NPA recovery outsourced

UP industrial finance agency earns profits after 1996

The Pradeshiya Industrial Corporation of Uttar Pradesh (PICUP), the wholly-owned industrial finance agency of the Uttar Pradesh government, has taken up the task of recovering bad loans of commercial banks.

Commercial banks have reposed faith in PICUP in its capacity to recover NPAs at lowest cost. Five commercial banks have assigned 67 cases of bad loans to PICUP.

The Punjab National Bank tops the list, having assigned 44 cases, followed by the Oriental Bank of Commerce with 12, the Vijaya Bank eight, the State Bank of India one, and the Punjab and Sindh Bank two.

"We are redefining our role as consultant and as an agent in the recovery of loans," said Anil Swaroop, managing director.

"We recover loans at lowest cost, without resorting to strong-arm tactics or legal battles," Swaroop said. He, however, added, "We attach properties and auction them for the recovery of loans, and being a public sector agency with the government's backing, it certainly helps in the tough task."

PICUP, which had accumulated losses of over Rs 587, is now showing signs of turnaround. Instead of issuing recovery notices to industrial units, which it had funded, PICUP has taken the initiative for their revival.

PICUP has earned a net profit of Rs 41.74 crore in 2004-05, as against a net loss of Rs 138.35 crore in 2003-2004, thus earning profits for the first time since 1995-96. PICUP has equity in three units in Noida, Harig Cranks-Shafts Ltd, Raunaq Automotive Ltd, and Pasupati Acrylon.

PICUP held 2.088 million shares worth Rs 2.36 crore, including premium, which has increased to nearly Rs 7 crore by the end of March, after restructuring was done on the initiative of PICUP.

Similarly, the net share value of 1.503 million shares in Raunaq Automotive has increased to Rs 1.8 crore, from Rs 1.5 crore. Swaroop said till March 2004, the annual interest liability was Rs 88 crore, and no liquidity to retire the debts, because most of the assets and shares worth Rs 166 crore were mortgaged to financial institutions.

With the aggressive debt-liquidation strategy adopted by PICUP, as many as 223 creditors had settled their dues of Rs 104 crore, waiving all interest payments, resulting in total savings of Rs 34 crore to PICUP, he added.

PICUP managed to raise over Rs 100 crore by offloading shares of Hindalco and other big companies when prices were high at the bourses.

"We are confident we can make a profit of Rs 42 crore in 2005-06 and annual interest liability will come down to Rs 20 crore from the present Rs 87 crore. The negative net worth of the company is also likely to improve to Rs 281 crore from the present Rs 364 crore," Swaroop said.

For the past few years, the state government was considering closing it down and sell its assets to pay back to its creditors.

The strategy adopted was simple: Tell all creditors that there was no money to be paid back and if they wanted to settle at principal, they were welcome to do so. One agreed to settle at principal. This letter from the creditor was circulated to all others. Soon others fell in line.

Among cost-cutting measures, two things were done. Rail travel by the managing director downwards was to be in AC three-tier compartment. And secondly, Swaroop was able to persuade the employees not to take house-building loans from the organisation, as they would be paying 6 per cent interest to PICUP.

Good stock market conditions also helped. The initial money to pay back was earned by selling shares of Indo-Gulf Fertilisers, in which PICUP was a joint venture partner for close to 20 years.

Shares worth Rs 52 crore were sold, the face value being Rs 4.11 crore, and creditors like the Canara Bank and the Dena Bank sold shares worth Rs 60.14 crore, which were mortgaged to them.