MC Exclusive | Empty ATMs, statutory defaults, and deep rating downgrades: AGS Transact faces a crisis

ATM

A few days ago, images of ICICI Bank’s ATMs not stocking enough cash in some places went viral.

The ATMs went dry as employees of AGS Transact Technologies refused to stock them up, as a protest against non-payment of salaries for months.

Promoted by Ravi Goyal, who holds a 60.5 percent stake, AGS Transact is among India’s largest players in the cash management space. Despite a 15 percent market share in the cash management business, it is now at the brink of collapse, according to people familiar with the matter.

Lenders are expected to classify the company as a non-performing asset (NPA). If that were to happen, AGS Transact faces the threat of insolvency.  About 10 percent of Goyal's holdings in the company is pledged with lenders.

Threat to solvency 

Clients of AGS Transact say liquidity issues have been persisting for almost a year.

“We would often receive complaints from customers that some ATMs don’t have cash any time during the week. When we started assessing the situation, we realised that these ATMs were not being replenished at all, although we would have given instructions to AGS Transact for refilling the ATMs. Increasingly, it started becoming a pattern and we found this problem mostly with ATMs serviced by AGS Transact,” said a banker who didn’t want to be named.

Industry sources estimate that nearly Rs 1,000 - 1,500 crore of cash inventory may be at risk as this money has not been filled into the ATMs. This claim has not been independently verified by Moneycontrol.

What started as a local issue soon began to spread across banks.

“It was around December that defaults started increasing significantly,” said a senior executive with another private bank.

At this juncture, banks decided to report the issue to the Reserve Bank of India (RBI). According to Crisil’s rating report, AGS Transact had a network of around 3,800 ATMs and cash recycler machines (CRMs) under its ATM outsourcing and managed services business as on March 31, 2024.

The cash management business is housed in its wholly owned subsidiary called Securevalue India Limited. The company’s marque client base includes ICICI Bank, Axis Bank, HDFC Bank and State Bank of India.

The people cited say that when most banks serviced by AGS Transact faced increasing cases of empty ATMs, banks decided to take it up with the RBI . “The RBI is very much aware of the issue and it was important for us to escalate it to the regulator because we cannot migrate to another service provider without intimating the reasons for the same,” said a bank executive.

Now, most banks are not handing over cash to ASG Transact.

What led to the crisis

“The liquidity of AGS Transact was hugely impacted by a stretch in its receivable days caused by the holdback of payments by its customers due to non-payment of statutory dues and non-adherence to service level agreements (SLAs). According to the management, the company intends to aid liquidity by improving its collection cycle and fund infusion by the ultimate promoter through the issuance of share warrants,” India Ratings noted in its credit rating report dated February 4.

Crisil, which downgraded the company on February 3, said that despite repeated follow-ups with AGS for more details, it did not receive any on the deficiencies in meeting the company's SLAs. “Crisil Ratings believes that the company's liquidity has sharply deteriorated over the past 2-3 months, owing to the delay in receivables”.

According to industry sources, Stanley Johnson, executive director of the company, resigned in November last year. “The company has duly disclosed the necessary information to the exchanges (NSE and BSE). We remain committed to keeping the exchanges and investors informed of any further statutory developments,” a spokesperson for AGS Transact replied over an email. Text message sent to Johnson seeking confirmation of his resignation remained unanswered till the time of publishing this report.

AGS Transact has also delayed statutory dues, such as provident fund contribution and has not paid salaries on time to its employees. Further, the GST registration of ASG Transact and its subsidiary (Securevalue India Limited) has been revoked for non-filing of returns.
On February 10, AGS Transact acknowledged these irregularities in a stock exchange filing.

Ratings downgrade

India Rating has downgraded the long-term term loans worth Rs 567 crore and Rs 193.8 crore of working capital bank loans (mix of long and short-term facilities) while Crisil has downgraded bank loan facilities worth Rs 900 crore.

As per the ratings reports, Investec Bank Plc UK, State Bank of India, IDFC First Bank, Aditya Birla Finance, IndusInd Bank and Bandhan Bank have exposure to the company’s term loans. HDFC Bank, Federal Bank and Bajaj Finance and Dhanlaxmi Bank, to name a few, have exposure to working capital facility.

According to the September FY25 quarter investor presentation, the total liabilities (long-term debt and current liabilities) of AGS Transact stood at Rs 1,550 crore. AGS Transact is expected to publish its results for the December FY25 quarter today (February 14) . With room to restructuring loans almost negligible, lenders will soon decide if they would want to invoke insolvency proceedings against the company to recover their dues.

“Once we have a better handle of the company’s financials, we will take the decision,” said a banker who spoke to Moneycontrol on conditions of anonymity.