Monday, June 21

Loans Reclassification: Banks will have to reclassify loans given to HDIL as fraud

MUMBAI: Lenders to HDIL will have to classify their loans to the developer as fraud and will need to set aside more money for these advances in their balance sheet. This is because the provisioning norms for loans where fraud is committed by the borrower is different from those governing regular advances. According to RBI’s master circular on prudential norms, the entire amount due to a bank (irrespective of the quantum of security held) or for which the bank is liable is to be provided over a period not exceeding four quarters.

Real estate developer HDIL is currently in default to various banks and has been admitted for proceedings under the Insolvency and Bankruptcy Code. The company has been trying to come out of the process and had paid Rs 98 crore to Bank of India, which was incidentally raised from the Punjab and Maharashtra Cooperative (PMC) Bank. It is not clear whether police authorities can seek to recover from other lenders repayments made by HDIL using PMC Bank depositors’ money.

The RBI has started coming down hard on banks after it detected that they continued to treat a borrower as a normal defaulter despite the promoters’ arrest by investigating authorities for fraud. Following this, many banks started reporting their loan exposure to Bhushan Power and Steel as fraud.

Last week, while seeking remand of HDIL’s promoters Rakesh and Sarang Wadhawan, the economic offences wing (EOW) counsel had said that 70% of depositors’ money at PMC Bank was availed by HDIL as loans. It was also revealed that the cooperative bank created 21,000 fictitious accounts to camouflage these advances.

According to HDIL’s annual report, it has Rs 1,500 crore of debt. It is not clear how many banks currently hold HDIL’s loans on their books.

According to the developer’s annual reports for FY19, it had a dozen lenders. These were Allahabad Bank, Andhra Bank, Bank of India, Central Bank of India, IDBI Bank, IL&FS, Life Insurance Corporation, Syndicate Bank, The Jammu & Kashmir Bank, UCO Bank, Union Bank and Yes Bank. The company has said that the chairman and MD have provided personal guarantees for these loans.

A report by HDIL’s auditors said that the company has defaulted in repayment of loans and interest to banks and financial institutions. “Unpaid overdue interest and principal to banks and financial institutions as on March 31, 2019 is aggregated to Rs 1,780.97 crore,” the annual report said. Besides HDIL, one of its subsidiaries Guruashish Construction faced insolvency proceedings, according to the annual report.

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