PMC Bank helped real estate developer HDIL pay off loans of other PSBs

Assisted promoters to retain control of real estate company

PMC Bank helped real estate developer Housing Development & Infrastructure (HDIL) pay off loans of other public sector banks (PSBs) under one-time settlement schemes, so that the promoters could retain control over the real estate company. 

Court records show HDIL defaulted to loans from Union Bank of India, Syndicate Bank, Bank of India, Dena Bank, and Jammu & Kashmir Bank, leading to insolvency proceedings filed against the company by these banks. HDIL was quick to negotiate with the lenders under the one-time settlement scheme to repay part of their loans. A source said it was PMC Bank, which was funding HDIL, so that the beleaguered real estate company could sign one-time settlement schemes with banks and come out of bankruptcy proceedings. 

The PSBs agreed to take a haircut of up to 50 per cent on the real estate company’s exposure. HDIL reported a debt of Rs 1,997 crore for the financial year ending March 2019. 

On August 20, the National Company Law Tribunal admitted a petition filed against HDIL for debt resolution under the Insolvency and Bankruptcy Code by Bank of India. 

Subsequently, HDIL promoter and chairman Rakesh Wadhawan moved the National Company Law Appellate Tribunal (NCLT), which stayed the NCLT’s insolvency proceedings order against the company on September 3. 

The NCLAT order came after Wadhawan said the company would pay off Bank of India by taking a fresh loan from PMC Bank via pay orders. 

E-mails to HDIL did not elicit any response. 

HDIL’s woes started in 2013 when the company’s stock saw a major crash, following Vice-Chairman and Managing Director Sarang Wadhawan selling one per cent stake in the company for Rs 57 crore to meet repayment dues for land bought in 2010. During that time, about 98 per cent of promoters’ shares were pledged, which highlights the difficulties the company and its promoters were facing. 

As HDIL’s financial problems grew, in 2015, director Waryam Singh quit the company's board and became PMC Bank chairman. Soon after, HDIL started one-time settlement negotiations with the PSU banks. 

Real estate analysts said apart from the downturn in the real estate in the last four years, HDIL faced peculiar problems — delays in getting cash from buyers, fewer launches, delays in the Mumbai airport slum rehabilitation project and rising debt. The company was mandated to resettle slum dwellers occupying Mumbai airport's land. But these projects never took off. 

Payments from pre-sales are often delayed, which meant the company was booking sales, but money was not coming into its coffers. 

Poor cash collection were at the centre of HDIL's problems, said analysts tracking the company, adding that even in selling land parcels, the company faced the same problem as payments are linked to approvals. 

The company was selling land parcels in Mumbai in last two years to generate cash flows and reduce debt. But the delay in approvals by municipal authorities and the overall slowdown in the market further crimped cash generation. 

HDIL’s sagging fortune is also linked to Mumbai real estate, the most expensive in the country, which is witnessing one of the worst slowdowns since 2014. 

The prolonged slowdown has led to delay in new projects and unsold inventory piling up. Prices in Mumbai have not moved up since 2014 and builders are reluctant to drop prices for high-end apartments. 

Developers have also been hit hard by regulations such as the note ban in 2016, which virtually pumped out black money, the Real Estate (Regulation & Development) Act, and Goods & Services Tax, among others. 

It was then PMC Bank, which started giving generous loans to HDIL so that it could tide over the crisis. But, in turn, the cooperative bank collapsed as HDIL was unable to generate enough sales to repay the bank.