RBI Supersedes Boards of Srei Infrastructure Finance, Srei Equipment Finance
Moneylife Digital Team 04 October 2021
The Reserve Bank of India (RBI) on Monday superseded boards of Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL) due to governance concerns and defaults. RBI has appointed Rajneesh Sharma, former chief general manager (CGM) of Bank of Baroda as an administrator of these companies.
In a release, the central bank says, "The Reserve Bank also intends to shortly initiate the process of resolution of the two non-banking finance companies (NBFCs) under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the National Company Law Tribunal (NCLT) for appointing the administrator as the insolvency resolution professional (IRP)."
Srei group, however, expressed shock at the RBI decision. In a statement, a spokesperson of the Srei group says, "We are shocked by the RBI's move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020. Moreover, we have not received any communications from banks on any defaults. We are also surprised because the NCLT order for all creditors is still in process. There is also an order for "no coercive measures" by the creditors and regulators. We will take all necessary steps as advised by our lawyers in this regard."

However, he says, "we had submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. However, they have neither accepted the scheme nor proposed a payment schedule acceptable to them."

According to the spokesperson, banks have been controlling the company's cash flow since November 2020. "Almost Rs3,000 crore has been collected by them, out of which they have been disbursing to themselves. Over the last three decades, Srei has already paid Rs30,000 crore as interest and another Rs20,000 crore principal to banks. There has never been any delay in loan servicing by Srei in the past before COVID-19 ravaged the country," he added.
Kolkata-headquartered Srei group, which includes SIFL and SIFL's wholly-owned subsidiary SEFL, have been under stress for about a year now. (Read: SREI's Rs35,000 Crore Loan May Be Classified as NPA as NCLAT Sets Aside NCLT Order; Rakesh Bhutoria Quits)
Earlier in June this year, Srei revealed in regulatory filings that RBI had detected under-provisioning against stress and had (in FY19-20) flagged off lending to probable related and connected parties by the SREI group.
RBI had initiated an audit of its books in November 2020 and identified certain borrowers with loans worth Rs8,576 crore as 'probable' connected or related parties. This corresponds to almost 30% of the group's total loan assets amounting to Rs28,794 crore. (Read: Srei Quarterly Earnings Disclosure: RBI Flagged Under-Provisioning, Probable Related-Party Lending)
For FY2020-21, the company had made expected credit loss provisions worth Rs4,685 crore. As per the RBI's directions, over and above this, the company made additional provisions worth Rs4,475 crore under the income recognition and asset classification norms.
CARE Ratings and Acuite Ratings & Research have already downgraded the company's rating. Since it is a known stressed account, many lenders were getting ready to have it appropriately recognised (downgrading to the non-performing asset—NPA—or stressed pool) or provisioning.
It may be recalled that a lot of retail investors, including many senior citizens, have invested in non-convertible debentures (NCDs) of Srei (both group companies) in the hope of earning better interest on their investment corpus. Since Srei has been a non-deposit taking non-banking finance company (NBFC), the retail investors' investments are restricted to only non-convertible debentures (NCDs).
Last December, the Kolkata bench of NCLT had issued an order stating that any non-payment by Srei will not be recognised as an event of default till a scheme of arrangement is signed by all creditors. However, last month, the National Company Law Appellate Tribunal (NCLAT) set aside the order passed by NCLT.
The company crisis has also led to mass-level exits, across all levels, from the company since December 2020. Nearly 250 employees of the company are learnt to have left the company so far, mainly because the lenders' consortium to Srei has taken control of the company's cash-flows.
Last month, SIFL announced sold shares in its subsidiary company Trinity Alternative Investment Managers Ltd (TAIML) to Backbay Investment Managers Pvt Ltd (BIMPL) for about Rs1.33 crore, or Rs166.23 per equity share.
Kamal Garg
7 months ago
I have always wondered how all government agencies and regulators work. Every body is very clear that they have to wake up only after the horse has run away from the stable leaving nothing behind. Look at the cases handled by RBI - DHFL, Laxmi Vilas Bank and Yes Bank fiasco.
7 months ago
How come RBI has not released any report on what are wrong doings, and the reasons for the takeover.
How can they announce an IBC? Do they have the complete financials of the company? If so, why was this not released. Mr. Kanoria seems to think it is still a viable company?
If there were fraud committed? why is that they have not booked or Charge sheeted any of the Executives / BOD?
Company claims that all the related party transactions are SPV's for Infra lending? There were only headlines news on over 8800+ crores of related party transactions? Doesn't related party transactions need to be flagged in the audit?
What are the underlying assets? If there are defaulters of the Infra lending how much of this is thru the RLP? or the Equipment owners? Can we classify that?
We never get a simple clean report on who were the ultimate defaulters? and how many of them are there?
Even in the case of DHFL was the complete haircut of 76000+ Crores a fraud? isn't this is a massive fraud? requiring a complete report on where the money got stuck and what if the recovery is eventually or recovery made.
It always the NCD holders who get the Short end of the stick. Debenture trustees are a sham, they are just to file the motions and create votes for claim their fees? How are the secured debentures created? isn't this is a misnomer if there is no underlying security for the secured debentures? one would imagine that it will be role of the Debenture trustees that in the normal course of the business that the NCD holders interest are protected and the underlying security is sufficient to meet the obligations?
Any how our regulators have failed again and the IBC process means that CIRP fees, Trustee's expenses Fees etc etc.. and some one who is going to bid to going for a great haircut and steal the wealth at a lucrative price..
Kamal Garg
Replied to pr1987 comment 7 months ago
Yes, Debenture Trustees are a big shame. Now RBI and SEBI should take strict action against these high and mighty debenture trustees who only work as a postman and actually work on behalf of the company/debtor and let the investors run high and dry, making the process even more complex and in turn losing every thing for the investors.
7 months ago
Choron ki toli me aur ek shamil.
Our country is full of such fraudsters.
Else, we as a country, have enough riches to support all citizens without paying any tax.
Pawan Sood
7 months ago
I have Rs.45K stuck in the NCDs. Hope, resolution like DHFL comes through so that we can get back atleast the princpal.
7 months ago
Already we are suffering without interest from Jan' 2021. Being Sr citizen depend upon day to day life on interest payment, now not sure what will our NCD + Intertest amount status? Can RBI do some thing to release our NCD matured amount?
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