Lenders to Future Enterprises have started to step up provisioning against their exposure to the account after the company defaulted on repayments worth Rs 2,836 crore in March. Bankers FE spoke to said that the company is unlikely to be able to cure the default over a one-month period and the account slipping into the non-performing asset (NPA) category would entail 40% provisioning.
Future Enterprises owes its creditors over Rs 4,500 crore, according to a recent rating report by Care Ratings. “We don’t see any resolution working out in the current month and Future Enterprises will most likely slip by April-end. It will immediately move into the D (doubtful)-3 category and that means 40% provisions. So banks have already started providing,” said a senior banker.
Mails sent to the Future Group and a representative for Bank of India (BoI), the lead bank in the consortium, did not elicit responses till the time of going to press. Reserve Bank of India (RBI) norms stated that an asset must be classified as doubtful if it has remained in the substandard category for a period of 12 months. An asset that has remained in the doubtful category for between one and three years will attract provisioning to the tune of 40% of the exposure.
While borrowers normally get 90 days to cure a default before their account is categorised as an NPA, Future Enterprises’s loans were restructured under the one-time restructuring (OTR) scheme proposed by the Kamath committee, which came with a different set of terms. The framework states that any default by a borrower during the monitoring period shall trigger a review period of 30 days.
If the borrower remains in default with any of its lenders at the end of the review period, the asset classification of the borrower with all lending institutions will be downgraded to NPA from the date of implementation of the resolution plan or the date from which the borrower had been classified as NPA before implementation of the plan.
Bankers say that the Future Group’s flagship, Future Retail, has already slipped in January and the 40% provisions taken against that account will show in banks’ Q4FY22 financial results. Amid an ongoing legal battle between the Future Group, Amazon and Reliance Retail, bankers continue to bet on Reliance taking over the Future Group’s assets and clearing its dues.
Future Enterprises develops, owns and leases the retail infrastructure for its parent group. The company also holds the group’s investments in subsidiaries and joint ventures including insurance, textile manufacturing, supply chain and logistics.
Future Enterprises’s quarterly performance remained weak in Q2FY22, Care Ratings said in its rating report. “FEL has witnessed significant shrinkage in volumes from Future Lifestyle Fashions and Future Retail despite the government easing restrictions. Although the financials have improved on a sequential basis, fixed costs and interest have been eroding the profitability and networth of the company,” the report said. Future Enterprises has reported cash losses for the first six months of FY22.
