NSEL urges banks not to extend credit to defaulters

Company mentions account details of defaulters such as Mohan India, Tavishi Enterprises and Spin-Cot Textiles

National Spot Exchange Ltd (NSEL) has urged banks to refrain from extending credit to its defaulters.

In a letter to Shikha Sharma, managing director and chief executive officer of Axis Bank, NSEL mentioned the account details of defaulters such as Mohan India, Tavishi Enterprises and Spin-Cot Textiles.

“A few entities, in connivance with some of the exchange’s senior officials, compromised the risk management system of the exchange and defaulted in their obligation. They sold goods supposed to be in their warehouses and received the money in lieu of sales. However, after the exchange operations were shut on July 31, 2013, an audit agency appointed by the NSEL board found no goods in warehouses,” the letter said.

This led to an unprecedented settlement crisis of Rs 5,600 crore at NSEL. The matter is being investigated by the economic offences wing of the here police, as well as the enforcement directorate (ED).

The letter mentioned the details of the dues of defaulters and urged banks to be cautious while dealing with such clients.

NSEL also warned any cash credit (CC) limit for these defaulters by Axis Bank might be cancelled/stopped to protect defaults. Also, in case of any assets pledged against the CC limit, or any loan, the details might be provided to EOW and NSEL.

“Hence, in the interest of thousands of small investors and as a sound banking practice, your bank may kindly review and stop the banking facility, including CC limit/short- and long-term working capital loan extended to them in view of their outstanding liabilities and help us in recovering the money. This will help send a strong message to the industry and exert pressure on the defaulting entities to settle their obligations,” an NSEL official said.

He added NSEL has sent similar letters to other banks, too, including HDFC Bank, UCO Bank and Indian Overseas Bank.

Recently, CRISIL had downgraded the credit risk profiles of DUNAR Basmati Rice from B+ to B-, owing to the fact that the company’s promoter, P D Agroprocessors, was in the list of NSEL defaulters. The downgrade reflects deterioration in DUNAR’s business risk profile on account of attachment of the DUNAR brand by the EOW, because of its involvement in the NSEL scam. It also reflected significant deterioration in DUNAR’s management risk profile due to the EOW arresting its managing director, Surendar Gupta, Crisil said.

DUNAR Basmati Rice’s total term loans stand at Rs 36.45 crore, with a Rs 20-crore standby line of credit, apart from cash credit of Rs 215.5 crore and export-packing credit of Rs 23 crore.