MUMBAI: Bank of Baroda may have to provide for a potential loss of Rs 120 crore on loans to the Gupta family companies in South Africa after the brothers, who are facing corruption charges, fled the country and the companies filed for bankruptcy. The development gains significance in the backdrop of the bank’s plan to exit the country by closing its operations at the end of this financial year.
The bank’s South Africa operation is mired in controversy over its relationship with the Gupta brothers, who hail from Saharanpur in India and are accused of having corrupt links with the country’s former president Jacob Zuma. Zuma was recently ousted by his African National Congress party and replaced with Cyril Ramaphosa.
“We are aware that eight companies of the group have gone under business rescue and business rescue practitioners have been appointed,” said Eric Tucker, general manager, head of international banking at Bank of Baroda. “The exposure to the Gupta entities is a confidential matter. However, in the context of BoB’s size, the exposure is not very material and does not impose any significant risk on us. We are adequately covered in the accounts under business rescue and have a detailed plan for recovery in the accounts. As of now we remain confident of our ability to recover our dues.”
“The account with the Gupta brothers was a performing loan until December 31. Under the current circumstances, it may slip into non-performing loan category by February 28,” said one of the persons cited above.
This would come at a time when Indian banks are already burdened as stressed assets and high provisions are eating into earnings. Bank of Baroda’s December quarter net profit fell 56 per cent to Rs 112 crore from the year earlier due to the rise in provisions for bad loans, which touched 11.3 per cent of overall credit.
One of the persons cited above said Bank of Baroda had unwittingly been caught up in the situation.
“The Guptas have fled the country while Bank of Baroda has decided to exit the country,” he said. “At the same time, a number of Gupta companies have filed for business rescue. Fortunately, for Bank of Baroda, the operation in South Africa constitutes just about 0.19% of the total balance sheet.”
South Africa has issued an arrest warrant against the Gupta brothers — Atul, Ajay and Rajesh Gupta— in connection with the Estina Dairy Project, a stateowned entity leased to the Guptalinked Estina (Pty) Ltd in 2012 and which the regional government had agreed to develop for job creation. Last week, the state prosecutor alleged that public funds amounting to 220 million rand were transferred to the company and went to the Guptas.
The Income Tax department on Tuesday raided premises of the Gupta family in India. A senior official told agencies that the Gupta brothers were suspected of finding ways to bring “illicit money” they had earned abroad into India.