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Economy India

Karnataka Bank reports fraud of Rs. 40 crore

Hanung toys and Textiles Ltd was stated to be a non-performing asset and wilfully defaulting company

Sabrangindia 09 Dec 2019

FraudImage Courtesy: dailykiran.com

Last week, Karnataka Bank, reported a fraud of Rs. 40.39 crore in the credit facilities to Hanung Toys and Textiles Ltd, on account of diversion of funds, which has been declared a non-performing borrowing account, the Deccan Herald reported.

Hanung Toys and Textiles Ltd dealing with the bank since 2008 had availed various credit facilities under consortium arrangement since 2008 where Karnataka Bank was one of the member banks.

The company owes Rs. 2,300 crore to a consortium of 15 lenders led by state-own Punjab National Bank, which alone has an exposure of Rs. 599 crore.

"On the basis of forensic auditor's report submitted to the consortium, some of the member banks have reported to the Reserve Bank of India (RBI) regarding fraud in the borrowing account.

"In line with the Consortium decision, Karnataka Bank has reported to RBI a fraud amounting to Rs 40.39 crore in the credit facilities extended earlier to the borrowing account, on account of diversion of funds," Karnataka Bank said.

The bank said that Hanung Toys and Textiles had been classified as a non-performing asset (NPA) in July 2015 and had been fully provided for and as such, no negative impact on the bank's profitability at present.

Several other banks too have declared Hanung Toys and Textiles Ltd to be a wilful defaulter.

Hanung Toys and Textiles Limited

Hanung Toys is promoted by Ashok Kumar Bansal. He has been an IKEA supplier for 15 years and his company had been in the news for a hefty order worth Rs. 600 crore by the Swedish retailer in 2007.

Its toy manufacturing units are set up in the Noida Special Economic Zone (SEZ) and its production units include facilities in Roorkee, Bhiwandi and Noida set up to make toys and home furnishings.

In 2018, PNB had taken Hanung Toys and Textiles Ltd to the bankruptcy courts for unpaid loans. The PNB-led consortium of lenders had collectively loaned the amount to the toy-maker around three years ago in debt restructuring for around 1,800 crore.

In November 2019, authorities detained Ashok Kumar Bansal and his wife Anju Bansal, who were on their way back from Dubai, at the Delhi Airport following a lookout notice issued by the Punjab National Bank.

The Free Press Journal reported that a corporate debt restructuring plan crafted by the company four years ago failed to take off as Ashok Bansal, the Chairman couldn’t bring in his share of equity which stood at Rs. 82 crore which led to an increase in outstanding dues to Rs. 2,300 crore.

Wilful defaulter

In November 2019, the Reserve Bank of India (RBI) released a list of top 30 wilful defaulters in response to an RTI application filed by The Wire. The application came in four years after the Supreme Court had directed the RBI to disclose a list of wilful defaulters in India. While MehulChoksi’sGitanjali Gems stood at the top with a default amount of Rs. 5,044 crore, Hanung Toys and Textiles showed a default amount worth Rs. 949 crore.

The corporate debt restructuring (CDR) cell in 2015 had pointed out that according to data, every three cases approved for debt repair under the CDR mechanism had failed and exited the cell. In July that year, Hanung Toys and Textiles Ltd had exited the cell after failing to implement the CDR package.

The reasons for this, sources told Livemint were that failures occurred mostly due to the promoter’s inability to bring in his share of contribution apart (as was in the case of Ashok Bansal) from the company’s inability to meet business projections.

Karnataka Bank fraud list

Apart from the recent fraud reported by the bank in the case of wilful defaulting by Hanung Toys and Textiles Ltd, the bank in November had reported a fraud of Rs. 13.36 crore on account of diversion of funds, in the working capital facility extended to SRS Finance Ltd.

In 2018, it had reported a fraud totaling Rs. 86.47 crore in loans extended under consortium agreements to MehulChoksi’sGitanjali Gems. In a BSE filing it said, “The bank has reported a fraud to Reserve Bank of India amounting to Rs86.47 crore in the fund based working capital facilities extended to Gitanjali Gems Limited on account of non-realization of exports bills and diversion of funds.”

This year, the RBI had slapped a fine of Rs. 4 crore on the bank for violating regulatory norms. The charge was levied due to the failure of the bank with regards to the delay in implementation of four of the Swift related operational controls.

In July this year, the bank launched a web tool named VASOOL SO-Ft (VASOOL SO FAST) to digitalise the NPA recovery process.

The bank has reported a 5.3 percent year-on-year decline in its net profit at Rs. 105.91 crore for the quarter that ended in Sept 30, 2019. Even with the regulatory disclosures on bad loans, the bank was working to keep its NPAs below five percent. CEO & MD MAhabalaeshwara MS had told Business Standard last year, "There was actually no pain in the sense that we have exposure to some corporates through the consortium. With the change in NPA recognition norm, we had to recognise a few of those accounts as NPA because of default by these groups on loans from other banks. We took this opportunity to clean up our balance sheet and make adequate provisions.”

This year, the percentage of its NPAs rose to 4.78 percent against 4.66 percent in the same quarter last year, with values standing at Rs. 2,594.27 crore this year against Rs. 2,371.62 crore last year.

NPAs haunting Indian banks

In response to an RTI application filed by CNN-News 18, the Indian banking system, in the past three years has lost Rs. 1.76 lakh crore for writing off non-performing loans to 525 defaulters, with each of the defaulters owing Rs. 100 crore or more.

The responses to the RTI showed that there had been a constant increase in the amount written off by commercial banks since 2014 – 15 with the sharpest upsurge in 2017 and 2018, post demonetization.

In 2015, loans to the tune of Rs. 40,798 crore were written off. This number increased to Rs. 69,976 crore in 2016, Rs. 127,797 crore in 2017 and Rs. 217,121 lakh crore in 2018.

Newsclick reports that the write-offs are in accordance with an RBI directive that had asked the scheduled commercial banks to come clear on the amount to be written off and set the accounts straight. These write offs simply meant the uncollectible debt.

The State Bank of India (SBI) had written off the highest amounts of such bad loans, followed by PNB, IDBI, Bank of India, Corporation Bank, Bank of Baroda, Central Bank of India, Axis Bank and ICICI Bank.

After the Punjab and Maharashtra Cooperative Bank (PMC) Bank scam worth over Rs. 6,000 crore rocked the country, political interference has emerged as one of the main obstructions in clearing up sheets and restoring the health of banks. Though the RBI has taken steps in the right direction – taking wilful defaulters to insolvency courts, will it actually be able to pull up big ticket defaulters like Hanung Toys or Gitanjali Gems by staying autonomous and out of the unholy nexus between the government and the corporates?

Related:

Banks merger 'reflects' Modi's pro-corporate slant: Public sector units deserve to die

Liquidity crisis in India’s shadow banking sector is a wake-up call for government and regulators

Top 12 Corporate NPAs Cost Exchequer Twice As Much As Farm Loan Waivers

RBI denies social media rumours about closure of 9 commercial banks

Karnataka Bank reports fraud of Rs. 40 crore

Hanung toys and Textiles Ltd was stated to be a non-performing asset and wilfully defaulting company

FraudImage Courtesy: dailykiran.com

Last week, Karnataka Bank, reported a fraud of Rs. 40.39 crore in the credit facilities to Hanung Toys and Textiles Ltd, on account of diversion of funds, which has been declared a non-performing borrowing account, the Deccan Herald reported.

Hanung Toys and Textiles Ltd dealing with the bank since 2008 had availed various credit facilities under consortium arrangement since 2008 where Karnataka Bank was one of the member banks.

The company owes Rs. 2,300 crore to a consortium of 15 lenders led by state-own Punjab National Bank, which alone has an exposure of Rs. 599 crore.

"On the basis of forensic auditor's report submitted to the consortium, some of the member banks have reported to the Reserve Bank of India (RBI) regarding fraud in the borrowing account.

"In line with the Consortium decision, Karnataka Bank has reported to RBI a fraud amounting to Rs 40.39 crore in the credit facilities extended earlier to the borrowing account, on account of diversion of funds," Karnataka Bank said.

The bank said that Hanung Toys and Textiles had been classified as a non-performing asset (NPA) in July 2015 and had been fully provided for and as such, no negative impact on the bank's profitability at present.

Several other banks too have declared Hanung Toys and Textiles Ltd to be a wilful defaulter.

Hanung Toys and Textiles Limited

Hanung Toys is promoted by Ashok Kumar Bansal. He has been an IKEA supplier for 15 years and his company had been in the news for a hefty order worth Rs. 600 crore by the Swedish retailer in 2007.

Its toy manufacturing units are set up in the Noida Special Economic Zone (SEZ) and its production units include facilities in Roorkee, Bhiwandi and Noida set up to make toys and home furnishings.

In 2018, PNB had taken Hanung Toys and Textiles Ltd to the bankruptcy courts for unpaid loans. The PNB-led consortium of lenders had collectively loaned the amount to the toy-maker around three years ago in debt restructuring for around 1,800 crore.

In November 2019, authorities detained Ashok Kumar Bansal and his wife Anju Bansal, who were on their way back from Dubai, at the Delhi Airport following a lookout notice issued by the Punjab National Bank.

The Free Press Journal reported that a corporate debt restructuring plan crafted by the company four years ago failed to take off as Ashok Bansal, the Chairman couldn’t bring in his share of equity which stood at Rs. 82 crore which led to an increase in outstanding dues to Rs. 2,300 crore.

Wilful defaulter

In November 2019, the Reserve Bank of India (RBI) released a list of top 30 wilful defaulters in response to an RTI application filed by The Wire. The application came in four years after the Supreme Court had directed the RBI to disclose a list of wilful defaulters in India. While MehulChoksi’sGitanjali Gems stood at the top with a default amount of Rs. 5,044 crore, Hanung Toys and Textiles showed a default amount worth Rs. 949 crore.

The corporate debt restructuring (CDR) cell in 2015 had pointed out that according to data, every three cases approved for debt repair under the CDR mechanism had failed and exited the cell. In July that year, Hanung Toys and Textiles Ltd had exited the cell after failing to implement the CDR package.

The reasons for this, sources told Livemint were that failures occurred mostly due to the promoter’s inability to bring in his share of contribution apart (as was in the case of Ashok Bansal) from the company’s inability to meet business projections.

Karnataka Bank fraud list

Apart from the recent fraud reported by the bank in the case of wilful defaulting by Hanung Toys and Textiles Ltd, the bank in November had reported a fraud of Rs. 13.36 crore on account of diversion of funds, in the working capital facility extended to SRS Finance Ltd.

In 2018, it had reported a fraud totaling Rs. 86.47 crore in loans extended under consortium agreements to MehulChoksi’sGitanjali Gems. In a BSE filing it said, “The bank has reported a fraud to Reserve Bank of India amounting to Rs86.47 crore in the fund based working capital facilities extended to Gitanjali Gems Limited on account of non-realization of exports bills and diversion of funds.”

This year, the RBI had slapped a fine of Rs. 4 crore on the bank for violating regulatory norms. The charge was levied due to the failure of the bank with regards to the delay in implementation of four of the Swift related operational controls.

In July this year, the bank launched a web tool named VASOOL SO-Ft (VASOOL SO FAST) to digitalise the NPA recovery process.

The bank has reported a 5.3 percent year-on-year decline in its net profit at Rs. 105.91 crore for the quarter that ended in Sept 30, 2019. Even with the regulatory disclosures on bad loans, the bank was working to keep its NPAs below five percent. CEO & MD MAhabalaeshwara MS had told Business Standard last year, "There was actually no pain in the sense that we have exposure to some corporates through the consortium. With the change in NPA recognition norm, we had to recognise a few of those accounts as NPA because of default by these groups on loans from other banks. We took this opportunity to clean up our balance sheet and make adequate provisions.”

This year, the percentage of its NPAs rose to 4.78 percent against 4.66 percent in the same quarter last year, with values standing at Rs. 2,594.27 crore this year against Rs. 2,371.62 crore last year.

NPAs haunting Indian banks

In response to an RTI application filed by CNN-News 18, the Indian banking system, in the past three years has lost Rs. 1.76 lakh crore for writing off non-performing loans to 525 defaulters, with each of the defaulters owing Rs. 100 crore or more.

The responses to the RTI showed that there had been a constant increase in the amount written off by commercial banks since 2014 – 15 with the sharpest upsurge in 2017 and 2018, post demonetization.

In 2015, loans to the tune of Rs. 40,798 crore were written off. This number increased to Rs. 69,976 crore in 2016, Rs. 127,797 crore in 2017 and Rs. 217,121 lakh crore in 2018.

Newsclick reports that the write-offs are in accordance with an RBI directive that had asked the scheduled commercial banks to come clear on the amount to be written off and set the accounts straight. These write offs simply meant the uncollectible debt.

The State Bank of India (SBI) had written off the highest amounts of such bad loans, followed by PNB, IDBI, Bank of India, Corporation Bank, Bank of Baroda, Central Bank of India, Axis Bank and ICICI Bank.

After the Punjab and Maharashtra Cooperative Bank (PMC) Bank scam worth over Rs. 6,000 crore rocked the country, political interference has emerged as one of the main obstructions in clearing up sheets and restoring the health of banks. Though the RBI has taken steps in the right direction – taking wilful defaulters to insolvency courts, will it actually be able to pull up big ticket defaulters like Hanung Toys or Gitanjali Gems by staying autonomous and out of the unholy nexus between the government and the corporates?

Related:

Banks merger 'reflects' Modi's pro-corporate slant: Public sector units deserve to die

Liquidity crisis in India’s shadow banking sector is a wake-up call for government and regulators

Top 12 Corporate NPAs Cost Exchequer Twice As Much As Farm Loan Waivers

RBI denies social media rumours about closure of 9 commercial banks

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