Sambandh Finserv Defaults in Payment due to Liquidity Issues; Loan Fraud by MD & CEO, Alleges CFO
Odisha-based Sambandh Finserve Pvt Ltd has defaulted in its payment obligations arising due to internal fraud unearthed at the end of September 2020. In a note to the board of directors, four officials, including its chief financial officer (CFO) James Raj, has levelled serious allegations against the company's founder, Deepak Kindo, who is also managing director (MD) and chief executive officer (CEO) of Sambandh Finserve. They allege that assets under management (AUM) have been inflated by a whopping Rs250 crore by showing fictitious disbursement, withdrawals and showing deposits as collections.   
 
A note prepared by CFO James Raj, and three others, for the board, reveals that there were serious irregularities in the functioning of the management.
 
"The actual portfolio as (AUM) is around Rs140 crore as against reported figure of Rs391 crore as on 30 September 2020. The reported AUM is inflated and non-existent. The gap is about Rs251 crore," it says. 
 
The note also alleges that "this gap in the portfolio was managed by fictitious disbursement, subsequent withdrawals and deposited as fictitious collections under the direction of MD and CEO saying it would be managed soon and it goes on. This has been going on since the financial year 2015-16 and the gap has simultaneously gone up beyond control."
 
According to the note, "there is pilferage in the cash withdrawn for disbursement by the MD and CEO and diverted to other entities namely Diya Dairy & Agroprocessors Pvt Ltd, Kshamta Foundation, Regional Rural Development Centre, DK Enterprises, Utkal Dairy and other unknown persons or entities."
 
All this was done under the instructions of the MD and CEO, it is alleged. The note claims that these instructions were followed and executed 'under extreme duress and intimidation' in the belief that it would be 'managed soon'.  
 
The note goes on to blame several other executives without naming them, but says that the “fake portfolio on the ground was managed by the current COO and the regional business leader” responsible for Orissa and Chhattisgarh. 
 
The note has several general allegations and asks the board to initiate further investigation and take action for safeguarding the interests of all stakeholders and the safety of those who have blown the whistle on the fraud. (check the note at the end of this article.)
 
Meanwhile, Brickwork Ratings (BWR) has downgraded the long-term rating of Sambandh Finserve's non-convertible debentures (NCDs) and bank loan facilities to BWR D from BWR BBB- with positive outlook.
 
In a release, BWR says it downgraded Sambandh Finserve's ratings as per the feedback received from one of its lenders on 10 October 2020. However, when BWR called the company officials, it was informed by James Dinesh Raj, chief financial officer (CFO) of Sambandh Finserve, about the internal fraud where large quantum of bogus loans entries was made in the book of accounts of the company. 
 
"This also resulted in the company facing sudden liquidity issues since the first week of October 2020. The CFO informed BWR that they have timely met all repayment obligations on time till the month of September 2020. He also informed BWR that an internal investigation is being initiated by the board of the company with regards to the loan fraud unearthed," the note says.
 
 
 
Sambandh Finserve has two NCDs worth Rs50 crore and one fund-based term loan of Rs383 crore, taking the total of its debt instruments to Rs433 crore. As on FY19-20, the company has asset under management (AUM) worth Rs461.38 crore.
 
In June this year, Opportunity International Australia's subsidiary Dia Vikas Capital Pvt Ltd invested Rs2.5 crore in Sambandh Finserve.  
 
In 2013, Sambandh Finserve got registered with the Reserve Bank of India (RBI) as a non-banking finance company – micro finance institution (NBFC-MFI). Before that, it was working as NBFC and MFI since 2006. In FY19-20 the company started its operations in Bihar and Gujarat through 34 new branches and has an active customer base of 0.22 million.
 
It offers customised lending and financing solutions to low-income households and to those having little access to formal financial avenues, who use the credit to run small businesses, renovate their dwelling units and educate their children.
 
Sambandh Finserve has presence in the five states of Odisha, Chhattisgarh, Jharkhand, Bihar and Gujarat and offers personalised credit and wealth management solutions to its clients.
 
Here is the note prepared by four officials of Sambandh Finserve…
 
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    COMMENTS

    saharaaj

    2 weeks ago

    It is like rapists, killers, extortionist become minister so the promoters, their kins lateral and direct join top posts and award them selves designation . if it was US all would have been behind bars, here political parties will rush to offer savior service in return for grease on the palms every one happy

    yerramr

    2 weeks ago

    What sort of rating institutions we have? Do they need a whistle blower to point out corruption by none other than MD? This fraud must be in existence even before the earlier rating by the BRICKS. One of the most important things to be done in the financial reforms is correcting the rating agencies by building a code for all of them to work and transparently too.

    REPLY

    AJ_AJ

    In Reply to yerramr 2 weeks ago

    What could rating agencies do in this case? They are not forensic auditors. Even a FPI got burnt...

    Union Bank of India's Capitalisation under Strain after Merger with Andhra Bank and Corporation Bank: S&P
    The merger of Union Bank of India with Andhra Bank and Corporation Bank in April 2020 has eroded its capital buffers. Tough operating conditions will further strain the Bank's already weak capitalisation, says S&P Global Ratings.
     
    In a note, it says, "We anticipate Union Bank's earnings will remain muted for the fiscal year ending 31 March 2021. The amalgamated entity could take more than two years to benefit from the significant improvement in scale and franchise, and generate superior profitability."
     
    "Meanwhile, the sizable pile of stressed assets will likely drag on earnings. Union Bank's capitalisation could also become increasingly stressed as credit costs are likely to stay high, given our forecast that India's economy will shrink 9% this fiscal year. The bank's Tier 1 capital ratio fell to 9.5% as of 30 June 2020, compared with the pre-merger level of 10.7% as of 31 March 2020," the ratings agency says.
     
    According to S&P, the challenging operating environment and lower capitalisation post-merger could weigh on its assessment of Union Bank's capital position and stand-alone credit profile (SACP). 
     
    It says, "We may lower the bank's SACP by a notch to 'bb-' from 'bb' if we believe its risk-adjusted capital ratio would drop below 5% over the next 12-18 months. However, government support should continue to underpin the ratings. Our outlook on Union Bank is stable, and we see a very high likelihood that the bank will receive support from the Indian government if needed."
     
    In S&P's views, Union Bank will be dependent on infusions from the government to ensure compliance with regulatory minimum capital requirements until earnings recover. 
     
    It says, "The bank's board has approved an Rs100 billion capital-raising plan, which we believe will alleviate, but not completely offset, downside risks. We also stopped assigning equity credit to additional Tier 1 instruments issued by Indian public sector banks, including Union Bank, due to uncertainty over their ability to absorb losses on a going-concern basis." 
     
    "We are awaiting comprehensive Pillar 3 disclosures of the amalgamated entity to assess its capital position under our risk-adjusted capital framework. The amalgamated entity's future capital-raising and management plans will be key to its stand-alone creditworthiness," the ratings agency concludes.
     
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    Interest Waiver:'Common man's Diwali in your hands', SC Tells Govt
    The Supreme Court on Wednesday told the Centre that the common man's Diwali is in the government's hands, as it sought implementation of the decision to waive interest-on-interest for loans up to Rs2 crore for eight categories.
     
    The top court gave time till 2nd November to the Centre to update it on the issuance of circulars in this matter.
     
    A bench, headed by Justice Ashok Bhushan and comprising Justices MR Shah and R Subhash Reddy told solicitor general Tushar Mehta, representing the Centre, that it does not require one month time to implement its decision on waiver of interest on interest on loans up to Rs2 crore.
     
    "This is not fair on the part of the government," said Justice Bhushan, noting that the top court has given enough time to the government to act in the matter.
     
    "When you have decided, then why it is taking time," he asked.
     
    The bench insisted that the Centre should issue necessary orders based on its decision so that the common man can receive the benefits.
     
    Justice Shah told Mr Mehta that the government should see the plight of the common man, as they know that Centre has taken a decision in their favour. "But they want some concrete result," he added.
     
    Mr Mehta said the government has considered the plight of the common man and it does not gain anything by delaying its decision unnecessarily, but there are certain formalities which have to be completed.
     
    To this, the bench said the government should have issued a circular to implement its decision. Mr Mehta replied that banks will waive interest on interest and then they will get reimbursement from the government in the eight categories of loans up to Rs2 crore.
     
    "To implement this, we have to ensure banks give us proper format," he submitted.
     
    Justice Bhushan said the court will hear the matter in November and then the Centre should inform it steps taken to implement its decision.
     
    "We want order for circular for implementation of this decision," he said.
     
    The bench reiterated that it welcomes the decision of the Centre, but the only thing is that it should be translated practically.
     
    Justice Shah said that "the common man's Diwali is in the government's hands."
     
    The top court has scheduled the matter for further hearing on 2nd November.
     
    The government has agreed to waive compound interest on MSME and personal loans up to Rs2 crore during the moratorium.
     
    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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