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.”

Syndicate Bank scam :Bhushan shocker: ₹40,000 crore, 51 lenders at risk

 BL :MUMBAI, AUGUST 8:2014

Banks want agency to oversee operations; lenders’ consortium to meet soon

  

With the Central Bureau of Investigation (CBI) arresting Neeraj Singhal, Vice-Chairman of Bhushan Steel, in connection with the alleged Syndicate Bank bribery case, banks are considering engaging the services of a management agency to look after the day-to-day operations of the company to ensure that their ₹40,000-crore loan exposure is not jeopardised.

Fifty-one banks have given loans to the company as part of two lenders’ consortiums – the term loan consortium is led by Punjab National Bank while the working capital consortium is led by State Bank of India.

Lenders’ meet

Arundhati Bhattacharya, SBI Chairman, said: “We will be calling a consortium meeting shortly. The suggestions that we (SBI) have made, and which have been accepted by the banks that we have talked to, is that we will try to bring in a management agency, which will oversee the day-to-day running of the unit.”

At a press meet to announce SBI’s financial results, she said the Bhushan Steel loan was a standard asset. The exposure of India’s largest bank is around ₹6,000 crore, including external commercial borrowing.

‘Good asset’

“This (Bhushan Steel) is a very good quality asset. It is currently running properly. We don’t want, therefore, for it to get into any kind of trouble and create trouble for our exposure.”

Bhushan Steel is India’s third-largest secondary steel producer, with a production capacity of about two million tonnes per annum.

“If this (proposal to engage a management agency) receives the consortium lenders’ approval, then we will definitely be taking this up with the company’s board to see that we put in place such an agency,” said Bhattacharya.

She referred to an earlier instance where the company complied with lenders’ stipulations. When there was an accident in one of the company’s plants, the consortium lenders had wanted it to appoint a safety adviser and take the safety steps recommended by the adviser.

“So, even in this case, I don’t really think that the borrower will have any objections and we would like to put in place a management agency to ensure that the day-to-day transactions or operations are not interrupted,” said the SBI chief.

On Thursday, the CBI arrested Neeraj Singhal, Vice-Chairman and MD of Bhushan Steel, in connection with the Syndicate Bank bribery case. Earlier Sudhir Kumar Jain, Chairman and Managing Director of the bank, was suspended.

On August 2, the agency registered two cases against the Syndicate Bank CMD and 11 other private persons, including the CMD and directors of two private firms based in Delhi, in a bribery case, under sections of the Prevention of Corruption Act, and for criminal conspiracy.

(This article was published on August 8, 2014)

Syndicate Bank Scam : Bhushan Steel bribery case highlights need for bankruptcy law, management exit

First Biz  Jagannathan 9 AUG 2014

The NDA government is planning to change labour laws to make it easier for companies to hire labour on more flexible terms. The argument is that if companies cannot fire labour, they won’t hire either – and this fact has been demonstrated by the very slow growth in organised sector employment over the last two decades.

However, an important adjunct to more flexible labour laws is even more flexible laws on management change. If the inability to hire and fire labour is hampering jobs growth, the inability to chop and change managements is hampering corporate accountability and competence. It is, in fact, encouraging crony capitalism. The lack of a quick and effective law for management exits needlessly traps capital in the wrong businesses. This too prevents the creation of new jobs as capital is endlessly locked up in bad businesses, sometimes run by bad promoters.

It was the inability, or unwillingness, of bankers to pull the plug, and/or  change management at Kingfisher Airlines that has now left them stuck with Rs 7,000 crore of bad loans. In fact, if they had chucked Vijay Mallya out and revamped the management some time in 2010 or even 2011, they might well have not only saved Kingfisher but Mallya’s liquor empire as well. Now, banks are busy selling his collateral to recover their cash.

Exhibit Two in the argument making management change easier is the bribery case involving Bhushan Steel. In this case, a nationalised bank’s Chairman and Managing Director (Syndicate Bank’s SK Jain) is in the dock for allegedly accepting a bribe for going easy on the company’s loans. It has also led to the arrest of Bhushan’s Managing Director Neeraj Singhal.

With Rs 40,000 crore of bank loans at risk involving 51 banks, State Bank of India Chairman Arundhati Bhattacharya said yesterday (8 August) that they were looking for an agency to monitor the loan. SBI, as lead banker to Bhushan Steel, has an exposure of Rs 6,000 crore.

As yet, the loan hasn’t gone bad, and the company’s performance is said to be satisfactory. But if this is truly the case, one wonders why anyone needed to be bribed at all. Clearly, at the very least, a forensic audit is required of the company’s operations and accounts.

At this stage, the bankers can at best insist on planting their own nominee on the company’s board. It is only after the loans formally go bad and are declared non-performing assets (NPAs) that they can try and change the management.

However, this leaves too much to chance. In a market economy, the sense that something may be wrong can be a self-fulfilling proposition, and banks or regulators should have the option of making temporary changes in management when things appear to go wrong so that they can arrest any attempt to cover up wrongdoing. They can also assure investors that things are under control. The old management needs to be shown the door till it is clear that they did no wrong.

There are three reasons why we need a strong law to allow bankers (or a group of minority investors or the regulators) to appoint a new boss or independent directors in companies where public interest is at stake.

First, regardless of whether their loans are good or likely to turn problematic, banks need to have the right to make a pre-emptive strike on management before the operations actually get into a tailspin. Once a company’s operations start winding down, failure is self-propelling for credit starts drying up and the stock starts tanking. Change of management (even a temporary change) is needed to assure all lenders and shareholders that corrective steps are being taken and the operations of the company will not be affected.

Second, bankers usually have a fair idea about how a company is faring based on account statements and audit reports – and their own understanding of how the industry itself is faring. But public sector banks, with their dilatory systems and lack of accountability, are likely to be more vulnerable to bribery and hanky-panky for the simple reason that bankers have short tenures and keep getting transferred. The system of rewards and penalties for performance and non-performance is weaker in public sector banks. The Satyam Computers fraud case shows that several banks, which allegedly held the company’s non-existent cash and bank balances, had no clue that the company had very little actual cash with any of them. Either the bankers knew and kept quiet, or they were too complacent about their borrower. They were wrong. If banks had been more vigilant, the Satyam fraud could have been detected earlier and the management changed. In fact, the management had pledged so much of its own shareholding that it effectively had no shareholding control. But it still did damage.

Third, cronyism thrives primarily through its ability to influence bankers and regulators – of course, with help from politicians and bureaucrats. This calls for a clear separation of public sector banks’ reporting structures from their administrative ministry (in this case, finance). RBI governor Raghuram Rajan said the other day that the government could put all bank shakes in a separate special purpose vehicle so that bankers were insulated from political pressures to lend.

In the case of government-owned institutions, you can’t change the owner, but you can at least prevent the owner from damaging taxpayer assets.

A key measure to end crony capitalism is the enactment of a strong bankruptcy law that also enables lenders and minority shareholders to show bad managements the door.

More than an exit policy for labour, we need an exit policy for management.

Syndicate Bank scam:SBI wants external agency to run Bhushan Steel after MD's arrest

Aug 09 2014 : The Times of India (Chennai)





The State Bank of India (SBI) will push for appointing a managing agency to run Bhushan Steel after the arrest of its vice-chairman and managing director Neeraj Singal. The Central Bureau of Investigation (CBI) arrested Singal earlier this week in the Rs 50-lakh bribery scandal involving Syndicate Bank chairman S K Jain, who is also in custody.SBI has a Rs 6,000-crore exposure to Bhushan Steel, a sizeable chunk of the steelmaker's Rs 40,000-crore borrowings from Indian banks. Syndicate Bank has a Rs 100-crore exposure the steelmaker. Bhushan Steel's market cap stood at Rs 4,969 crore on Friday.
SBI officials said usually a consultancy firm or an investment bank is appointed as a managing agency to look after the day-to-day affairs of a company .
“We have talked to the consortium leader Punjab National Bank as well as other banks, including private lenders. We will try to bring in a management agency , which will look at the day-to-day running of Bhushan Steel. This is a very good quality asset, it is running properly and we don't want it getting into any kind of trouble,“ said Arundhati Bhattacharya, SBI chairman. She said that the managing agency would be like an administrator and there was no move to change the management “This is a listed company and we cannot just ask the management to go out,“ said Bhattacharya.
The SBI chairman said if approved by the consortium of lenders, the proposal would be taken to the board and that they expected the company to be conducive to it. “Earlier, when there had been an accident (at one of the company's plants), the consortium had advised appointing a safety adviser on the board, which the company did. Even in this case, I don't really think the borrower will have any objections,“ Bhattacharya said.
Bhattacharya said the SBI was not reviewing its lending to the steelmaker as the loan was a standard asset and instalments were being paid in time.
“I don't think a forensic audit is called for at this stage. If at a later date we feel it necessary , we will ask for it,“ she said.
Bhushan Steel has the country's largest cold-rolled steel plant and is a major supplier to automotive companies.

Syndicate Bank scam: CBI arrests Bhushan Steel MD Neeraj Singh

FBiz 8 Aug 2014

CBI on Thursday arrested Neeraj Singal, Vice Chairman and Managing Director of Bhushan Steel Ltd, in connection with Rs 50 lakh bribery scandal involving CMD of Syndicate Bank S K Jain.

Singal, who was allegedly evading arrest, has been nabbed from here, the agency sources said.

He had allegedly gone missing from his residence after the agency had carried out searches and did not appear on Saturday before the officials of the agency for examination.

Singal has applied for anticipatory bail application but it was rejected by Special CBI court of Swarana Kanta Sharma.

Sharma dismissed the anticipatory bail plea of Singal, observing that the offence alleged in the case was serious in nature as it involves huge amount of public money.

On August 2, CBI had arrested six accused, including the Chairman-cum-Managing Director of Syndicate Bank S K Jain, for allegedly taking bribe of Rs 50 lakh for increasing credit limit of some companies in violation of banking rules.

CBI has filed two cases against Jain -- accusing him of receiving a bribe of Rs 50 lakh through conduits and abusing his official position to enhance the credit limits of some companies in violation of laid down procedures.

"The intercepted conversation also needs to be put to the accused. An employee of applicant Neeraj Singal, who had taken the alleged bribe amount to Bhopal, is also not yet traced. The co-accused Purushotam Totlani is also absconding.

"The offence in question is serious in nature, requires custodial interrogation especially when bribe amount of Rs 50 lakh has been recovered from the possession of co-accused in consonance with the alleged intercepted conversation," the judge had said.

The court also said "accused Neeraj Singal is the Vice Chairman and MD of M/s Bhushan Steel and is thus one of the key accused and one of the key beneficiaries...." the judge said.

PTI