SBI officials ignored all red flags while granting Abhijeet Group loans

Nagpur: A post-mortem carried out by State Bank of India (SBI) in Abhijeet Group case shows how basic banking prudence was ignored for extending finance to this company that has now ended up as the biggest NPA. Corporate Ispat Alloys Ltd (CIAL), the flagship company of Abhijeet Group, had been a defaulter since 1996 and it continued to get loans till 2010.Even debt restructuring plans at easy terms were approved.
An internal letter issued by SBI during the exercise says CIAL had many adverse features that were not pointed out when major loan proposals were cleared. The company, which has been SBI’s client since 1996, could not keep up commitments for loans sanctioned by IFCI and UCO Bank. It eventually defaulted on SBI’s loan in 2001. After this, the account was restructured and CIAL paid back the loan under new terms. Later, it acquired another company in 2005, only to default soon after, the letter says.
Two term loans of Rs90 crore in all were granted to the company from 2005 to 2008. The funds were granted to upgrade the production process of CIAL. The company could not keep its commitments again and its accounts had to be restructured once more. The date of commencement of operations was extended and terms of repayment eased under loan revamp deal. The account continued to remain irregular and it defaulted on the letters of credit (L/Cs). It was later decided to stop issuing L/Cs to the company. During this period, the company remained a defaulter with other banks too.
Despite the chain of defaults the L/C facility was restored in 2010. Loans were sanctioned to other group companies. Earlier defaults by CIAL were not taken note of while clearing new proposals, says the letter. The information received from the respective SBI branch by the project finance and strategic business unit (PFSBU) while processing four major loan proposals of CIAL was not adequate. Facts like default on L/C were not reported to PFSBU by the branch, says the letter.
Profitability of the company was doubtful due to substantial non-operating income reported from within the group itself. The key aspect was also not reported. Opinion reports of related parties like guarantors and other associates were not sought. When loan for Phase II was being appraised, it was considered CIAL will be exporting ferro allys worth Rs120 crore. The company did not have any track record of exports, the letter says.
In A Nutshell
* Abhijeet Group is now a NPA worth over Rs15,000 crore
* Share of CIAL, its flagship company, is at around Rs 1400 crore
* The company has been a defaulter since 1996
* SBI officials ignored thact and continued to give loans