The world’s largest basmati rice producer is now one of India’s top loan defaulters

Bags of default.
Bags of default.
Image: REUTERS/Amit Dave
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A lesser-known brother duo has beaten some of India’s most infamous loan defaulters.

On April 24, the Reserve Bank of India released a list of the top 50 wilful defaulters in the country. While most names on the list were the usual suspects such as Vijay Mallya’s Kingfisher Airlines and T Venkattram Reddy’s Deccan Chronicle Holding, an unlikely contender, REI Agro, beat them with a Rs4,314 crore ($575 million) default.

Established in 1994 by Kolkata-based brothers Sanjay and Sandip Jhunjhunwala, REI Agro was once the world’s largest basmati rice processing and marketing firm accounting for 22% of the market during its prime in 2013.

Rise of rice

The company began with a basmati rice grading unit in Haryana. The unit determined the quality of grains and had a capacity of 10 tons per hectare (TPH). Between 1996 and 1998, it diversified into related segments such as rice milling, which involves the segregation of husk from edible parts.

REI Agro sold its rice under several brands such as Raindrops, Kasauri, Real Magic, Mehrab, Mr. Miller, Hungama, Hansraj, and Nausheen. These brands were priced differently, targeting varied market segments ranging from premium to popular.

In March 2000, REI Agro was listed on BSE with a market capitalisation of Rs119.14 crore.

The company continued its fast-paced expansion. For instance, in 2001, it started marketing of broken rice grains (lower grade) and increased its overall grading capacity by 20 TPH. In 2004, it said it was one of the world’s largest basmati rice processors with a total capacity of 42 TPH.

Buoyed by the momentum, the Jhunjhunwala brothers listed REI Agro on the London Stock Exchange in 2005.

India traditionally produces over 70% of the world’s basmati rice (pdf), with Pakistan being the only other country that grows and sells the variety. This made investors believe that REI Agro had a bright future.

In its March 2008 issue, business magazine Outlook Profit wrote:

The REI Agro counter saw strong buying interest, backed by foreign institutional purchases. Its stock has been hitting new highs despite a weak market. Delivery volumes during the last four months were also over 80% on an average.

Last week, Credit Suisse Singapore bought 2.35 lakh shares of REI Agro at around Rs1,025. The company is being seen as a good bet in the rural market, given its status as the world’s largest producer of processed basmati rice, with business interests in retail and wind energy. It is in expansion mode with plans to add more than 500 retail outlets at various locations in north India.

In an interview with India Infoline News Service in July 2010, Sandip said REI Agro was the “largest buyer of basmati paddy in the country and one of the few companies that pays upfront to farmers.”

In 2010, the company posted an over 50% year-on-year increase in net sales at Rs3,693.23 crore, while its net profit rose almost 160% to Rs157.17 crore due to an “increased and wider marketing presence…better economies of scale and improved production efficiencies.”

“An overall increase in yield of whole grain rice, scale-up of capacities and positive demand outlook in the domestic and international markets for basmati rice will help in future growth,” CARE Ratings said (pdf) in a report in 2011, about REI Agro.

To build its brand further, in 2013, the company bagged co-sponsorship of a team in the Indian Premier League, a popular annual cricket tournament.

But a year of poor rainfall started what was going to be a speedy downward spiral for the company.


For the financial year ending March 2014, REI Agro posted a loss of Rs38 crore owing to an increase in the cost of paddy due to poor rainfall, temporary closure of a unit, and lower-than-expected cash inflows.  The next year, its annual loss spiked to Rs5,494.29 crore as the cost of paddy continued to increase. Lower sales, rising competition, and an economic slowdown further added to REI Agro’s woes. The company said it was facing a liquidity crunch (pdf) and defaulted on its payment to some lenders.

A 20-member consortium, which had lent REI Agro Rs4,000 crore, set up a joint team to work out a solution that would help the distressed company.

But in the midst of this process, the Reserve Bank of India (RBI) set the alarm bells ringing by warning lenders of possible “large-scale irregularities and misappropriation” by the promoter duo. At the time, Sanjay was the chairman of REI Agro, while Sandip was its vice-chairman and managing director.

The RBI approached the Central Bureau of Investigation (CBI) to carry out a probe into the matter.

Indian and foreign lenders were staring at a potential loss of Rs10,800 crore after the scam was exposed. Kolkata-based UCO Bank, India’s largest public sector lender State Bank of India, and Jammu and Kashmir Bank had an exposure of more than Rs1,000 crore, each. Even foreign lenders such as Bank of New York Mellon (Rs810.62 crore) and Credit Suisse (Rs694.86 crore) had fallen prey to Jhunjhunwala brothers’ dubious ploy.

In 2017, the CBI said the brothers had duped banks by inflating sales and expenditure.

“It was further alleged that there was no genuine business with the debtors/creditors and false bills were issued by/ in favour of the said private firm (REI Agro). More than 150 shell firms were allegedly arranged through a group of brokers against the fixed commission, for obtaining false invoices and diversion of bank funds,” CBI said. In May 2017, the Jhunjhunwala brothers were arrested by the CBI.

The following year the company was put up for liquidation and a judge ordered the investigation agencies to handover attached properties to the lenders. This brought an abrupt end to nearly three-decade-long story of a company that once held so much promise.