It was a much simpler times when people with little to no financial literacy could put their money in a bank and be stress-free as it was one of the safest instrument to save up money for the future. But could it be said during the recent times after the GDP slump and a lockdown for 7-8 months , Absolutely NOT. As laxmi vilas bank becomes the 5th financial institution to collapse in just under 30 months. Let’s take a look on the case studies of all the 4 recent financial institutes example.
I. IL&FS FIASCO :-
• INTRODUCTION:-
Infrastructure Leasing & Financial Services Limited is an Indian infrastructure and development financing company.
• WHAT LED TO IT’S DOWNFALL :-
One of the biggest problem was zero influx of new projects and the already running projects were facing high cost runs multiplied by delays in land acquisition and approvals which in turn led to IL&FS having defaults and unhealthy amount of cash shortage.
• Rescue of IL&FS:-
The rack of debt had grown more than ?90000 crore as it was on a lending haven among all the NBFC or the shadow banking sector.
The biggest shareholder of the company is LIC which duly holded 25 percent of the shares around 2018 and so they kept a pre-condition of raising funds through its assets and non-core businesses before any additional money pumped in. And
the company internally raised funds through an FPO and rights issue for about 5000 crores and blocked its headquarters for around 1300 crores. The reason for such amount of external help by government, LIC , HDFC is that it is pegged as “systematically important ” or “too big to fail” as failing of this one bank would create a butterfly effect and have impact on other financial entities.
How’s it going now
II. DHFL :-
• Introduction :-
Dewan housing finance corporation is one the other housing finance shadow bank. Its primary market was people from rural areas and giving them loans to incentivise buying houses.
• The 31000 crore fraud :-
Lending became very stringent as the ILFS crisis and moreover in NBFC’s though there was an inordinate amount of prudency taken while giving out money there was a fraud of around 31k crore which was carried out by the promoters Kapil and Dheeraj wadhwan.
As the status of NBFC DHFL is supposed to receive money from banks as a percentage of deposit. Cobrapost alleged that DHFL has been siphoning off secured and non secured loans to about 34 shell companies in names of loan without taking an adequate amount of security and not even taken the steps to ensure that they are on personal guarantee of promoters. Loaning being one thing the bigger problem was that the money was later influxed into entities owned by DHFL , this is known as round tripping. Last but not the least the money was used to buys large amount of assets in foreign land.
• Current status :-
Being under the power of RBI from last year it was the first NBFC to be under insolvency and bankruptcy code.
By October 2020 it had received to buy out its asset by Adani group , Piramal group , oaktree and SC-Lowy.
Kapil wadhwan had to loosen up 42000 crores from family assets.
III. Pmc bank victims at stake
• Introduction :-
One of the public sector banks formed in 1984 with states collaboration and named Punjab and Maharashtra cooperative.
• Yet another scam :-
HDIL group took a loan of about ?6500 crores which is approx 73 percent of what the banks advances were. The funny thing being there were none of the repayments done by the HDIL group on such a big loan and even funnier when you come to know that it was not even classified as a non performing advance till it came out in public. On top of all this Mr Waryam Singh (ex chairman) was alloted a loan of 96 crores without performing a due diligence.
• What’s going on now
After arresting all top officials of pmc and HDIL group the issue is still on the hands of RBI and no solution is been found till now as the total number of NPA could be in higher double digits.
IV. Not the yes bank !
• Introduction :-
Everyone has idea of this private sector bank found in 2004
• Withdrawals > Deposits :-
The start was when the Kapoor family(founders of yes bank) were alleged to launder 4300 crores ( now seems a small amount doesn’t it) and they did it by distribution of loan to big borrower which were then shown to go as NPA. This sparked a sense of disbelief and fear among all the customer of yes bank so there was an alienable amount of withdrawals then there were deposits which in addition to surge in bad loans, economic slump and regulations led to the hammering of last nail in coffin.
• What the end picture here, mate ?
Anu Kapoor has been arrested, RBI once more involved in this case too removed the whole board and appointed their own managers. While SBI also picked up 725 crore shares to help with capital infusion. Other private sector banks like HDFC and ICICI help with investment of 1000 crore each. Axis Bank with 600 crore and Kotak with 500 crore were also interested in the investment.
Unpopular view
All the examples above show that the importance of RBI for healthy economy is just next level. With the prolonged period of moratorium and less regulations of advances the scams of this king may only just increase.
And also with lockdown for last 8 months it is scary to see the percentage of increase in NPA .
BY DEVANSH GANDHI