SBI puts off KSK Mahanadi Power NPA auction after I-T probe on ARCs

The lender has an exposure of Rs 4,100 crore in the firm and had set a reserve price of Rs 1,423 crore for selling the loan to any ARC, bank, NBFC or a financial institution

The State Bank of India has put off the sale of its non-performing asset loan of KSK Mahanadi Power scheduled on December 31 after the income tax department started an investigation against few asset reconstruction companies (ARCs).

SBI has an exposure of Rs 4,100 crore in KSK Mahanadi Power and the bank had set a reserve price of Rs 1,423 crore for selling the loan to any ARC, bank, NBFC or a financial institution.

The income tax department has initiated an investigation against several ARCs after it was found that several promoters are funding the ARCs via informal channels. After the IT department raided four ARCs last month, it found cash transactions worth Rs 850 crore with an asset reconstruction company. The IT department is now investigating transactions worth Rs 75,000 crore conducted by these four ARCs.

As several other ARCs were expected to participate in the auction, the tax department has asked the bank to wait till the investigations are over.

BSE listed, KSK Energy Venture was the holding company for all the power SPVs of the KSK group including KSK Mahanadi Power and has defaulted on bank loans.  In fiscal 2019, the majority of operational assets of the company started facing operational issues due to low plant load factor level and absence of power purchase agreements. KEVL has lost control of a few SPVs due to orders admitted by National Company Law Tribunal (NCLT) and the holding company itself is now facing bankruptcy proceedings in the NCLT, Hyderabad.

KSK Mahanadi ceased to be a subsidiary of KSK Energy Ventures in May 2018 after the banks invoked the pledged shares after the promoter entities defaulted on their loans. The fate of KSK Mahanadi Power will also decide how the banks go ahead with the sale of their other NPA loans to the ARCs.

In a statement on December 16th, the Central Board of Direct Taxes had indicated that the defaulting promoters are themselves buying back the companies from the ARCs.  The IT department said it found "more often than not, the underlying assets had been re-acquired by the same borrower group, albeit at a fraction of their real values from the ARCs."

"The ARCs are found to have concealed the profits on disposal of the underlying assets by diverting the actual profit to their related concerns, under the garb of consultancy receipts or unsecured loans/investments," it said.

The ARCs, through this method, have not only "evaded" the payment of due taxes but also deprived the lender bank(s) of their share of actual profits, the statement claimed.

"One of the ARCs was found to be maintaining a parallel set of accounts on Tally accounting software, in a pen drive, recovered from the custody of the trusted employees of the promoter.

"This parallel set of accounts contained cash transactions aggregating to more than Rs 850 crore," it had said.