The public-sector bank had sought a similar injunction from a sessions court in Bengaluru, which offered partial relief, restraining Shetty and his wife from selling or transferring only the 16 properties used as collateral for loans of ₹1,912 crore from Bank of Baroda. Other lenders, such as Union Bank of India, also have exposure to Shetty’s companies, however, their outstanding loans could not be immediately ascertained.
People cited above said BoB also wants to ensure that Shetty does not sell his assets, even those not listed as collateral to Bank of Baroda. Other lenders are contemplating joining BoB, said the two people citied above, who spoke on condition of anonymity.
According to court documents reviewed by Mint, BoB had sought an injunction on sale of all movable properties, shares, mutual funds, funds deposited in bank accounts and fixed deposits of Shetty at the lower court.
“While the borrower’s loans with BoB are all standard at the moment, the lender has moved court only as a proactive step to ensure that its right to recovery is protected, in case the borrower defaults later," said the first person quoted above, adding that since Shetty gave a personal guarantee on these loans, all his assets should be part of the injunction.
Faced with an ever-increasing burden of dud assets in the last round of bad loan accretion, banks seem to take pre-emptive action against borrowers they think might default. The Reserve Bank of India’s (RBI) 7 June, 2019, circular on resolution of stressed assets also calls for early recognition of stress after default and work towards resolving it within 210 days.
Bank of Baroda’s gross bad loans as a percentage of its total advances was at 10.43% in the December quarter, as against 10.25 in the previous quarter of FY20. The bank is yet to announce its earnings for the March quarter.
“The present exercise is mostly aimed at securing the interest of the lender. The bank now wants to put a bar on Shetty from liquidating any of his assets and has to convince the court that the borrower might liquidate these assets, affecting the recoverability of the loans," said Punit Dutt Tyagi, an executive Partner at Lakshmikumaran & Sridharan Attorneys.
Charges against Shetty, founder of NMC Health, a healthcare provider in the United Arab Emirates (UAE), include under-reporting of debt and not using the funds they were raised for.
One of his companies, Unimoni Financial Services Ltd (erstwhile UAE Exchange), has credit lines sanctioned from Indian banks--Dhanlaxmi Bank, Bank of Baroda, CSB Bank, Indian Overseas Bank and South Indian Bank, among others, as per the list of registered charges available on the registrar of companies website.
“The loans to Shetty’s companies were from both from foreign banks and Indian banks’ branches in the UAE and in India. Some banks with less exposure abroad are looking to join the probe in the UAE and others in India might join BoB’s efforts," said the second person quoted above.
An email sent to Bank of Baroda and to Shetty remained unanswered till the time of press. On 30 April, Mint had reported that Shetty claimed innocence in the alleged financial irregularities in NMC Health and said he is pursuing legal action and remedies.
Meanwhile, Bank of Baroda’s actions come at a time when banks in India are expecting a significant surge in bad loans owing to the coronavirus-led lockdown and ensuing halt in economic activities of borrowers. Rating agency India Ratings, in a report on 21 May, had said the total corporate standard-but-stressed pool may increase from 3.8% of the total bank credit as of December 2019 to up to 6.6% in the post-coronavirus period.
“The incremental stress is mainly from sectors including power, infrastructure, constructions, hospitality, iron & steel, telecom and realty. Out of this, the agency estimates corporate exposures of up to 3.2% of the total bank credit are at a high risk of slippage," India Ratings had said in the report.