Syndicate Bank scam :How Bhushan Steel landed itself in a debt mess

BL  13 Aug 14

Bhushan Steel, with a large amount of debt in proportion to its equity (3.5 times more), is a highly leveraged company. The company’s consolidated debt stands at ₹31,839 crore, having risen 18 per cent from a year ago.

Over the years, the debt has risen steadily, sometimes at a faster pace than in the last year, as the steelmaker added production capacity. For instance, three-fourths of its Odisha plant’s ₹19,400 crore expansion programme (phase III) was debt-funded.

In the past, debt repayments did not matter as much for Bhushan Steel because its operations generated cash well in excess of what it had to pay by way of interest and loan repayments.

For instance, between financial years 2006 and 2010, while debt repayments ranged between ₹55 crore and ₹316 crore a year, cash from operations (profit after tax plus non-cash expenses) was much higher, at around ₹400 crore each year.

These were the years when Bhushan Steel clocked net profit growth at a compound annual growth rate of 53 per cent.

So, why has debt repayment become such a problem now?

The company’s problems began in 2010-11, when its debt repayment obligation more than trebled to ₹1,118 crore. This was probably because a part of the loans taken for capacity expansion, including for phases I and II of the Odisha plant, became due. Bhushan Steel’s operating cash flows of ₹994 crore, fell short of its debt-repayment obligations.

Problems on every front

The situation worsened in 2013-14, with more loans becoming due. The company repaid ₹3,384 crore in 2013-14, double what it had the year before.

Debt repayments apart, Bhushan Steel’s rising interest burden, too, had become a nagging problem, shooting up eight-fold in four years to ₹1,663 crore in 2013-14. The company’s profit shrank 93 per cent to ₹59 crore during the same period.

A fall in global steel prices from their 2008 highs amid a glut did not help.

Bhushan Steel was consequently reduced to a position where its profit (before interest and tax payments) was just about enough to meet its finance cost.

Together, these factors played into the company’s desperation to prevent its loans from being converted into non-performing assets. Ultimately, they may have resulted in the bribery charges being framed against its top management as well as Syndicate Bank CMD SK Jain.

Syndicate Bank scam :Lenders' consortium on Bhushan Group to meet on August 18

BL  Au 13,14

The consortium of bankers' who have combined exposure of about $7 billion (about Rs 40,000 crore) to the Bhushan Group will meet in New Delhi on August 18.

The meeting has been called to review the status of the exposure and decide on the future course of action in the wake of recent arrest of Vice Chairman of Bhushan Steel Neeraj Singhal.

For all the lenders in the consortium, Bhushan Steel continued to be a standard asset even as there are worries that it may get downgraded in the wake of recent developments, which is seen as more a company level issue.

Top lenders like State Bank of India may at the upcoming meeting push for appointment of a managing agency to oversee the operations of the steel company, said a banker. SBI has an exposure of Rs 6,000 crore to Bhushan Steel.

Syndicate Bank scam: CBI tracks mastermind's nexus with corporate-India today

India Today Aug 2014

The more they dig the bigger it gets. The bribe-for-loan scandal is literally exploding in the Central Bureau of Investigation's hands as it wades through documents related to the deals and analyses phone intercepts that nailed Syndicate Bank Chairman and Managing Director S.K. Jain.

The scam has grown to involve all of an alleged Rs.8,000 crore of sanctioned loans from the piffling two or three it started with.

The breakthrough for the CBI was its arrest of Jain along with a chartered accountant called Pawan Bansal acting as middleman for deals between the Syndicate Bank chief and companies looking for large loans. As the bureau dug deeper, it uncovered a well-oiled nexus in operation: bribes to the heads of public sector banks and financial institutions for loans in return.

Top sources said Bansal is alleged to be the mastermind of this scandal.

The scope of investigation is likely to widen beyond the Syndicate Bank case as the agency is looking into allegations that Bansal struck deals worth over Rs.8,000 crore with other banks. The CBI is in possession of documents and phone intercepts indicating that Bansal got loans for companies from UCO Bank, Bank of Maharashtra and Canara Bank.

Loans worth Rs.6,500 crore sanctioned by UCO Bank and the Bank of Maharashtra where Bansal is alleged to have lobbied for several companies paying bribes to top bank officials are also under the CBI's scanner now.

The more they dig the bigger it gets. The bribe-for-loan scandal is literally exploding in the Central Bureau of Investigation's hands as it wades through documents related to the deals and analyses phone intercepts that nailed Syndicate Bank Chairman and Managing Director S.K. Jain.

The scam has grown to involve all of an alleged Rs.8,000 crore of sanctioned loans from the piffling two or three it started with.

The breakthrough for the CBI was its arrest of Jain along with a chartered accountant called Pawan Bansal acting as middleman for deals between the Syndicate Bank chief and companies looking for large loans. As the bureau dug deeper, it uncovered a well-oiled nexus in operation: bribes to the heads of public sector banks and financial institutions for loans in return.

Top sources said Bansal is alleged to be the mastermind of this scandal.

The scope of investigation is likely to widen beyond the Syndicate Bank case as the agency is looking into allegations that Bansal struck deals worth over Rs.8,000 crore with other banks. The CBI is in possession of documents and phone intercepts indicating that Bansal got loans for companies from UCO Bank, Bank of Maharashtra and Canara Bank.

Loans worth Rs.6,500 crore sanctioned by UCO Bank and the Bank of Maharashtra where Bansal is alleged to have lobbied for several companies paying bribes to top bank officials are also under the CBI's scanner now.

Some of the loans allegedly sanctioned at Bansal's behest include a loan of Rs.600 crore to Era Infra, Rs.500 crore to Tayal Group, and Rs.1,300 crore to Arshiya International. The Bank of Maharashta allegedly sanctioned Rs.200 crore to Era Infra, Rs.400 crore to SEL Manufacturing and Rs.200 crore to Shiv Vani Group.

In many cases, these loans became non-performing assets, forcing banks to go in for corporate debt restructuring.

CBI sources said to understand the entire scam they need to analyse all these cases. "We need to establish that Bansal paid bribes to bank officials to get these loans passed as has been done in the Syndicate Bank case. Our efforts to establish the money trails are on," said a CBI officer.

Sources said Bansal uses his firm Altius Finserv Limited as a front to collect fees from various companies who paid him to get the loans sanctioned, and a part of this money was then passed on to bank officials. The CBI's First Information Report in the Syndicate Bank case clearly states that Bansal is in touch with heads of several heads of public sector banks and acts as a middleman.

 "It has been learnt that Shri Pawan Bansal regularly meets these bank officials for pursuing the loan proposals prepared and processed by his firm on behalf of his clients," the FIR states. Bansal who functions from his offices at Mumbai's tony Nariman Point and the upmarket Barakhamba Road in New Delhi is said to be a soft-spoken and smooth operator who uses his personal influence on bank officials.

Knowing his clout over senior officials in banks, business houses submit their loan proposals through his firm on the pretext of providing various financial services like credit solutions, debt capital market and investment banking.

The investigation could expose one of the biggest corruption scandals in public sector banking if the CBI can get to the bottom of the conspiracy where Bansal seems to be the key player. The CBI has several incriminating intercepts of conversations between Bansal and others involved. More cases could be registered if there is prima facie evidence and the role of Bansal is being scrutinised to unearth the entire scam.

 Link India Today

‘Unfair practices’ in Syndicate Bank CMD appointment- CBI

Indian Express12 aug 2014

This high score helped to elevate Jain to the post, even though he had scored only 62 out of 70 in the ACR section.

The Finance Ministry has received a confidential advisory from the Central Bureau of Investigation (CBI) in which the agency has said that the 2013 appointment of S K Jain, the suspended chairman and managing director of Syndicate Bank, “lacked transparency and smacks of unfair practices”.

The CBI has advised the Ministry that action should be taken on the information “as deemed proper”.

The advisory, signed by CBI Director Ranjit Sinha, was sent to Finance Minister Arun Jaitley on August 11. Ministry officials told The Indian Express that the advisory followed CBI’s scrutiny of  voluminous banking appointment files.

Significantly, the CBI advisory mentions the role of Rajiv Takru — now Secretary in the Ministry of Development of North East Region — who was chairman of the sub-committee that recommended Jain’s appointment at its meeting on February 11, 2013. Takru was at the time Secretary, Financial Services.

The “unfair practices” cited by the CBI is a reference to the fact that the sub-committee chaired by Takru gave S K Jain 29 marks out of 30 in his interview with the Banking Appointment Board. This high score helped to elevate Jain to the post, even though he had scored only 62 out of  70 in the ACR section.

Appointment files have revealed that 18 top bankers were interviewed for the CMD’s post, and one candidate had scored 70 out of 70 in the ACR section.

The sub-committee also picked candidates for seven other top banking posts other than that of the Syndicate Bank CMD. CBI officials said that depending on the advice of the Finance Ministry, these appointments too could be put under the scanner.

Takru defended Jain’s appointment, saying the sub-committee’s recommendation had been approved by a committee headed by then Reserve Bank of India Governor D Subbarao.

“The appointment of S K Jain was done through an absolutely fair process,” he told The Indian Express. “The interview board had three other members including an RBI Deputy Governor, and names of all selected candidates, including that of S K Jain, were cleared by the Vigilance Commission. I was only part of a process.”