Financial Blog

India Inc goes slow on overseas loans

Indian companies have raised $3.5 billion from overseas till date this calendar year, less than half of $7.2 billion they raised in the March quarter last year. The drastic fall in overseas loans suggests that Indian companies are not planning to increase capital expenditure anytime soon.

Experts said the decline in overseas loans is mainly because many Indian companies have burnt their fingers by borrowing foreign currency loans without taking forward cover for protection from forex volatility.

After getting badly hit, the charm of forex loans for India Inc has come down significantly and not many CFOs are now thinking of tapping overseas markets, said Prabal Banerjee, president of the Bajaj Group.

Besides, the credit default swap of Indian companies has gone up substantially, deteriorating their credit quality. This is making forex lenders reluctant. Another reason is that the condition of overseas lenders has turned so bad that they hardly have any appetite for exposure. They have very limited balance sheet strength to lend to corporates, particularly in the emerging markets. All the banks - American, European and Chinese - are now in the same rocky boat, Banerjee said.

This situation will continue and we will find that overseas loans to India Inc will come down further in the coming quarters, he added. This, however, will not impact well-rated companies like Reliance and ICICI Bank. RIL refinanced an earlier loan of $1 billion this week while ICICI Bank raised $750 million from its Gulf-based branch.

Why only Mallya? Over 5000 wilful defaulters owe Rs 50000 cr to banks

An electrician puts lights on the logo of State Bank of India at its main branch in Mumbai, India. The money that wilful defaulters owe Indian banks has grown nine-fold over 13 years.

Bangalore: Liquor baron Vijay Mallya (60) and his Rs 7,000-crore default occupy headlines, but there are 5,275 other wilful defaulterstogether, they owe Indias banks Rs 56,521 crore ($8.56 billion), according to the Credit Information Bureau (India) Ltd, or CIBIL, a company set up by banks to collect defaulter information.

The money that wilful defaulters owe Indian banks has grown nine-fold over 13 years, and is more than 1.5 times the central governments allocation for agriculture and farmer welfare (Rs 35,984 crore) in Union Budget 2016-17, according to an IndiaSpend analysis of CIBIL data.

Banks declare borrowers to be wilful defaulters when they deliberately do not repay loans, despite the ability to do so. Many defaults may not be wilful, caused as they may be by adverse economic conditions. Mallyas now-defunct Kingfisher Airlines is fourth on CIBILs listavailable with IndiaSpendof wilful defaulters.

Working Group on rehabilitation of sick SMEs

The Reserve Bank of India had constituted a Working Group on rehabilitation of sick SMEs, under the Chairmanship of Dr. K. C. Chakrabarty, the then Chairman Managing Director, Punjab National Bank, to look into the problems faced by new as well as sick SMEs and suggest remedial measures. The Working Group submitted its Report in the year 2008.

The recommendations of the Working Group, inter-alia, include (i) lending in case of all advances upto Rs. 2 crore to be done on the basis of scoring model; (ii) the applications forms to be so designed that all documents required to be executed by the borrower on sanction of the loan form its part; (iii) simplified application cum sanction form be introduced in case of all micro enterprises for loans upto Rs. 1 crore and working capital under Nayak Committee norms; (iv) banks who have sanctioned term loan singly or jointly must also sanction Working Capital limit singly (or jointly), to avoid delay in commencement of commercial production; (v) introduce Centralised Credit Processing Cell; (vi) banks to focus on opening more specialised micro, small and medium enterprise branches; (vii) banks to consider introduction of Factoring Services, particularly for MSMEs (viii) new definition of sick small enterprise to remove the delay and (ix) timely identification and treatment of sickness in MSME sector.

The RBI issued guidelines to all Scheduled Commercial Banks on May 4, 2009 advising them to consider, for speedy implementation, the recommendations made by the Working Group with regard to timely and adequate flow of credit to the MSE sector. Ministry of MSME has notified a Framework for Revival and Rehabilitation of MSMEs vide a Gazette Notification dated 29.05.2015 for the purpose of facilitating the promotion and development of MSMEs. Under this framework, any enterprise can seek revival and rehabilitation benefit through a Committee constituted by the banks which comprises representative of State Government, experts, regional or zonal head of the bank and the officer in charge of MSMEs credit department of the bank.

This information was given by the Minister of State, Micro, Small and Medium Enterprises, Shri Giriraj Singh in a written reply to a question in Rajya Sabha here today.

Rs 4k-cr entry bar for pvt firms building weaponry as 'strategic partners'

A ministry of defence (MoD) task force, under the leadership of former Defence RD Organisation (DRDO) chief, V K Aatre has recommended stiff guidelines for selecting private sector companies as strategic partners for building high-technology, complex systems for the military.

The report was submitted to the MoD last week, but has not yet been publicly released. The Business Standard has reviewed a copy of the report

The Aatre Task Force (hereafter, Task Force) has laid down two sets of eligibility criteria for evaluating prospective strategic partners. A financial gate will ensure a company has deep pockets to support its equipment for the duration of its service life, which is often decades long; and a technical gate, which requires applicants to be capable of building systems with multiple technologies.

The financial gate will exclude all but very large companies. A strategic partner must have a consolidated turnover of at least Rs 4,000 crore for each of the last three financial years; and capital assets of Rs 2,000 crore. The company should have grown at minimum 5 per cent for at least three of the preceding five years. Finally, its credit rating must be equivalent to at least CRISIL/ICRA A (stable).

The Task Force was set up after a MoD expert committee, under Dhirendra Singh, recommended that one be constituted to lay down criteria for selecting one private strategic partner for each of six strategic segments. These were: aircraft/helicopters, warships/submarines, armoured vehicles, missiles, command control systems, and critical materials.

However, the Task Force has rearranged these into two groups. Group I has seven segments that include aircraft; helicopters; aero engines; submarines; warships; guns and artillery; and armoured vehicles. The Task Force recommends that just one strategic partner be chosen for each segment.

For the three segments in Group II - metallic material and alloys; non-metallic materials; and ammunition, including smart munitions - the Task Force recommends two strategic partners for each.

The financial requirements for Group II are less stringent than for Group I, since integration of systems is not needed for developing materials and ammunition. The Task Force stipulates that strategic partners must be an engineering and/or a process technology company. The financial gate is Rs 500 crore turnover for each of the last three financial years; and capital assets worth Rs 100 crore.

In addition, strategic partners in both Group I and II are required to have robust good governance. They should not have defaulted on loans, or have loans they have taken classified as non-performing assets. They should not be under Corporate Debt Restructuring Mechanism (CDR) or Strategic Debt Restructuring Scheme.

In rearranging the strategic segments, the Task Force has recommended that separate strategic partners be appointed for aircraft and helicopters, since these are essentially different segments and require different technologies.

It also recommends that a separate strategic partner be appointed to develop aero engines since these are critical for any aircraft project and India does not have adequate expertise in this field. The report cites the global environment, where aero engine makers like Pratt Whitney, General Electric, Rolls-Royce are separate from aircraft developers like Boeing, Airbus, etc.

The Task Force recommends that C4IRS networks - which govern the realms of command, control, communications, computers, intelligence, reconnaissance and surveillance - should not be developed through a strategic partner. Instead, it recommends the model of Development Partners, presumably referring to the Make procedure, under which two network systems are being developed - the Tactical Control System and the Battlefield Management System.

The Task Force has recommended a gradual implementation. In the first phase, it recommends that strategic partners be identified for just five segments: Aircraft, helicopters, submarines, armoured vehicles and ammunition.

Norms have been laid down to ensure that only an Indian companies can be a strategic partner. Applicants cannot have a composite foreign direct investment (FDI) of over 49 per cent, including all types of investments. The chief executive must be a resident Indian.

In extreme situations, like war, the government would have the right to acquire control over the intellectual property used and facilities developed pursuant to the Strategic Partnership.

The Task Force has also recommended the establishment of an independent regulator for Strategic Partnerships, which would allow orderly development and regulation.

The Report on the Task Force for Selection of Strategic Partners, was handed in last week to the MoD. It is authored by former DRDO chief, V K Aatre; former HAL chairman, NR Mohanty; legal expert, Shardul Shroff; heavy industries executive Ishan Shankar, banker, VP Shetty; ICRA chief, Naresh Takkar, accountant, Asish Bhattacharyya; former army procurement chief, Lieutenant General AV Subramanian; and others.

The report notes that the chosen strategic partners must function as systems integrators, building a large eco-system of specialized vendors and suppliers, including from the MSMEs sector.

Defence industry experts say the notion of strategic partners is no different from that of Raksha Udyog Ratnas, or RuRs, that the Kelkar Committee had mooted in 2005. That, however, was put on the back burner by then defence minister, AK Antony, following strong resistance from the trade unions of defence public sector undertakings, who had apprehensions about the entry of the private sector into defence.

Perhaps to allay these fears, the Task Force notes: Strategic Partners shall co-exist with the Defence Public Sector Undertakings (#39;DPSUs#39;), Ordnance Factories (#39;OFs#39;) and Defence Research and Development Organisation (#39;DRDO#39;) and the MoD (defence ministry) shall be at a liberty (sic) to utilise all these entities for its needs.

Group I

  • Seven segments: Aircraft, helicopters, aero engines, submarines, warships, artillery and armoured vehicles
  • One private company to be chosen for each segment
  • Must have Rs 4,000 crore turnover for last three years
  • Capital assets of Rs 2,000 cr
  • Should have grown at least 5% in three of last five years
  • Credit rating at least CRISIL/ICRA A
  • No default on loans, or declared non-performing assets
Group II
  • Three segments: Metallic materials and alloys; non-metallic materials; and ammunition, including smart munitions
  • Two private companies to be chosen for each segment
  • Must have Rs 500 crore turnover for last three years
  • Capital assets of Rs 100 crore
  • Should have grown at least 5% in three of last five years
  • Credit rating at least CRISIL/ICRA A
  • No default on loans, or declared non-performing assets

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