State-run Vijaya Bank has classified Anil Ambani group-led Reliance Naval And Engineering Ltd. as non-performing asset from the March quarter, amid the company’s auditors recently expressing doubts about its ability to continue as a “going concern”.
The company, which was earlier known as Pipavav Defence & Offshore Engineering, was bought over by Anil Ambani group in 2016, and renamed as Reliance Defence & Engineering. It owes over Rs 9,000 crore to over two dozen banks mostly state-run, led by the troubled IDBI Bank Ltd.
The Bengaluru-based lender said the action was necessitated by the February 12 changes that the Reserve Bank of India had brought to the NPA resolution framework, which while scrapping all the existing frameworks, including debt restructuring, asked banks to consider even one-day delay in payments as default, which if not cleared in 180 days should be sent to the National Company Law Tribunal for bankruptcy proceedings.
“A few accounts, including Reliance Naval, were under various restructuring schemes like the SDR (strategic debt restructuring) and S4A (Scheme for Sustainable Structuring of Stressed Assets) by all the lenders. With the February 12 circular, the RBI had made it clear that all those accounts where restructuring could not happen by then, have to be treated as NPAs.
“Reliance Naval was under restructuring, but the implementation could not happen, and so, it slipped into NPA from the March quarter,” a senior Vijaya Ban official told news agency PTI over phone from Bengaluru over the weekend.
The official further said the bank has made adequate provisions for the Reliance Naval account in the March quarter without disclosing how much is its exposure and how much it has provided for.
An email sent to the company last evening did not elicit a response till the time of publishing this story.
Reliance Naval is the second firm from the Anil Ambani group to turn into an NPA after its once flagship but now bankrupt Reliance Communication Ltd., which is already at the Mumbai bench of NCLT. RCom owes over Rs 45,000 crore to 31 banks in the country, apart from China Development Bank.
Reliance Naval, in the business of defence ship-building, has also been tagged as NPA by state-run Union Bank of India, according to a media report, which also said that the account was tagged as SMA2 (special mention accounts) by all the lenders since the past many quarters. But PTI could not verify it with the lender.
An account is called SMA 2 if it is in default for up to 60 days but if it remains so for another 30 days (total 90 days) then it has to be tagged as an NPA account and the bank has to make provision and since the February 12 RBI circular, should be sent to NCLT for bankruptcy provisions.
In the March 2018 quarter, Reliance Naval reported a threefold jump in net loss to Rs 408.68 crore from Rs 139.92 crore in the previous 12-month period. For the full year to March 2018, its net loss almost doubled to Rs 956.09 crore from Rs 523.43 crore in previous year.
In the March quarter, the IDBI Bank-led lenders consortium recalled thier loans to the company and invoked the pledged shares as well as the guarantees available with them.
In a note in the FY18 earnings statement, its auditors Pathak HD & Associates had raised doubts about the company's ability to "continue as a going concern".
Auditors listed cash losses, net worth erosion, loan recall back by secured lenders, mounting current liabilities which are substantially higher than assets and winding up petitions by a few operating creditors to raise its doubts.
Ambani had picked up controlling stake in Pipavav Defence & Offshore Engineering in 2016 and renamed it as Reliance Defence & Engineering. Last year, it was renamed again as Reliance Naval And Engineering.