The curious case of the renewal of loans at Lakshmi Vilas bank

Skeletons began to emerge from the closet of the 94-year-old Lakshmi Vilas Bank after the Reserve Bank of India imposed a moratorium on the southern-based bank and also launched a merger proposal with the DBS-based bank. in Singapore in India.

Sources reveal that the private bank has an exposure of Rs 90 crore in one of the loan accounts of the loss-making company based in Pune Bilcare Ltd. This loan was converted into a zero coupon non-convertible debenture (NCD) by the bank without repayment. planned for the first five years.

They cite it as a 94-year bank renewal case to avoid the hassle of NPA classification in this pharmaceutical packaging solutions company.

In the banking industry, renewal is a practice of offering more loans to a struggling business to repay the previous loan.

Bilcare has been recording losses for many years. In 2019-2020, the company achieved revenue of Rs 1,923 crore with losses of Rs 99 crore. A year ago the revenue was Rs 3,057 crore and losses of Rs 453 crore.

The story goes like this: The bank granted a loan facility of Rs 25 crore to Bilcare under the tenure of Managing Director and CEO RR Somasundaram in 2011. This company promoted by first generation entrepreneur Mohan Bhandari was doing quite well with it. international operations. He had income of Rs 2,200 crore and profits of Rs 149 crore in 2010-11. But the company quickly had to deal with difficult weather conditions. Its income plunged 13% to Rs 3,076 crore with net losses of Rs 113 crore in 2013-14. Bilcare has contacted many of its existing banks for loan restructuring.

Sources reveal that Lakshmi Vilas Bank was generous enough to sign another check for Rs 65 crore. However, this loan was not granted directly to the company but to one of its subsidiaries based in Mauritius. The company had three subsidiaries in Mauritius: Bilcare Mauritius Ltd, Bilcare International and Bilcare Packaging Ltd. The bank was then managed by KSR Anjaneyulu, when this foreign loan was granted to the subsidiary Bilcare. Anjaneyulu, an executive director, previously served as managing director and interim CEO in 2010 when VS Reddy stepped down in January 2010.

It is not known whether this money was used by Bilcare to avoid an isolated default at another bank or for other purposes. A forensic audit would reveal the exact nature of the use of the funds.

At the end of 2017, the Rs 90 crore-plus Bilcare loan facility started to create problems for Lakshmi Vilas bank. There was also a new managing director and CEO, Parthasarathi Mukherjee, a former head of Axis Bank, who took over in January 2016. The lending facility quickly fell under the bank’s watchlist for possible contingencies. Postcode. In fact, the Bilcare loan facility slipped to NPAs in the fourth quarter of 2017-18. The bank was already close to its neck in NPAs when new accounts like Bilcare slipped.

It was then that the management of Bilcare asked the bank to convert the loan into NCD. Surprisingly, the bank agreed to convert the entire Rs 90 crore-plus loan facility into zero coupon CRS.

Has the bank made any provisions for this loan conversion? How could the bank accept a zero coupon NCD without a change in the outstanding loan amount? The five-year payback leave is also questionable.

Lakshmi Vilas Bank declined to comment on the loan conversion as the bank is under the responsibility of the administrator. “We will not be able to comment,” said the bank. Requests sent to Bilcare did not elicit a response until the story was filed.

Bilcare’s balance sheet for 2019-20 reflects zero coupon NCDs. He had listed an amount of Rs 50 crore-plus. The balance sheet specifies that the amount is to be repaid in three annual installments from March 2024. It also adds that the administrators have issued personal guarantees for these loans.

Obviously, the skeletons started to fall from the closet of Lakshmi Vilas Bank. There could be many more loan accounts of this type having been renewed by the bank.

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