Why Did RBI Seek Comments from SEBI for Granting NBFC Licence to Defaulting Promoter of RattanIndia Power?
As elaborated in our three parts series
, the Reserve Bank of India (RBI) indeed seems to have helped the promoter of a defaulting company to get a licence to start a non-banking finance company (NBFC) through the takeover route. The defaults of RattanIndia Power Ltd worth Rs12,000 crore were mentioned in the company's annual report for FY2014-15. Yet, rather than taking cognizance of the huge defaults of the promoter entity, the RBI sought comment from the market regulator Securities and Exchange Board of India (SEBI) on Rajiv Rattan, promoter of the company, reveals the reply received under the Right to Information (RTI) Act. So far both RBI and SEBI have kept mum on the issue.
A note re-submitted by RBI’s department of non-banking supervision on 27 October 2016 states, “If approved, we may request SEBI to furnish whether any supervisory concerns are observed in the companies in which the proposed director Mr Rajiv Rattan is a director.”
The next note dated 9 November 2016 talks about giving prior approval for change in the management and control of Vikhyat Finlease and Trading Pvt Ltd by Mr Rattan and two others.
Point 3 in this letter states: "Mr Rajiv Rattan (proposed director and shareholder) was found to be the director of RattanIndia Power Ltd and RattanIndia Infrastructure Ltd, which are regulated by SEBI. SEBI has informed that they have no adverse comments to offer against Mr Rajiv Rattan and the companies in which he is a director."
However, RattanIndia Power had already been found to have defaulted in repaying loans worth Rs12,000 crore and had already placed the defaults and the rescheduling of loans in its annual report for FY2014-15.
In fact, in October 2016, a month before RBI issued the above mentioned note, CARE Ratings too had downgraded RattanIndia Power to ‘D’ after noticing the defaults.
A look at the excerpts of the audit report below clearly reflects delays evident in FY14-15 itself. The amount rated with a default rating is Rs7,942 crore for RattanIndia Power and Rs4,240 crore for its subsidiary; aggregate to more than Rs12,000 crore on a consolidated basis.
The promoter of the RattanIndia Power sought RBI’s permission to acquire an existing NBFC (with marginal operations) and become its new promoter and director. RBI approved the acquisition of the NBFC in November 2016 when defaults amounting to Rs12,000 crore of debt in group entities were out there in the open.
RBI, being a banking regulator should have known the defaults of RattanIndia Power, but seems to have overlooked them. Especially, the banking regulator should have taken a strong objection over continuous defaults in RattanIndia Power, and looked at the ‘fit & proper’ criteria of Mr Rattan, in continuation of his directorship and position as chief executive at the power company.
Vikhyat Finlease had submitted two letters on 18 January and 2 February 2016 respectively, seeking prior approval from the central bank. However, as per the office note from RBI, the NBFC did not meet the principal business criteria (PBC) and its financial assets were lower than 50% of its total assets. In addition, net owned fund (NOF) of Vikhyat Finlease was also just Rs46.71 lakh, the note says.
This note also mentions the cancellation of a proposal by Vikhyat Finlease for change in control and management by acquisition of its share by a limited liability partnership (LLP firm). However, file notings by an assistant general manager (AGM) from RBI directs to ‘call the proposed acquirer for a discussion on the subject before writing anything to the company.”
Vikhyat Finlease and Trading had two directors, Saroj Jain with a stake of 99.72% and Manoj Kumar Thakur without any stake. Shailendra Singh held the balance 0.28% stake in Vikhyat Finlease but he was not director the company.
On 26 April 2016, a letter was submitted to RBI seeking prior approval for change in management and control of Vikhyat Finlease citing inability of Ms Jain and Mr Thakur to run the company without adequate resources to meet the NOF requirements of the RBI. The letter proposed three new directors, Rajiv Rattan, Anjali Nashier and Ram Kumar. However, only two of them, namely Mr Rattan and Ms Nashier were shown to be holding 50% stake each in Vikhyat Finlease.
Again, on 30 May and 20 June 2016, Vikhyat Finlease submitted letters for prior approval for change in control of the company. Here also the RBI note dated 30 June 2016, asks to ‘call for required clarifications’ on the company’s principal business criteria (PBC) and NOF criteria. The note says, “Company is not meeting the PBC in 2016. Statutory auditor’s certificate (SAC) shows the company meeting the PBC, but balance sheet (of the company) is not cleared.”
The next office note from RBI dated 30 July 2016 says, “Company has submitted clarification regarding our queries. We may accept it.”
The RBI office note dated 29 September 2016 mentions the sudden change in Vikhyat Finlease’s NOF and an entry of Rs60 lakh in the balance sheet. “Sudden change in the share capital (in 2015, NOF-Rs46.71 lakh, in 2016-NOF Rs121.88 lakh and balance sheet shows that the issue of share worth Rs60.00 lakh), we may call for the details of Rs60 lakh amount.”
The note also points out that Ram Kumar was a proposed director but his name was not there in the board resolution submitted by Vikhyat Finlease. In addition, all proposed directors had submitted credit reports from CIBIL for FY2014-15, which the note says, should be the latest.
The next note on 9 November 2016 states that the company’s application was found in order, and “we may, if approved, request chief general manager, New Delhi office (since the powers for dealing with such cases has been entrusted to the CGM) to grant approval for transfer of shares of the company…”
Based on recommendation from this note, on 16 November 2016, RBI allowed Vikhyat Finlease to change its control and management.
Our emails sent to RBI and SEBI have remained unanswered till writing this story. We will update this story as and when we receive any reply from them.
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