State Bank of India has initiated a forensic audit on Srei Equipment Finance Ltd’s financials for the previous five years amid weakening business conditions and allegations of fund diversion.

This comes even as the audit commissioned by the Reserve Bank of India has been completed.

Sources said that the bank has ordered a forensic audit to also look into unsubstantiated allegations of diversion of funds recently made by an Australian media site. Recently, Srei has also delayed payments to its bondholders stating that its financials have been hit due to the pandemic.

SBI did not respond to queries sent by BusinessLine.

Covid woes

A spokesperson for Srei Equipment Finance said that the allegations of any diversion are absolutely false and baseless.

“The present imbroglio was created due to a never-before-seen pandemic. It got further compounded as payments of our borrowers have been stuck with the government agencies and arbitration awards remaining unresolved due to the intermittent operations of courts because of COVID-19. All these factors have led to a cash flow mismatch. However, the underlying assets against our loans and the receivables are substantial to repay all our creditors over a period of time,” the company said in response to BusinessLine ’s query, adding that all liabilities will be paid back in an orderly manner.

Sources said that the lenders are doing the forensic audit as they have to take a decision on a proposal to convert a part of Srei’s total debt into five-year secured non-convertible debentures.

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