Indian banks have written off Rs 68,607 crore of debt of top 50 willful defaulters till September 30, 2019, said the Reserve Bank of India (RBI) in response to a petition filed under the Right to Information (RTI) Act.
The list, however, doesn’t include overseas borrowers as it is exempted from public disclosure.
The write-offs are technical or prudential in nature, which means the banks have made 100 per cent provisions against the loans. However, this doesn’t mean the banks have given up the right to recover the loans. It also doesn’t mean that banks have written off the entire loan, as some loans have been taken against security, which either can be or already has been recovered.
As and when they recover the money, it directly adds up to banks’ profits, and the provisions also come down by that extent.
The RTI was filed by Saket Gokhale, an activist, on March 19, and he received the list on April 24. It lists defaulters till September 30 last year, which means either the RBI did not update the list, or further willful defaults above ~5 crore did not happen in this period to update.
RBI maintains records of loans above Rs 5 crore given by banks, both fund and non-fund based, in its Central Repository of Information on Large Credits (CRILC) database. If any entity defaults, the RBI captures it.
The definition of a willful default is lengthy and conditional, but it simply points to a default by anyone who has the means to pay but won’t.
Gitanjali Gems tops the list with Rs 5,492 crore written off. The much publicised Kingfisher Airlines is in the top-10 list with a write-off of Rs 1,943 crore. Gitanjali is followed by REI Agro, with an exposure of Rs 4,314 crore, and Winsome Diamonds and Jewellery at Rs 4,076 crore.
Gitanjali Gems, owned by Mehul Choksi, was a darling of the stock markets. Soon after the Nirav Modi scam came out in the open, the Central Bureau of Investigation (CBI) found that Choksi and Modi used the same tactics to defraud banks. Choksi, Modi’s maternal uncle, used to open letters of credit in the name of foreign suppliers.
The duo were helped by a few Punjab National Bank employees. Both Modi and Choksi showed fake transactions among various offshore entities and took Indian banks for a ride. The CBI and Enforcement Directorate filed a chargesheet against Choksi and other top officials of Gitanjali Gems.
However, Choksi fled to Antigua and Barbuda, where he is currently facing extradition proceedings. Modi was arrested in London and has been in jail since March 2019. Both Modi and Choksi jointly made a $2 billion hole in Indian banks’ books. Choksi’s other firms, Gili India and Nakshatra Brands, also have had loans of Rs 1,447 and Rs 1,109 crore, respectively, written off.
PNB was also taken for a ride by Chandigarh-based Kudos Chemie in 2014. Banks lent the firm Rs 2,326 crore. The bank said in 2016, the Directorate of Revenue Intelligence had initiated action against the company for violation of the Customs Act and the account became a non-performing asset in March last year.
In between, the bank tried to sell the loan to an Asset Reconstruction Company (ARC) but failed to find a buyer. According to an ICRA rating report in July 2014, the company was placed in the default category after it failed to repay banks.
ICRA said Kudos Chemie incurred inventory loss in fiscal 2014 on part write-down of inventory of a new product as it would not meet the desired quality specifications and required further processing. For this, the company planned to set up additional facilities.
Ruchi Soya is another name on the RBI’s list. The company was recently taken over by Patanjali Ayurved, after banks initiated Insolvency and Bankruptcy Code proceedings against it. The RBI says banks have written off Rs 2,212 crore in the Ruchi Soya account. Interestingly, Indian banks didn’t just fund Patanjali’s acquisition, they even funded its equity contribution to a large extend.
Patanjali Ayurved pledged its entire shareholding in Ruchi Soya Industries to SBICAP Trustee for the Rs 4,000 crore loan, according to a filing on the exchanges.