Mumbai based company puts banks in Rs2,650 cr hole!

Hi, frnds I'm sharing this interesting piece of information with you alll........


As many as 26 banks have been hit hard by the firm’s delinquency; corporate debt recast close to being finalized

Mumbai-based and state-owned lender Central Bank of India had to set aside Rs100 crore as provision in its June quarter after its loan to Zoom Developers Pvt. Ltd, a Mumbai-based engineering procurement and construction firm with operations spread across the globe, turned bad. The company is registered at Indore, Madhya Pradesh.

Central Bank is one of the 26 banks hit hard by the company’s delinquency; they are collectively owed around Rs2,650 crore, which would make this the single largest exposure that has gone bad in recent times.

None of the banks has yet disclosed the name of the company that was unearthed by Mint’s reporting. A senior Zoom executive confirmed that the banks had classified the company’s debt as a non-performing asset (NPA).

Zoom undertakes contractual work for companies—technically known as aggregators— to relocate or scrap factories, and transfer technological processes from one vendor to the other.

Zoom’s operations—which range from industrial asset revival to re-engineering, dismantling, packing and shipment, erection of plants, and commissioning—are spread across Germany, France, Italy, the UK and Scotland, the US, Canada, and Alaska.

“It is a case of the economic slowdown in Europe that led to a cascading effect, impacting the Indian banking industry,” said the chairman of a large public sector bank, which has already made provision for this loan. He asked not to be identified, citing client confidentiality.

Foreign banks as well as overseas branches of Indian banks insisted on stand-by letters of credit (SBLCs) from Indian banks in lieu of guarantees. An SBLC gets operationalized when the party concerned fails to pay. In this case, the aggregators started invoking guarantees given by Indian banks through SBLCs when the money flow dried up.

Indian banks honoured their guarantees and settled the dues with the foreign banks, but when they approached Zoom, the company defaulted. There was a chain of defaults with the first instance of a guarantee being revoked happening last year, a senior banker said.

If you want more information then please visit the link http://www.livemint.com/2010/08/02232706/Zoom-puts-banks-in-Rs2650-cr.html?h=E

So, whats your view on this & how can banks play safe???