Not only that, Modern group has been benefited to the tune of Rs 39 crore in the form of waiver in the penal and compound interest. The Modern group management claims that it had been regular in payment to FIs till the middle of 1996-97 when general recessionary trends affected its working. The group has promised to resume repayment of loans from October this year. Modern group has fixed assets to the tune of Rs 1,300crore. The promoters have been reportedly asked by the FIs to bring in Rs 100 crore. The group plans to raise Rs 50 crore by hiving off its group company Modern Denim based in Ahmedabad with a capacity of 20 million metres per annum. The remaining Rs 50 crore will be raised by pledging the promoters shares with FIs.

The Modern group generates a turnover of over Rs 1,000 crore per annum. It has some credits to boast of. For example Modern Terry Towels was the largest project in the whole of Asia in terry towels and fifth largest in the world. After the CRB fiasco in the middle of 1997, there was a run on the company's deposits by deposit holders which resulted in liquidity crunch. In spite of this, the Modern group had repaid Rs 30 crore. The CLB had allowed a package to the group. Banks had earlier refused to release working capital funds to the Modern group companies which worsened the group's position.

The cash-strapped Modern group is still dreaming of setting up a Rs 1,700 crore greenfield purifiedterepathalic acid with technology from a subsidiary of Dow Chemicals. The group has already spent over Rs 100 crore in the project and it will be a setback if the FIs now refuse to lend assistance for the project. But the viability of the project itself is doubtful now. When the project was conceived, Reliance Industries was selling PTA at a price of Rs 50,000 per tonne. But now the price has fallen to around Rs 23,500 per tonne.

Modern group has defaulted on the repayment of fixed deposits to the extent of Rs 90 crore. Company Law Board has permitted a rescheduling of the repayment of deposits by the group. The Modern group promoters are not fly-by-night operators who vanish into thin air immediately after a public issue. They have deep roots in business and industry. Hari Singh Ranka, the promoter of the group started his first company in 1973 when he floated Modern Woollens. IFCI lent Rs 7.5 lakhs to the project at that time. Modern Syntex was set up in 1976 to manufacture synthetic yarn. Modern Suitingwas set up in 1979 and Modern threads in 1982. Modern Insulators was founded in 1985 when the promoters wanted to diversify into ceramic insulators. The spree continued in the nineties also when the promoters again set up two more new companies Modern Denim and Modern Terry Towel.

These companies had been functioning profitably and creditably till 1996-97. In fact Modern group dreamt of becoming a fully integrated textile group like Reliance Industries and aimed for a turnover of Rs 3,000 crore by the turn of the century. By all means it was an achievable figure had the group handled its financial matters carefully. Now everything is in shambles. CARE has downgraded the deposit ratings of Modern Syntex, Modern Terry Towel and Modern Denim from BB+ to D, the lowest rating. The group is implementing a massive cost cutting programme involving retrenchment of staff, selling off assets and curbing executive travel.

In the last five years, Modern group raised over Rs 500 crore from the capital market because ofthe confidence the public had with the promoters of the group. But today, the unity of the promoters itself is in jeopardy HS Ranka and his son Kamal are having difference of opinion about restructuring of the group operations. The Modern group is a classic example of how a well run group has degenerated to panic for survival, how a group which commanded the confidence of investors has degenerated to refusing repayment of deposits to holders. There are many lessons to be learnt from the Modern group fiasco by the investors, entrepreneurs, promoters, creditors and FIs. This also puts up a question as to whether banks actually gain if they stop lending working capital to companies facing liquidity crunch.