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    Banking Weekly Wrap: From Court questioning banks’ commercial wisdom to Yes Bank setting up an ARC

    Banking Weekly Wrap: From Court questioning banks’ commercial wisdom to Yes Bank setting up an ARC

    Banking Weekly Wrap: From Court questioning banks’ commercial wisdom to Yes Bank setting up an ARC
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    By Ritu Singh   IST (Published)


    From a Chennai court questioning the commercial wisdom of banks to Yes Bank's second stab at setting up an asset reconstruction company, here's what went down in the banking industry this week.

    Amazon-Future Retail: Deal or no deal? Bankers biding time
    Will the Rs 25,000 crores deal with Reliance to save Future’s prized assets go through? Or will banks be left to clean the mess again? Between the Singapore arbitrator and the Indian Supreme Court, there’s many a slip between cup and lip. Banks are in a wait and watch mode, and say they will only take action once the courts have said the final word. What other choice do they have, you ask? Precious little. If the deal with Reliance does not go through, the options boil down to resolution via bankruptcy courts. Or debt conversion into equity to bide time for an eventual sale. Or more fresh capital infusion by a white knight to save the business from closing down. Or some such other financial engineering. Restructuring has been implemented, but that is also temporary relief. Either way, without the Reliance deal, banks know for certain that they will have to write off a large part of their Rs 26,000 crores plus exposure.

    India’s gets first crypto unicorn!
    While the regulators are still making up their mind on cryptos, India has got its very first crypto unicorn. Cryptocurrency exchange Coin DCX recently raised a neat 90 million dollars from investors led by Facebook co-founder Eduardo Saverin’s B Capital Group to make its entry to the unicorn club! What is Coin DCX? It is a crypto exchange, which provides investment options and advanced trading features. It currently boasts of 3.5 million users, but expects to expand to 50 million over the next few years!
    Court says lenders’ commercial wisdom can be questioned if they agree to questionable deals
    The Chennai Bench of the National Company Law Tribunal (NCLT) recently ordered the liquidation of Siva Industries and rejected the IDBI Bank-led lenders’ proposal to withdraw the company from bankruptcy proceedings.
    Here’s a quick recap. Siva Industries is promoted by the family of C Sivasankaran. Surely the name rings a bell, right? Once touted as a maverick businessman and ace deal-maker, Sivasankaran has been left behind a trail of failed ventures and courted several controversies. He is now on the run from the CBI, which is investigating him for a Rs 600 crore bank fraud involving—now the plot thickens—IDBI Bank!

    The same bank he defrauded was willing to accept a Rs 323 crores settlement offer from his father RCK Vallal to withdraw Siva Industries from IBC. The company owes lenders Rs 4836 crore, and the offer amounts to a 93.5 percent or so of haircut. Sounds strange yet? Well, that’s what NCLT said while questioning the alacrity of IDBI Bank to settle the matter, and suggesting that the offer seemed more like a “business restructuring plan” than a proposal to withdraw from IBC. Some in the banking industry even see it as a backdoor entry for a promoter who would have been ineligible to even bid for the firm under Section 29A.
    Little wonder then, that the court rejected the deal, and ordered the liquidation of the company. But this case is not over yet. The promoters are expected to move a higher court to protest the NCLT order. Oh well.
    Yes Bank ARC, take two.
    Months after the central bank dashed Yes Bank’s hopes to set up an Asset Reconstruction Company (ARC) which would buy bad assets, the lender is making another attempt to revive the plans. It has now invited bids for an investor to partner with it to set up this ARC, with the investor being the main promoter, and Yes Bank holding a much smaller stake. RBI was uncomfortable with the bank holding stake in an ARC as it would lead to a “moral hazard.” Would holding a smaller stake turn the no into a yes? We’ll see.

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