The Indian economy is nowadays booming with one or two scandals per year. The entire decade has been filled with great names and their scandals such as Nirav Modi, Mehul Choksi, Vijay Mallya, Subroto Roy etc. These are some of the mega scamsters who shook not only the banking system of India but also gave a mighty hit to the Indian Economy. Whenever the scams come into light they take away money from the bank account holders. But alongside this they also take away the trust that people have on those financial institutions or the government. Thai has a larger impact when the companies from outside the country hesitate to invest in such a weak administrative system. One of these scams has been recently discovered. It was actually a case dated back to 2017. However the liquidation procedure for the company has just begun.
The scam amount for the company is somewhat close to 22830 Crore Rs. Yes, it is the biggest scam in India. The company which pursued these actions is ABG Shipyard. It initiated its business operations in 1985. ABG Shipyard offers a diversified business portfolio to its customers. The company has an expertise in Ship Building, Ship Repair and Ship Designing process. The company was the leader in the shipping business in India, Of Course before it filed for bankruptcy. It has some major competitors in the market. They are Mazagon Dock Limited, Modest Infrastructure Limited and Bharti Shipyard Limited.
ABG Shipyard had an employee fleet of nearly 250 people and it was listed on both exchanges (BSE and NSE). It has its headquarters in Mumbai. However the operations of the company are run at two locations namely Dahej and Surat. The company had the capacity to make vessels with approx. 20 tonnes of weight.
Major Acquisitions and Other Highlights
The company acquired Western India Shipyard back in 2010. Through this it became the leading ship repair and maintenance company in India. Its unit for the same was running in Goa.
The company has a varied product portfolio. It can build commercial vehicles, Self loading and discharging bulk carriers, Floating cranes, container ships, anchor handling ships, offshore supply vessels, anchor handling tugs, diving support vessels, dynamic positioning ships etc. It had also got a license for making warships for the Indian Navy. Back then the company also received a major order from the Indian Navy. However due to the Liquidity issues the order was withdrawn. Apart from this it had undergone multiple projects for the Indian Navy like building two cadet ships, pollution control vessels etc.
Although it had such a wonderful portfolio of products and tie ups with the government, the company filed for bankruptcy in 2017.
ABG Shipyard Scam
The company has a massive operational need of capital due to its business structure. Thus it had taken multiple loans from 28 financial institutions. Out of them the major loans were from ICICI Bank, IDBI Bank, SBI bank, Bank of Baroda, Indian Overseas Bank, Punjab National bank etc. The money spread in these banks is ICICI (7089 Crore Rs), IDBI (1614 crore Rs), SBI (2925 Crore Rs), PNB (1228 Crore Rs.), Bank of Baroda (1244 Crore Rs.), Indian Overseas Bank (1228 Crore Rs.) etc.
It all started when the shipping industry faced a downfall in 2015. The company had already taken multiple projects on hand and with a slowdown in the shipping industry the orders got cancelled. Due to this the situation became worse as ABG failed on paying multiple interest payments. This drew the attention of all the banks and they formed a consortium to seek a result out of this situation. However ICICI was the major loan bearer, SBI filed a procedure on behalf of all the banks.
Post the complaint to CBI and NCLT. The NCLT Ahmedabad Branch undertook an investigation and appointed E&Y as the suitors. The audit report was then published.
The report mentioned that due to the global downturn of the shipping industry the company was unable to achieve results in its business. It had literally no business in the 2015 year. Among this the company also failed to pay borrowings on time as they had a paucity of cash flow based on their business scarcity. Hence the company was forced into insolvency and bankruptcy. Currently the company is being investigated and searched by CBI for all the possible modes of getting banks their money back.
Effect on Market
Indian markets were already struggling to hold their levels amidst the Global crisis of Fed announcement and Ukraine – Russia Standoff. At such times the Indian economy is hit by another scam of 22800 Crore Rs. This shook the Banking Industry. The Bank Nifty was down by 1300 points. Though the scam is 5 years old, the public announcement for liquidation came in just on 11th Feb, 2022. Thus the major sell off was seen due to panic among retail investors and FII. However the effect can be temporary but the Banking system of India has been hit by a lot of scams in the past decade. This is taking away the trust of investors from the particular segment.