million ( ₹ 7,400 crore) from Axis Bank, Punjab National Bank and UCO Bank."
“Axis was a part of three banks which sanctioned the initial loan to Jas Infrastructure and Power Ltd, but since then the loan has been syndicated to an eleven-member consortium of which Axis is a part. The bank, however, cannot share details of its specific exposure currently. However, we do not have any exposure to the company’s coal block under question," said a spokesman for Axis Bank Ltd.
Abhijeet Infrastructure has been named in the Comptroller and Auditor General of India (CAG) list of 57 companies over irregularities in the allotment of three coal blocks in Jharkhand.
A spokesman for the Abhijeet Group said he was unable to provide details on the status of the loans obtained by the group for various projects immediately. “This matter is taken care of by the finance team," the spokesman said.
According to a senior banker, who didn’t want to be identified, State Bank of India (SBI) has an exposure of around ₹ 2,200 crore to the group, but has ₹ 3,200 crore of collateral. This person added that some of SBI’s associates, too, may have some exposure to the group. SBI has had a relationship with the group for at least 20 years, he said.
Earlier this week, CBI booked five companies that had been allotted coal blocks on the basis of misrepresentations and false claims. Among them is Jas Infrastructure, a subsidiary of the Abhijeet Group, which is setting up the Banka project.
Jas, JLD Yavatmal Energy Ltd and AMR Iron and Steel Pvt. Ltd, three of the five companies named by CBI in its first wave of bookings—the agency has said there will be more, with five expected shortly—have a common director, Manoj Jayaswal.
For banks, the coal controversy couldn’t have come at a worse time. They have been hit hard by the 2G scam and face the threat of defaults by power companies. The non-performing assets, or bad loans, of Indian banks rose 46% to ₹ 1.37 trillion in fiscal 2012. After declining to 2.4% in 2008, the proportion of bad assets to loans in the Indian banking system has risen to 2.94% in 2012. And, as pointed out in the Banker’s Trust column of 22 August, going by the Reserve Bank of India’s assessment that a fifth of restructured loans go bad, and factoring in the ₹ 2.18 trillion of restructured loans on the books of banks as on 31 March, the proportion of bad loans in the banking system could rise to 3.87%.
Ruchira Singh in New Delhi contributed to this story.
Allocation process for coal blocks
u Coal ministry places advertisements in newspapers seeking applications from those interested in coal blocks.
u Companies apply stating the end-use purpose for the coal, along with recommendations by state governments.
u Screening committee comprising representatives from the coal ministry, state governments, line ministries (such as power, steel), and the Central Mine Planning and Design Institute make recommendations for allotments.
u Coal ministry allocates blocks.
Windfall gains for lesser-known firms
Two types of allottees were able to secure captive coal blocks. Established companies such as Essar Power, Jindal Steel and Power Ltd and GMR Energy Ltd had to jostle along with lesser-known firms such as Pawanjay Steel and Power Ltd for the blocks that were given for free. While the major utilities wanted to secure fuel supplies for their projects, the lesser-known entities were primarily aiming at monetizing assets, which resulted in windfall gains. They were successful in doing so without investing in building the projects for which the blocks were allocated in the first place. Interestingly, the allocation letter didn’t prohibit changes in equity.
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