Southern Herbals, Bangalore and Shrishma Fine Chemicals in Mumbai are among the 455 bank loan defaulters, according to the All India Bank Employees Association recently published list. The total amount defaulted by the two companies is Rs. 6.63 crore.
While Southern Herbals, a Bangalore-based company has closed down operations last year, Shrishma Fine Chemicals and Pharmaceuticals, headquartered in Mumbai, and having a bulk drug unit at Dodaballapur in the outskirts of Bangalore is still operational. Sources from company in Bangalore were unaware of the loan being defaulted.
According to the All India Bank Employees Association list, Shrishma Fine Chemicals and Pharmaceuticals has defaulted bank loans amounting to Rs. 3.87 crore. The bulk drug company had taken a loan of Rs. 2.58 crore from the Industrial Development Bank of India and a second loan of Rs. 1.29 crore from the IFCI Ltd.
Southern Herbals has defaulted Rs. 2.76 crore. The company promoted by K.S.N. Murthy, entered the capital market defaulted in its commitments made to the public while mobilising funds The company was suspended by the Bombay Stock Exchange (BSE) for various violations including non-submission of its quarterly results. It has also been blacklisted by the Registrar of Companies, Karnataka.
With the proceeds of the IPO, the company planned to set up a joint venture subsidiary to produce herbal anti-cancer formulations and alkaloids. The new company, Ind Euro Pharma Ltd, was to invest of Rs. 1, 012.5 crore with equity participation from US-based Margan Weinsten & Co of USD 40 million (around Rs. 188 crore). A term loan of USD 135 million was also being obtained from the US company.
On December 16, 2005, the National Securities Depository Limited (NSDL) released a list of companies having demat requests pending for more than 21 days. But now Southern Herbals has closed down operations and the facility ceases to exist, informed sources. Sources in the pharma sector stated that since the company ran into serious problems, the situation forced the KNS Murthy and its directors to lie low.
According to officials from the All India Bank Employees Association these bad loans or non performing assets (NPAs) are causing a serious concern to the banking industry.
The association has now called for overhauling of banking laws to make recovery of personal property of defaulting borrowers easier and declare wilful default as a criminal offence.
Further the association pointed out that banks were playing into the hands of the defaulters by facilitating take-over of bad loans. The banks are also required to meet the cost of funding these unproductive assets. It also affects the earning capacity of assets thereby impairing the capital inadequacy ratio.