As part of the big bail-out for IDBI (Industrial Development Bank of India) and IFCI, the Government had to decide the fate of their worst defaulters—the steel companies and Enron.
The top 17 steel companies have borrowed a huge Rs 49,000 crore from banks and institutions, but only three of the biggest groups were chosen for yet another restructuring package.
These were: Ispat, Essar and the Sajjan Jindal group. The Ispat group (Ispat Industries, Ispat Metallics and Ispat Profiles) has outstanding loans of over Rs 7,800 crore, Jindal Vijaynagar and JISCO (Jindal Iron and steel) has over Rs 6,600 crore and Essar Steel has borrowed Rs 5,400 crore (other group companies are also in trouble).
None of these are meeting their payment obligations, and the Government thinks that restructuring them is good for the lenders too. Each group has been assigned to a different institution to finalise a restructuring package. IFCI has Ispat, ICICI has Jindal and IDBI has been asked to work out a package for Essar. The package includes the whole caboodle of reduction in interest rate, haircuts, write-offs, conversion of loan to equity, extending repayment and imposing fresh sanctions.
In Essar’s case, it also includes a deal to pay off the FRN holders at a quarter of the face value. Will all the lenders arrive at a consensus? Knowledgeable sources say that there will be many a hiccup before an acceptable restructuring package is hammered out.
While the marriage arranged by the Reserve Bank between Punjab National Bank and the Nedungadi Bank seemed to have gone off without a hitch (and without even a dowry for Nedungadi’s equity holders), friends of the Kozikode-based bank have now come up with a conspiracy theory about the merger.
They call themselves the Malabar Foundation (http://www.malabar-foundation.org) and have set up a website to protest against the merger. The anonymous people behind the site blame the RBI for failing to act in time and want the exchequer to bail out the private bank.
They string together a bunch of facts to come up with an incredible conspiracy theory. According to them, ‘powerful pan-national corporate forces are conspiring to destroy strong local financial institutions in the South’.
And that ‘the old private bank movement, which has been so strong in the South, is now under attack’ and may soon become history. ‘This diabolical trend’ they say, ‘started with the abortive takeover attempt of Tamil Nadu Bank, followed by the successful takeover of Bank of Madura, the takeover of Vysya Bank by ING, the clampdown on several famous cooperative banks in Hyderabad and the proposed sell-out of the century-old Nedungadi Bank’.
They anticipate that the ‘big stakes that ICICI Bank holds in Federal Bank and South Indian Bank ostensibly as a ’white knight’ to prevent hostile takeovers’ and large holdings of strategic investors in Dhanalakshmi Bank and Lord Krishna Bank will only take this process forward.
So, what would be the objective of wiping out south Indian banks? The Malabaris allege that it is an attempt to drive ‘scarce capital’ from all sources, including NRI remittances and public deposits, to ‘financial biggies’ such as nationalised bank, institutions and insurance companies.
Does this fanciful, but extremely well-articulated conspiracy theory have any takers?
More on Nedungadi
While on Nedungadi Bank, the man responsible for the debacle—Rajendra Banthia—is no longer under the custody of the Gujarat police. We learn that the police at Baroda and Anand in Gujarat first arrested four persons connected with Charotar Nagrik Sahakari Bank to whom Banthia tried to sell his 40 per cent stake in Nedungadi bank for approximately Rs 35 crore.
The persons—Chiman Sathi, Kamlesh Mankodi, Himanshu Desai and Jaychand Dharamshi—had forged Letters of Credit (LCs) worth Rs 20 crore of Charotar Bank and had them discounted by the Baroda Peoples Cooperative Bank.
When this became public and the Gujarat poice arrested them, the foursome confessed that they used the money to pay Banthia for the Nedungadi Bank shares at around Rs 194 each.
However, he had not yet delivered all the shares because they in turn were pledged to another Mumbai based private lender who had to be paid off first.
Stock prices have been rising in the last few weeks and investors expect the rally to sustain. But if the market turns bullish, can the big bull stay away? Market source say that large volumes in Digital and the rally in Himachal Futuristic are just two initial indicators. -- Sucheta Dalal