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ABG Shipyard slips as banks classify its account as NPA, consider selling assets

ABG’s revenue slumped to Rs 30.4 crore in the December 2014 quarter, from Rs 1,595 crore in the full fiscal year of 2013-14, regulatory filings show.

May 15, 2015, 04.36 PM IST
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ABG’s revenue slumped to Rs 30.4 crore in the December 2014 quarter, from Rs 1,595 crore in the full fiscal year of 2013-14, regulatory filings show.
ABG’s revenue slumped to Rs 30.4 crore in the December 2014 quarter, from Rs 1,595 crore in the full fiscal year of 2013-14, regulatory filings show.
MUMBAI: ABG Shipyard, a shipbuilder which had its Rs 11,000 crore loans restructured in 2014 due to stress in business, has missed payments to some banks which have classified the account as bad loan, putting pressure on the banking system to follow suit, three people familiar with the matter said.

The stock slipped over 3% intraday in trade, and ended the day at Rs 178.55; up 1.90%.

The company, which managed to win an easier term to repay loans such as elongation of tenure and reduction of interest charges, failed to meet even the liberal norms set by the 22 lenders, including State Bank of India, Bank of India, Canara Bank, Standard Chartered Bank, IDBI Bank, through the so-called CDR programme, said those people who did not want to be identified.

ABG Shipyard slips as banks classify its account as NPA, consider selling assets

“I must say, delays are part of the business cycle, especially in the current economic framework,” said Dhananjay Datar, executive director, ABG Shipyard in an email to ET’s queries. “However, I must tell you, we have the full backing of banks and institutions. The government has understood the importance of shipbuilding industry for economic growth, employment and self-reliance in defence.”

Banks, which are under pressure from both the regulator as well as investors to reduce their bad loans and be vigilant with corporates, are contemplating sale of assets of the company, though they are yet to identify the assets, said those people.

“We have classified it as a bad loan and have started providing for it since last quarter,” said a banker who did not want to be identified. “We have to begin selling assets, but the worry is how much of it can be sold and where to find the buyers.”

ABG’s revenue slumped to Rs 30.4 crore in the December 2014 quarter, from Rs 1,595 crore in the full fiscal year of 2013-14, regulatory filings show. Its December quarter widened to Rs 294 crore, from the previous fiscal year’s loss of Rs 199 crore.

Loan restructuring, which was a popular practice among banks and defaulters to sweep under the carpet, is coming back to haunt the system as many of the businesses which got easier terms were basically unviable. Sensing the abuse of the practice the Reserve Bank of India ended the indiscriminate restructuring beginning last month.

As much as 40 per cent of loans restructured between 2011 and 2014 have turned bad forcing banks to provide for such loans, said Crisil, the local unit of rating company Standard & Poor’s. The rating company forecasts that banks’ gross bad loans may rise another 20 basis points to 4.5 per cent of total loans, or Rs 60,000 crore, to Rs 4 lakh crore. A basis point is 0.01 percentage point. Even the central bank believes that the worst is not over yet.

“Some banks have managed to start bringing down their bad loan positions; others are still increasing,” RBI governor Raghuram Rajan was reported by Reuters as saying in Goa on Thursday. “I think I would feel more confident when there is a more uniform series of results across the banks. That is not to say we haven't crossed that point. It is just that I don't think we can be certain.”

DCB Bank, a small bank which is not a member of the corporate debt restructuring cell has classified its exposure of Rs 65 crore to ABG as bad. So is the case with ICICI Bank which has significant exposure to the firm. Others including Bank of Baroda might have also classified it as bad, said two of the three quoted above.

Although the loans have been classified as non-performing, it is not that all is lost for the banking system unlike other cases such as Kingfisher Airlines where the banks were left with little assets to sell and ecover the Rs 7,000 crore of loans. Even in cases where there have been guarantees, banks are stuck in litigation.

Indeed, ABG Shipyard forwarded to ET an opinion from its financial advisor SBI Capital Markets on the state of the company’s health. “The company has been endeavouring to run its operations smoothly in spite of challenges being faced by the industry,” says a letter from SBI Capital dated May 8.

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