Altico default crisis: SBI chief’s remarks miss the point

S Murlidharan    

State Bank of India Chairman Rajnish Kumar has blamed a “selfish" private bank for the payment crisis at realty-focussed Altico Capital India.

According to Kumar, the private bank’s unilateral move to secure its own money can potentially cause troubles to the wider financial system.

Briefly, the facts may be presented as follows. On September 12, Altico defaulted on Rs 19.97 crore of interest payment on an external commercial borrowing (ECB) of Rs 340 crore from UAE-based Mashreq Bank. The default triggered a rating downgrade by credit rating agencies.

Sensing trouble ahead, HDFC Bank, which too had an exposure of about Rs 260 crore to Altico, tried to save its skin by netting the fixed deposit of Rs 220 crore Altico had placed with it. Through such nimble-footedness, HDFC Bank’s potential loss is only Rs 40 crore insofar as the Altico loan account is concerned.

Altico is understandably peeved with this “netting” of deposits against loan and is seeking advice on how to proceed against HDFC Bank.  What is however not understandable is SBI chief’s outbursts against the private bank – “If any bank makes a selfish move, it can have a negative impact on the rest of the system”.

Vigilant and timely action is not a selfish act. To pull your chestnut out of fire is not a bad act at all. Does Kumar expect HDFC Bank to twiddle its thumbs and sit helplessly even as it has recourse to fixed deposits right under its nose?

Maybe, Altico had not agreed to making the FD receipts collateral to the loan of Rs 260 crore. Maybe, Altico had violated the (ECB) rules by putting the ECB money in fixed deposit when the rules required a realty financier to use the proceeds strictly for onlending.

But neither of the two arguments came in the way of HDFC Bank guarding its flanks. For ECB violations, Altico is answerable to the finance ministry, which regulates the matter. HDFC is not cast in the role of a whistleblower as to hand over Altico to the authorities when it opened the fixed deposits with the lender.  In any case, no bank asks a depositor to explain the source of funds.

In the US, it is normal for any bank to ask the borrower to maintain a compensatory balance with it while sanctioning loans. What happened between HDFC Bank and Altico with regard to the fixed deposit was in effect a compensatory balance albeit through happenstance or serendipity rather than by design.

The SBI chief expects HDFC Bank to philosophically and altruistically join the other lenders to Altico in the NPA queue in a spirit of self-abnegation.

SBI has been guilty of allowing grass to grow under its feet on many an occasion.  It is still nursing a lion’s share of the grounded Kingfisher Airlines’ (KFA) NPA of a whopping Rs 10,000 crore and more, a substantial part of which could have been avoided had it been vigilant. Instead, it kept on pouring good money after bad, maybe under duress, as eloquently described by Prime Minister Narendra Modi as “phone banking”.

SBI also committed hara kiri by settling for shares of KFA for a portion of the outstandings when its shares should not have been touched even with a barge pole, what with KFA’s fortunes steadily slipping down the hill.  Ditto for its inept handling of Jet Airways loans of about the same order.

No sir, no. Don’t make a virtue of passivity and self-flagellation.   Instead, pay fulsome praise to HDFC Bank for cutting its potential losses.

S Murlidharan is a chartered accountant and columnist. Views are personal.