The State Bank of India (SBI) sold over 15 loan accounts of defaulters at a discount of 65-67 per cent under the chairmanship of Pratip Chaudhuri, who is currently under arrest in a Rs 23.5-crore loan case.
The 68-year-old Chaudhuri is charged in connection with one such non-performing asset (NPA) sale to an asset reconstruction company (ARC), which happened after his retirement.
Selling NPAs to ARC is one of the options for banks to recover bad loans, apart from one-time settlement (OTS) with defaulters. The Insolvency and Bankruptcy Code (IBC), yet another tool in the hands of lenders, came into existence in May 2016, much after Chaudhuri retired from bank.
Chaudhuri, who took over from O P Bhatt and was succeeded by Arundhati Bhattacharya, presided over the Mumbai headquartered bank between April 2011 to September 2013. It was under Chaudhuri's tenure that Vijay Mallya's Kingfisher loan turned NPA for the bank. He, however, didn't sanction any fresh term loan to the struggling airline during his tenure.
As per the NPA sale records, during Chaudhuri's tenure, SBI disposed nine accounts of defaulters in 2011-12 with an aggregate outstanding of Rs 35.69 crore at a consideration of Rs 12.79 crore. In 2012-13, the bank sold NPAs of another six companies with an outstanding of Rs 139.96 crore at a sale consideration of Rs 45.84 crore.
These NPAs were sold at a discount of 65-67 per cent to the outstanding loan amount. Given the large loan book of SBI, the NPA sale numbers are minuscule, but often charges of non-transparency crop up in such sales, with defaulting promoters going against the bank officials.
NPAs are generally sold at a discount to the outstanding amount. "We follow an auction process where whosoever offers the best price, gets the assets," says an SBI official.
In fact, loans of smaller amounts, like that of Hotel Gaudavan in which Chaudhuri is currently charged, are always handled at the branch or the zonal level. "The MDs and the chairman don't deal with such cases as there are set systems and processes to deal with the sale of loans to ARCs, one-time settlement (OTS), etc." adds the official.
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Chaudhuri is currently facing action in connection with a term loan sold to a Delhi-based ARC by the SBI.
The Rs 23.5-crore loan was taken by Rajasthan-based Hotel Gaudavan Pvt Ltd in 2008. Despite restructuring and rescheduling of the loan by the bank, the borrower was not able to pay the interest installment as well as the principal amount. This term loan was subsequently declared an NPA in 2010. As part of the recovery measure, SBI had even invoked the SARFESI Act under the Debt Recovery Tribunal (DRT) against the borrower in July 2013.
Two months later, Chaudhuri retired from the bank in September 2013, and took over the directorship of Delhi headquartered Alchemist ARC immediately after his retirement. Call it a coincidence, but SBI sold the loan to the same ARC in March 2014 where Chaudhuri had joined as a director.
An ARC's job is to restructure the loan under default and make money out of it. As IBC became operational for faster resolution in 2016, Alchemist, the financial creditor to Hotel Gaudavan, approached the National Company Law Tribunal (NCLT) for resolution under a court-driven process in March 2017.
The NCLT finally disposed of the case in December 2017 by putting its stamp on the sale of the hotel to JFC Finance, a non-banking finance company (NBFC). So, this loan subsequently changed hands from Alchemist ARC, where Chaudhuri is a director, to an NBFC.
The loan defaulter had filed an FIR with the Rajasthan Police against SBI's sale to ARC and made all the directors of Alchemist ARC a party in the case, including Chaudhuri. However, SBI was not made a party to the case
SBI is strongly backing Chaudhuri in the matter. Dinesh Khara, current chairman of SBI, has categorically said that "there has been no irregularities in the said case and prescribed rules and the processes were followed by the bank in dealing with this account".
In its statement, SBI said the hotel property was sold in March 2014 after the retirement of Chaudhuri in September 2013. Besides, sale to ARC happens in a transparent auction mechanism.
Chaudhuri is also getting support from the banking community as he was denied bail with no recourse to put his defense. The Indian Banks' Association (IBA), which represents the banking industry, has already approached the government. In fact, the arrest of Chaudhuri has come at a time when the government has assured the bankers time and again that they will get full protection against bona fide commercial decisions.
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