RBI Directs Banks To Quantify Satyam Exposure Whilst Citi Freezes Satyam Bank Accounts
India’s central bank the Reserve Bank of India (RBI) has asked for information from Indian banks and the Indian subsidiaries of international banks regarding their direct or indirect loan and equity exposure to financially tainted Satyam Computer Services, its related companies or subsidiaries.
Sources at the central bank say that lenders may be directed to write off short term loans to the company. The banking regulator is also concerned with the sharp fall in equity prices and has asked those who have institutional holdings either via direct equity that has been pledged as collateral or through long term loans to recover the debt using usual mechanisms. Banks may also ask the company to release funds from its vast expanse of real estate holdings. A decision on this will most likely be taken at a proposed meeting of all related banks.
Since the company has admitted financial irregularities, obligations to various lenders and creditors may become non-performing. According to RBI guidelines, in such eventualities, the bank needs to first classify the asset as non-performing and then make adequate provisioning against such liabilities. Only then can it initiate recovery proceedings against the company.
According to data available from the public domain, no single bank has exposure of more than 1 per cent of the company.
Sources say loan exposure in the form of margin money may have a direct impact since these have to be marked to market immediately. The entire exercise will be a drag on the balance sheet of banks, which are due to close their accounts in two months. This also comes at a time when the accounts are already falling into sub-standard or the non-performing category following the economic slowdown, a source tells the Business Standard.
For their part some banks have started freezing Satyam’s operational accounts. Citibank froze 30 Satyam accounts which were for trade receivable purposes. According to The Economic Times Citibank has a US$ 70 million or Rs 330 crore exposure to the troubled IT major.
Citibanks exposure is largely in regard to Satyam’s working capital, and the freeze of Satyam’s receivables bank accounts does not bode well for the company and its liquidity situation, which interim CEO Ram Mynampati said was precarious to begin with during Thursday’s Press conference. It is hard to see the company remaining solvent if cannot access banks accounts related to working capital or those which contain receivables which it could use to establish new lines of short term credit which could allow it to weather the storm.
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