Amex Questioned On Loans To Jindals

RBI has also questioned the bank's system of approving general purpose facilities to be utilised for affiliates of a large corporate borrower against pledge of shares, debentures and units.

In an inspection report on the offices of Amex, the RBI has pointed out that in the case of Bharat Pulverising Mills Ltd (BPML), which is engaged in real estate ventures for the Jindal group, the bank sanctioned a total loan of Rs 96.50 crore on September 14, 1995, to finance acquisition of Carona, Shivshakti and Powai lands in Mumbai and develop real estate on the Solitaire Project.

The report says that as per the memorandum dated September 7, 1995, presented to the Credit Approval Committee by the Amex office in Singapore and credit facility letter, the primary security after disbursal of the credit will be pledge of units aggregating to Rs 93 crore and Jindal group shares of $30 million (equal to Rs 100 crore).

 

An equitable mortgage of property will be created within four months of disbursal and the tenure of the loan was one year, the RBI inspection report says.

The report shows Rs 72.30 crore as outstanding on this loan as on December 31, 1995.

The banking regulator has pointed out that under Paragraph 14 of the DBOD circular dated October 24, 1986, and also the circular of November 30, 1993, there is no provision to provide interim finance to large corporate borrowers against the primary security of shares, debentures and units.

Even if Amex treated units and group shares as collateral security, this credit facility is a case of direct financing of the purchase of land and development of real estate and not for meeting the short-term requirement of the corporate borrower towards their margin, the RBI concludes.

It says the credit facility against group shares and units was merely dressed up so as to appear as falling within the domain of Paragraph 14 of the RBI circular. According to the RBI, the bank had violated the regulatory authority