RBI Set To Conduct Special Audit of SREI Infrastructure Finance and Subsidiary
In a notification to the bourses yesterday, Kolkata-based non banking finance company (NBFC) SREI Infrastructure Finance Ltd informed that a special audit of the company and its subsidiary, SREI Equipment Finance Limited is being undertaken by an auditor appointed by Reserve Bank of India (RBI) in exercise of its powers under Section 45 MA(3) of the RBI Act, 1934. 
 
As per the said section, RBI may at any time by order conduct a special audit of the accounts of a NBFC, if it is of the opinion that it is necessary so to do in the public interest or in the interest of the non-banking financial company or in the interest of the depositors of such company. Usually, a special audit undertaken if there is a sharp deterioration in the quality of lender’s book.
 
SREI holds a 3.34% stake in the Lakshmi Vilas Bank, which has been put under a 30-day moratorium by RBI.
 
Earlier this week, there were news reports that a few lenders to the 35-year old SREI group are expected to approach the National Company Law Appellate Tribunal (NCLAT) over SREI’s move to reconsolidate its assets in a separate group company in potential breach of loan covenants. The matter relates to the consolidation of the group’s lending business into Srei Equipment Finance Ltd (SEFL) announced last year. This was done through a slump exchange and was effective 1 October 2019.
 
In July 2019, the company said “The proposed step will also facilitate the lending entity, SREI Equipment, to attract strategic investors and also prepare the company for a conversion into a bank, as and when the RBI decides to allow the conversion."
 
SREI Infrastructure Finance had shared in its FY19-20 annual report that both companies (SREI Infrastructure Finance and SREI Equipment Finance) had obtained approvals from their respective lead bankers to the consortium, Axis Bank Ltd and UCO Bank Ltd, and a few other lenders, but approval from the remaining lenders is still in process. According to the company, “Usually, the formal approvals take time due to the internal processes of the lenders. Unfortunately, because of the outbreak of covid-19 in March 2020 and the continued lockdown, the entire process got delayed further.”
 
The company claimed that the slump exchange process involves taking approval from several stakeholders and, hence, the company has taken approvals from debenture trustees, shareholders, lenders and several other stakeholders, including the lead banker. 
 
As a direct fallout of the IL&FS (Infrastructure Leasing & Financial Services) debacle in 2018, SREI had to face some challenging times but has especially seen new business come to a standstill and liquidity drying up in the current financial year. Mr Hemant Kanoria had earlier in August made a statement that the lender was looking at mergers with a bank as a possible survival strategy.
 
Last week, the company  reported a drop of 91.5% in its consolidated net profit at Rs4.72 crore in the second quarter ended September 2020. It had posted a net profit of Rs55.37 crore in the year-ago period. Sequentially, the profit was also down from Rs23.01 crore posted in the June quarter of the current fiscal year. 
 
The company reported in a regulatory filing, that its total consolidated income decreased to Rs1,182.21 crore during the July-September period of 2020-21 as against Rs1,424.18 crore in the same period of 2019-20. The company also shared that consolidated assets under management stood at Rs43,339 crore as on 30 September 2020 as compared to Rs44,213 crore as on 30 June 2020. The company’s balance sheet has been shrinking over the last two years.
 
Commenting on the financial results last week, Mr Kanoria said "The first half of this financial year has been very challenging for businesses and stability has been the mantra in this period of pandemic. Many sectors have already started doing well. But infrastructure is a sector where projects have long gestation periods; so any fundamental disruption takes a long time to bring business back on track.” 
 
He had added that “The immediate need of the hour is for state governments, the central government and all public sector undertakings to release the dues of the contractors/construction companies, and the judiciary to issue appropriate orders that when an arbitration award is against a government organisation or the government, it should not be "stayed". If cash flow improves in the hands of contractors/infrastructure companies by realisation of dues/arbitration award payments then the companies can revive and complete pending contracts and/or undertake new one.”
 
Last week, in a separate news report, the National Company Law Tribunal (NCLT) directed ArcelorMittal Nippon Steel India to pay Rs1,300 crore to SREI Infrastructure for using the slurry pipeline during the insolvency period.
 
The NCLT order on 21st October has mentioned that creditors to the company will meet on 16th December and 23rd December. On 9th November, Care Ratings placed ratings of SEFL under credit watch with developing implications pending outcome of the proposed meetings of creditors and said “The collections of SEFL have continued to remain impacted even after the end of the moratorium because of the challenges in deployment and slow movement in infrastructure projects on account of the COVID-19 pandemic. Further, it has been approached by a large proportion of its borrowers for restructuring as per RBI guidelines. The company has total bank facilities of Rs16,912.2 crore.”
 
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    COMMENTS

    anant.9196

    4 days ago

    Another fiasco in the making??

    RBI Committee Recommends Large Corporate-backed Private Banks; Increase in Bank Promoters' Stake to 26%
    An internal working committee set up by the Reserve Bank of India (RBI) has recommended path-breaking reforms in the Indian banking sector, including participation of large Indian corporates and industrial houses as promoters of banks. The committee headed by PK Mohanty also suggested to increase in promoters' stake to 26% after a lock in period of five years.
     
    "Large corporate or industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulations Act to deal with connected lending and exposures between the banks and other financial and non-financial group entities; and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision," the committee says in its recommendations. RBI has published the committee report on its website.
     
    The PK Mohanty-headed working group was set up in June this year to examine and review the extant licensing and regulatory guidelines relating to ownership and control, and corporate structure of Indian private sector banks.
     
    In its report, the working group has also batted for conversion of well-run large non-banking finance companies (NBFCs) with an asset size of Rs50,000 crore and above and including those which are owned by a corporate house, into banks, provided they have completed 10 years of operations and meet the due diligence criteria and satisfy other additional conditions.
     
    With regard to the complex ownership structure that is in place for the banking sector in India, the working group has recommended a more liberal structure that allows promoters to hold higher shareholding in private banks.
     
    It has suggested that while the initial five-year lock-in period for promoter shareholding in banks with a minimum holding of 40% of the paid-up voting equity share capital may continue, the cap on promoters' stake in the long run of 15 years may be raised to 26% from the current levels of 15%.
     
    "This stipulation (26% shareholding) should be uniform for all types of promoters and would mean that promoters, who have already diluted their holdings to below 26%, will be permitted to raise it to 26% of the paid-up voting equity share capital of the bank. The promoter, if he/she so desires, can choose to bring down holding to even below 26%, any time after the lock-in period of five years," the committee has said in its report.
     
    As per the current regulations, promoters of banks have to reduce their shareholding to 15% level.
     
    The suggestion from the working group, to allow corporates and industrial houses become promoters of banks is in line with evolving thinking that a liberal ownership structure, backed by strong regulation, and may help expanding banking services in the country while getting the requisite investment from the corporate sector.
     
    So far, RBI had remained reluctant to permit large corporate houses to promote banks as such a structure is seen to hamper free and fair operations of the banks while presenting a case for conflict of interest.
     
    The NITI Aayog, on the other hand, had recently recommended to the government that long-term private capital should be allowed into the banking sector. It also suggested giving banking licences to select industrial houses.
     
    To provide further flexibility to promoters of private banks, the committee has said that no intermediate sub-targets between 5 and 15 years may be required for reduction in shareholding.
     
    "However, at the time of issue of licences, the promoters may submit a dilution schedule which may be examined and approved by the Reserve Bank. The progress in achieving these agreed milestones must be periodically reported by the banks and shall be monitored by the Reserve Bank," the committee said.
     
    Here are the key recommendations made by the Mohanty committee...
     
    The cap on promoters’ stake in the long run (15 years) may be raised from the current level of 15% to 26% of the paid-up voting equity share capital of the bank.
     
    As regards non-promoter shareholding, a uniform cap of 15% of the paid-up voting equity share capital of the bank may be prescribed for all types of shareholders.
     
    Large corporate/industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent connected lending and exposures between the banks and other financial and non-financial group entities); and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
     
    Well-run large non-banking Finance Companies (NBFCs), with an asset size of Rs50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard.
     
    For payments banks intending to convert to a small finance bank, track record of 3 years of experience as payments bank may be considered as sufficient.
     
    Small finance banks and payments banks may be listed within ‘six years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier.
     
    The minimum initial capital requirement for licensing new banks should be enhanced from Rs500 crore to Rs1,000 crore for universal banks, and from Rs200 crore to Rs300 crore for small finance banks.
     
    Non-operative financial holding company (NOFHC) should continue to be the preferred structure for all new licences to be issued for universal banks. However, it should be mandatory only in cases where the individual promoters / promoting entities/ converting entities have other group entities.
     
    While banks licensed before 2013 may move to an NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within five years from announcement of tax-neutrality.
     
    Till the NOFHC structure is made feasible and operational, the concerns with regard to banks undertaking different activities through subsidiaries/ joint ventures/ associates need to be addressed through suitable regulations.
     
    Banks currently under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold.
     
    RBI may take steps to ensure harmonisation and uniformity in different licensing guidelines, to the extent possible. Whenever new licensing guidelines are issued, if new rules are more relaxed, benefit should be given to existing banks, and if new rules are tougher, legacy banks should also conform to new tighter regulations, but a non-disruptive transition path may be provided to affected banks.
     
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    COMMENTS

    Ramesh Popat

    6 days ago

    a move to diminish some psu banks in due course
    though the process already initiated and some
    banks may go the pvt banks. hopefully not foreign
    banks will be allowed as in lvb.

    Kamal Garg

    6 days ago

    Current cap on voting rights is 10% or 15% of the paid up share capital of a bank for the both the categories. i.e. promoters and non-promoters ?

    Raymond fined for violations, SEBI finds governance failure
    An investigation by the Securities and Exchange Board of India (SEBI) has found that Raymond Ltd failed to take necessary approval for certain related party transactions in the matter of leasing or renting JK House in the city, among other violations of regulations.
     
    In its order, the capital markets regulator said that during the course of examination, it was observed that Raymond had allegedly failed to take necessary approval for certain related party transactions, thereby violating the provisions of Regulation 23(2) of LODR Regulations read with Clause 49(VII)(D) of the erstwhile equity listing agreement (amendments introduced vide SEBI circular dated April 17, 2014).
     
    It further found that the company had allegedly failed to disclose litigation filed by Akshaypat Singhania, Veenadevi Singhania and Anant Singhania in January 2017 along with brief details of litigation and expected financial implications, thereby violating LODR norms.
     
    The noticee had allegedly reclassified a promoter to public shareholder in June 2017 without following the due process of reclassification, thereby violating the provisions of Regulation 31A of the LODR Regulations, SEBI said.
     
    SEBI has alleged that Raymond failed to take necessary approvals for related party transactions. It has been observed that during FY 2006-2007 to FY 2016-2017, JK House, situated at 59A Bhulabhai Desai Road, Mumbai, was leased or rented to the promoter or director of Raymond through a tripartite agreement between Pashmina Holdings Ltd, the sub-lessor, and Raymond (lessor).
     
    The probe found that the sub-tenants were paying a paltry sum of Rs 7,500 per month as rent, whereas the expenditure incurred by the company for providing alternate accommodation to each of the sub-tenants was Rs 8 lakh per month.
     
    Further, in FY 2015-16, rent paid by sub-tenants remained the same but expenditure incurred by the company for providing alternate accommodation to each of the sub-tenants increased to Rs 12 lakh per month.
     
    "Thus, it is alleged that the company provided alternate accommodation to sub-tenants at approximately 99 per cent discount. Such disparity in rent paid by the sub-tenants and the company indicates that the intent of the tripartite agreement was to provide unfair economic benefit to the promoters at the cost of the company and its shareholders' funds," said the 72-page SEBI order.
     
    The company through a letter dated June 6, 2017 had submitted that "no approval of audit committee was required as payments with respect to alternate accommodation were made directly to the licensors, being unrelated third parties (under relevant leave license agreements), who were and are in (no) way related parties (as defined under Companies Act, 2013)".
     
    Further, as per listing obligations and disclosure norms, all related party transactions shall require prior approval of the audit committee.
     
    The SEBI order said that the tripartite agreement is a deemed related party transaction, thus any payment arising out of the tripartite agreement should also be considered as a related party transaction. Therefore, audit committee approval was required for payments made pursuant to the tripartite agreement from December 1, 2015 under LODR Regulations.
     
    The probe also found from the shareholding pattern for the quarter ended March 2017 that Ritwik A. Ruia held 2,000 shares of the company under the category 'Promoter and Promoter Group'.
     
    For the quarter ended June 2017, Ruia was not reflected as part of the 'Promoter and Promoter Group' of the company. However, vide letter dated September 7, 2017, the company in its reply has confirmed that "Ritwik Ruia continues to be part of Promoter and Promoter Group of the Company".
     
    It was also observed that the company has subsequently modified the holdings of the Promoter and Promoter Group for the quarter ended June 2017, by including Ruia as part of the promoters, holding 'nil' shares of the company.
     
    Thus, it is alleged that the company has not followed any procedures specified under Regulation 31A of Listing Regulations, 2015 for reclassification of promoter to public shareholders and accordingly filed an incorrect information with stock exchange, SEBI said.
     
    The order by K. Saravanan, Adjudicating Officer and Chief General Manager, SEBI, said: "I note that considering the stature of the Noticee I (Raymond), I expect the noticee to maintain a higher level of due diligence in its compliance with the provisions related to corporate governance.
     
    "However, the noticee has not only failed to do so, but also allowed the sub-lessees to unduly benefit at the loss of itself and its public shareholders. While not alleged in the SCN (show-cause notice), I clearly note that the noticee has failed to adhere to the best practices of corporate good governance."
     
    The regulator said that in the event of failure to pay the penalty of Rs 7 lakh within 45 days of the receipt of the order, recovery proceedings may be initiated under Section 28A of the SEBI Act for realisation of the said amount of penalty along with interest thereon, by attachment and sale of movable and immovable properties.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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