The State Bank of India (SBI) is set to receive a windfall of over Rs 300 crore from the National Housing Bank (NHB) following an out-of-court settlement being hammered out by the finance ministry. The case relates to the 1992 Harshad Mehta stock scam in which the State Bank coughed up Rs 707 crore to NHB in 1993.
An SBI associate bank, the State Bank of Saurashtra, too will benefit from the out-of-court settlement. SBS had paid Rs 197 crore (inclusive of interest) to NHB.
According to sources, both the boards of SBI and NHB have agreed to an out-of-court settlement. Following this, the apex housing bank may return a little over Rs 300 crore to SBI. This outgo may substantially erode the net worth of NHB. The Reserve Bank of India (RBI) is considering pumping fresh equity into NHB, a wholly owned RBI subsidiary, sources said.
The trigger point for the settlement of the decade-old case was the NHB-ANZ settlement in January. ANZ Grindlays got around Rs 620 crore and NHB over Rs 1,025 crore in the disputed case which started with NHB issuing cheques worth Rs 506 crore in the name of ANZ which landed in the accounts of Harshad Mehta.
When the securities scam broke, NHB asked ANZ to return the money which it did under protest.
Subsequently, the dispute went for arbitration. ANZ won the arbitration and NHB was asked to return the money. NHB challenged the arbitration award and the special court overruled the award.
Following this, ANZ moved the Supreme Court in 1998. The original amount, by that time, had ballooned to Rs 1,552 crore. Finally, Rs 1,645 crore was shared between NHB and ANZ in January this year.
The ANZ-NHB settlement prepared the ground for SBI to strike a similar deal since SBI had paid the money under duress. However, both the parties refrained from battling in the courts as both are, in a way, government arms. NHB is fully owned by the RBI while the central bank's stake in SBI is a little over 65 per cent.
Unlike ANZ, SBI never opted for arbitration. The apex housing bank had claimed that SBI wrongfully credited money to the account of Harshad Mehta.
"Now it has been decided that NHB and SBI will split the original amount deposited with the apex housing bank without any interest added to it. The SBI associate bank too will get its share," sources said. It has also been decided that if any money is recovered from the estate of the late Harshad Mehta in future, that will go to NHB.
The Supreme Court in August had asked the finance ministry to work out a formula to settle the dispute and get back to the court within the next six weeks. It is not clear whether the ministry has formally submitted its report but the boards of both the SBI and NHB have cleared the settlement, sources pointed out.
NHB's share capital was pegged at Rs 350 crore in June 2001 (NHB follows a July-June financial year). It had reserves and surplus of Rs 670.77 crore. These were substantially eroded since NHB had to cough up over Rs 600 crore to ANZ.
