December 4, 2017

Bad things don't happen to good banks. Or do they?

Image result for hdfc bank.. it was a surprise last month when HDFC Bank reported a hefty provision against an unnamed corporate account that it said wasn't a nonperforming asset, then one day later marked the loan down to NPA because the Reserve Bank of India, the regulator, had told it to do so.

The matter would have rested there, were it not for an independent banking analyst, Hemindra Hazari. In a note on Smartkarma, a research website, Hazari reproduced last week a letter from the bank to Jindal Steel & Power Ltd., allowing it to sell and lease back its oxygen plant, provided the proceeds were “utilized towards clearing overdues to make our account absolutely regular.”

This opens a Pandora’s Box. Jindal Steel had net debt of 440 billion rupees ($6.8 billion) at the end of September. Was the steel company indeed the unidentified shaky account? If so, was HDFC Bank on the hook to that borrower for more than 15 percent of its reported nonperforming assets on March 31, the end of its financial year? Hazari believes so.


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