An analysis of data from the databases of financial information service provider Probe42 and the Registrar of Companies (RoC) indicates that RBL Bank granted a ₹140 crore loan facility to Sintex-BAPL, ignoring deteriorating credit metrics. The Sintex Industries group company then borrowed the funds from Sintex-BAPL to repay a ₹280 crore loan from the bank, a so-called case of continuous loan renewal, where banks extend credit simply to help pay old debts. Sintex-BAPL and Sintex Industries have since been sent to bankruptcy courts for resolution.
According to the bank’s statement to the exchanges on February 11, RBL is among the creditors seeking to recover dues from Sintex Industries. The bank has yet to recover ₹148 crore, more than half the ₹280 crores sanctioned to the company.
Amit D. Patel, former president and CEO of Sintex-BAPL, did not immediately respond to a message on the Linkedin website and to his last known email address.
The mountain of bad debts, which Indian banks have been grappling with for some years, has been partly caused by lenders sanctioning loans to defaulting borrowers to repay or rollover old debts. Concealing bad debts has allowed banks to present healthy balance sheets and profits.
A crackdown on such practices by former Reserve Bank Governor Raghuram Rajan showed the extent of the rot in the banking system.
The events that led to violations of lending practices began with the ₹280 crore loan facility to Sintex Industries on June 1, 2017. Two years later on June 11, 2019, RBL sanctioned the ₹Loan of 140 crores to Sintex-BAPL. A day after the loan was approved, Sintex Industries was downgraded to default by Care Ratings and Brickwork Ratings for delays in servicing its interest and installment obligations on the bank loans.
On the same day, Sintex Industries defaulted on non-convertible debentures (NCD) worth ₹86 crores. On June 13, 2019, according to information uploaded with the RoC, RBL issued a certificate of non-contribution to Sintex Industries.
“The bank sanctioned a facility of ₹140 crore on June 11, 2019, when the signed financial statements of May 30, 2019 show a debt ratio of 10.5. This shows an extremely poor credit reporting system and appalling risk management processes at the bank,” said Hemindra Hazari, independent banking analyst.
The alleged rollover of the loans becomes evident if one looks at Sintex-BAPL’s annual report for the financial year 2020.
In the notes to the account, the auditor of Sintex-BAPL highlighted an intercompany deposit given to Sintex Industries.
“We draw your attention to note 54 of the consolidated financial statements which states that the group obtained an additional working capital loan of ₹130 crore from a lender including ₹98 crore has been placed as a business-to-business deposit with Sintex Industries Ltd on which interest has accrued and collection is pending,” Sintex-BAPL’s annual report for 2019-20 states.
According to the details of Sintex-BAPL charges during this fiscal year, only one new charge (loan) was created in favor of RBL Bank. “Sintex-BAPL and Sintex Industries have a long-standing relationship with the bank. All of these loans were consortia,” a person familiar with the matter said.
“While we do not comment on individual customer specific information, we would like to clarify that in July and October 2019 the bank had proactively disclosed credit issues with a few business groups who had a long-standing relationship. with the bank. The bank, as guided, had big slip-ups, which were substantially anticipated. Additionally, we have made additional disclosures in the form of comments on these accounts during various media/analyst interactions over the past two and a half years,” an RBL spokesperson said in an emailed statement.
The bank assures investors that its financial health remains stable. The bank’s share price plunged as much as 25% a day after the central bank appointed its chief managing director, Yogesh Dayal, to its board as an additional director and chief executive Vishwavir Ahuja abruptly took sick leave.
But the sequence of events related to the Sintex accounts raises questions as to why a new loan was granted to Sintex-BAPL just a day after a group company defaulted.
Additionally, on May 10, 2019, Care Ratings assigned a non-cooperating issuer (INC) label to Sintex-BAPL.
“The revision of the ratings of Sintex-BAPL’s banking facilities and instruments is due to the lack of clarity of the liquidity profile of Sintex-BAPL due to the non-sharing of the information required by the company regarding the latest available liquidity and the bank balance. , working capital usage and bank statements, etc. which hampered the assessment of the company’s latest liquidity position, which was one of the key drivers of Sintex’s credit analysis -BAPL, given the maturity of its large scheduled debt repayments in fiscal year 20-22,” Care Ratings said in a press release issued on May 10, 2019.
For the 2019 financial year, the auditor BSR and Co. had issued a qualified opinion on the accounts of Sintex-BAPL; subsequently, the auditor resigned. The opinion was rendered on the basis of significant weaknesses in the company’s internal controls.
In the same fiscal year, the company started reporting (self-sustaining) losses and the account had shown a delay in repayments to Deutsche Bank, which is a red flag for any lender.
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