MCB rejects Indian firm’s proposal to stretch loan repayment over 2 years
In response to the petition filed by MCB in the Hyderabad High Court, Sujana had proposed to repay the money in instalments over two years from January 2015 to March 2017 but MCB rejected the proposal, requesting the payment to be made in one go. (Image: MCB)
Mauritius’ banking major, Mauritius Commercial Bank (MCB), yesterday rejected a stretched repayment proposal by one of South India’s largest business houses, Sujana Universal Industries Limited, following a large loan default by the Indian firm’s subsidiary in Mauritius.
Subsequent to a loan default of around Rs 100 crore (approximately MUR 516.70 million), the Mauritius-based bank filed a winding-up petition against Sujana Universal Industries Limited.
In response to the petition filed by MCB in the Hyderabad High Court, Sujana had proposed to repay the money in instalments over two years from January 2015 to March 2017.
However, MCB did not accept this proposal and requested the payment to be done in one go. Hence, the high court has postponed the next hearing on the matter to December 4.
Going into the details of the MCB’s petition, Sujana has a 100% subsidiary firm based in Mauritius called Hestia Holding Ltd, which benefited from the loan between February and June 2012 and for which Sujana Universal stood as guarantor.
The bank was forced to take recourse to the guarantor when it realised that the company had completely failed in repaying the loan instalments.
It may be noted that Sujana Universal Industries Limited is a part of Sujana Group, which is promoted by Indian Union Minister Y S Chowdary.
Besides, Sujana Universal recently informed the stock exchanges that Chowdary, the promoter and non-executive director of the company, has resigned from the board of directors with effect from October, 15, 2014. He was inducted into the Union Cabinet on November 9.
Earlier this month, the Moody’s Investors Services downgraded MCB Ltd’s long-term and short-term deposit ratings to Baa3 from Baa1.
It may be recalled that Moody’s reported the default of a few large Indian corporate exposures in MCB’s off-shore lending business to be one of the factors responsible for the bank’s weakening asset quality.
Increase in the volume of non-performing loans will result in a growth in MCB’s provisioning requirements and are also pressuring the bank’s profitability metrics, with return on average assets declining to 1.8% in FYE2014 from 2.1% reported in FYE2013.
According to Moody’s, MCB will need to continue to build its provisioning coverage, with loan loss reserves estimated at a low 55% of problem loans as at end-June 2014, which will put more pressure on net profitability.
Finally, as MCB’s cross border operations are further impacted by weak institutional frameworks and slow recovery procedures, Moody’s considers that raising the provisioning coverage is particularly important for the bank.
Source: Business Standard