The Supreme Court of India is starting to realize that its bankers are those friends that never complete your Venmo request.
Two recent rulings by the Supreme Court threaten to usher in the repayment of nearly 500 billion rupees in loans ($6.73 billion USD). The money is owed to India’s largest banks.
The first ruling blocked Future Group’s sale of retail assets to Reliance Industries for $3.4 billion USD. The conglomerate group was depending on this sale to repay nearly $3 billion USD that it owes to Indian government banks.
Similarly, the Supreme Court disallowed telecom companies to renegotiate contracts and overdue payments with the Department of Telecommunications. Now, investors fear if Vodafone Idea, one of India’s largest telecom operators, will repay the $4 billion USD that it owes to Indian banks.
The rulings could cause Future Group and Vodafone Idea to file for bankruptcy, likely by December of this year. This holds interesting implications as Future Group’s largest lender is the State Bank of India. One questions if the Supreme Court’s rulings are only hurting the government in the long run.
These events follow a report from December 2020, detailing that India is grappling with $140 billion USD in bad loans (Bloomberg News). India’s loan issue was inflated by the pandemic, during which it pumped loans into small businesses in an attempt to boost credit in the country. Loans that had been sitting in the government’s pipeline for years were suddenly being approved.
India’s loan issue was also caused by unfortunate bad timing when the country chose to hold 400 loan fairs across the country, right before the pandemic hit. It was the first time that they had done so in over thirty years.
In October 2019 alone, India’s Finance Ministry disbursed $35 billion USD in loans. This was a record for monthly lending in India (Reuters).
At the time, analysts fretted that due diligence standards were being tossed to the side in favor of lending increases.
Now, nearly two years later, the analysts’ fears appear to be realized, and the Supreme Court of India has yet to come up with a plan of action, leaving the future of many Indian mega corporations uncertain.