Exposure To Jaiprakash Associates Continues To Shake Up Indian Lenders
A cement account with outstanding loans worth Rs 5,378 crore was classified as an NPA in the fourth quarter, said ICICI Bank.
ICICI Bank Ltd. is the latest lender to see a surge in bad loans and provisions due to its exposure to Jaiprakash Associates Ltd., once seen as a must-have in every bank’s portfolio.
As part of the disclosures accompanying its fourth quarter earnings, the bank said that a cement account with outstanding loans worth Rs 5,378 crore was classified as a non-performing asset (NPA) during the fourth quarter. While the bank did not specify the name of the cement account, a person familiar with the development confirmed that the account belonged to Jaiprakash Associates.
This account was included in the drill down exposures to key sectors disclosed by the Bank and an M&A (merger and acquisition) transaction has been announced in respect of this company. While the transaction has received most of the requisite approvals, including the approval of the National Company Law Tribunal, it is awaiting certain last mile approvals due to which the transaction could not be concluded by March 31, 2017.ICICI Bank Statement
Jaiprakash Associates had signed a deal with Ultratech Cement in July 2016 for the sale of its cement business for a total consideration of Rs 15,900 crore, with the expectation that it would close the deal within the financial year. The sale, which was part of the Jaypee Group's efforts to reduce its debt burden, was driven largely by the lenders to the group.
The deal, however, has still not received final approvals, which is leading to a delay in repayments.
"The bank expects part of the loan to be upgraded on conclusion of the transaction," ICICI Bank said in its statement.
The Jaiprakash Associates account was one reason for a surge in slippages during the quarter at ICICI Bank, which rose to over Rs 11,000 crore. Excluding this, the slippage number would have come down to Rs 5,911 crore during the January-March period as compared with Rs 7,037 crore in the December quarter.
While announcing the bank’s results, Chanda Kochhar, managing director and chief executive officer of ICICI Bank said that it is important to not confuse the classification of this large asset with the Reserve Bank of India’s (RBI) directive on April 18. As part of its guidelines, the central bank had said that all banks must declare any major divergence in reporting NPAs as compared with what it had directed banks to recognise during its annual supervisory audit.
ICICI Bank is one of at least four lenders who have taken a hit in the fourth quarter from loans given to Jaiprakash Associates. Yes Bank, IndusInd Bank and Axis Bank have all seen their asset quality being impacted owing to this account. More banks may follow.
While Yes Bank classified an exposure worth Rs 911 crore to the account as an NPA in the March quarter, IndusInd Bank had set aside Rs 122 crore as provision against its exposure to the company, which it still classified as standard.
While announcing Axis Bank results, Chief Financial Officer Jairam Sridharan had said that a large cement account worth Rs 1,660 crore had first slipped into NPA category during the quarter and then had become standard in the same period. However, the bank had not reversed Rs 415 crore worth provision it made in the asset.
According to Credit Suisse’ February Corporate Health Tracker report, Jaiprakash Associates had gross borrowing of over Rs 69,000 crore as of the end of financial year 2015-16. The exposure has only partly been marked down to NPA category, the report said.
Almost all corporate lenders have exposure to Jaiprakash Associates, said a senior retired banker who until was involved closely with the account. Among the public sector banks, State Bank of India and IDBI Bank have material exposure to the account. Both banks are yet to report earnings.