Bhushan Steel remains a 'standard asset': United Bank

Deepak Narang, ED, United Bank of India said the bank will get the forensic audit done on Bhushan Steel and would monitor the account after the Syndicate Bank bribes-for-loan scam has came to light.Narang confirmed that United Bank is part of the consortium of lenders to Bhushan Steel but is not a part of any additional lending to the company. The company remains a ‘standard asset’ for the bank.The consortium of banks led by PNB said auditors will monitor the company’s cashflow on a daily basis and a forensic audit will be conducted. In addition to the appointment of auditors, the consortium also decided to appoint lenders independent engineer to monitor the operations of the company as well as Bhushan Steel projects that are under ramp up.According to Narang three banks would have nominees on the Bhushan Steel board. However, Bhushan Steel management is intact and bankers have confidence in the company, he said.Commenting on the bank’s performance going forward, Narang said they would be targeting for gross non-performing asset (NPA) at 9-9.25% by March 2015.Below is the transcript of Deepak Narang\\'s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Ekta: Starting with the Bhushan Steel issue, can you tell us if you were a part of the consortium meeting that took place yesterday and what led the lenders to decide to take the following step such as conducting a forensic audit as well as appointing audit firms etc?A: We are a part of the consortium. I attended meeting yesterday and the Punjab National Bank (PNB) gave a press release. You are right we need to monitor this account only thing is that all bankers had confidence and had lent so much of money. We will get the forensic audit done then have concurrent auditor who would look into that and three banks would have their nominee on the board. It is only to keep things under control and to have a watch on that. Company has given a presentation and all their technical staff and all their qualified personnels are in place; they are doing the work and projects are going on. So there is not much of a worry except that we need to have some safeguards.

Anuj: What is interesting is that reports this morning indicate that additional Rs 6,900 crore loan was sanctioned to Bhushan Steel which is under the lens right now? Was United Bank part of this additional lending and what is the update on it?A: We are not a part of this lending. As Reserve Bank of India (RBI) has put a restriction on our lending to big corporates other than AAA, we are not a part of this lending. However for other banks yes – the requirement was assessed and they are running short of working capital and they said that unless they are given Rs 500 crore, they cannot ramp up their capacity. Additional phase III production has started, so they need additional funds. So, banks should support otherwise liquidity problem would lead to insolvency and bankers have to take care of that and provide sufficient funds for them to ramp up their capacities. And they should reach around 75 percent capacity utilisation to have positive EBITDA that is the concern.Ekta: You have touched upon working capital loans, so are the consortium of lenders as well as United Bank sanctioning working capital loans to Bhushan Steel?A: United Bank, since we have our own constraints, we are not doing it but all lenders would be taking a call on that. It is a part of cap, which is mandatory as per RBI; once a cap takes the decision that certain steps for corrective action has to be taken. So all banks need to do that and granting additional limit is a part of cap. So all banks will have to take a call and go to their board and get the sanctions.Anuj: By when will we have details on the forensic audit of the bank?A: I think there is a committee, which would look into that and they would appoint a forensic auditor following due process of whatever is required as per guidelines. The standing committee has been authorised to look into that and they would take a call on that because standing committee is a committee of small bankers which will take decision.

Ekta: One of the issues that I wanted to touch upon was that reports indicated that United Bank was one of the lenders that was opposed to roping in an external management agency to run operations for Bhushan Steel, something that State Bank of India (SBI) had suggested earlier, what led the consortium to decide against it yesterday?A: We never opposed that. I think there is some misreporting. We opposed what SBI Chairman said of appointing a management agency. These decisions have to be taken in the consortium and standing committee has to look into that. When I attended yesterday, all the bankers said that they had confidence in the company because all the people are there and no one has left; there is no attrition, the technical and qualified people are still there and they gave us a presentation.So bankers have confidence and the bankers lent them about Rs 45 crore. Only Neeraj Singhal is not there and the company said that he may come back in about 8-9 days. So the management is still intact.However, to safeguard our interest, banks have decided to have three directors on the board depending upon what regulations permit.

_PAGEBREAK_Anuj: Was it decided that at the future date, if certain parameters are not met, the consortium will rope in a management agency or that wasn’t the case?A: No, this issue was not discussed.Anuj: How much exposure do you have to Bhushan Steel and is it still categorized as a standard asset?A: It is a standard asset with us.Ekta: Can you give us an update on Kingfisher, what is the progress on United Bank declaring Kingfisher Airlines (KFA) as a wilful defaulter?A: The case is stuck before division bench in Kolkata High Court, it was not heard yesterday. So, let us hope that it is heard by the division bench and the moment we get a decision, we will take a step. The kingfisher people have to come and present before Grievance Redressal Committee, for us we have identified them but they have to be given hearing so we are waiting for that.Ekta: We are now hearing of other banks such as IDBI Bank that want to qualify KFA as a wilful defaulter, have you had dialogue with other consortium lenders or a few of those on the same?A: No, we have not. We are taking our own call on wilful defaulters and we have identified reasons for declaring Kingfisher as a wilful defaulter. For some small lending outside consortium and other issues because of which we want to declare them as a wilful defaulter.Ekta: Any recovery that the consortium has seen on the Kingfisher loans maybe via real estate monetization that was something that was spoken about and on the cards?A: Nothing so far. I think another recovery may come because of sale of shares which may happen. State Bank of India (SBI) is looking into that.Anuj: Can you tell us about the sale of shares and which company is in your mind right now?A: SREI had some shares and from the sale, extra money around Rs 650 crore which has come that is lying and that has to be distributed among the consortium members.Anuj: How much will the bank receive from it?A: Rs 40-44 crore we can get out of that.Anuj: IDBI Bank has clarified that they are not looking for a merger with United Bank but have talks resurfaced for that because that is something that was discussed in papers as well, any possibility of a merger?A: No, we have not heard anything of that sort. In fact, merger consolidation is on the agenda of government. So as and when it happens, all small banks would get merged.I feel that consolidation is good.Synergy should be there from consolidation. Technologically, they should be on the same platform; geographical spread should be there, besides that Pan India presence is seen but there are issues, it cannot happen so soon. There are issues which have to be sorted out before merger takes place.Ekta: Any specific talks with any specific bank as of now?A: Nothing of that sort.Ekta: What is your guidance on gross non-performing assets (NPAs), it was still at 10 percent for the quarter gone by, when can we see it slip below 10 percent?A: We are targeting around 9-9.25 percent by March 2015 because percentage terms since my credit has gone down, so percentage has not seen reduction but otherwise NPAs have come down. We do expect that if we achieve a growth of Rs 72,000 crore of credit in March 2015 and NPA come down to 6,600 or even below that we are targeting, so we should come to 9.25 or so.