Money & Banking

Banks make higher-than-required provisions for Srei Group exposure

K Ram Kumar | | | Updated on: Nov 05, 2021
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DHFL resolution, healthy Q2 profits provide elbow room

Large public sector banks (PSBs) have proactively made substantially higher provisions, ranging from 40-100 per cent, towards their exposure to the Kolkata-based Srei Group against the usual regulatory requirement of 15 per cent.

Forensic audit

This is due to the uncertainty over what a forensic audit of the account may reveal and the haircut lenders may have to take under the corporate insolvency resolution process (CIRP) initiated against the group.

The Reserve Bank of India’s norms require banks to make a general provision of 15 per cent on their total outstanding exposure to a substandard asset. Unsecured substandard assets attract an additional provision of 10 per cent.

Bankers say they don’t want any surprises on the provisioning front in the coming quarters vis-a-vis the Srei account, which comprises Srei Infrastructure Finance Ltd (SIFL) and its wholly owned subsidiary Srei Equipment Finance Ltd (SEFL).

Moreover, recovery from the resolution of DHFL and healthy profit in the second quarter have given them the elbow room to increase the provisions.

The banks that have made higher upfront provisions towards their exposure to the Srei Group include State Bank of India (SBI, 100 per cent), Union Bank of India (UBI, 65 per cent), Bank of India and Central Bank of India (BoI, CBoI 50 per cent each), and Punjab National Bank (PNB, 40 per cent). PNB has an exposure of ₹2,600 crore to the Srei group, UBI ₹2,558 crore, BoI ₹1,024 crore in direct exposure and ₹970 crore via pooled route, and CBoI ₹1,149 crore. SBI’s exposure is believed to be over ₹2,000 crore.

₹26,476-crore borrowings

As at March-end 2021, the consolidated borrowings of the Srei Group stood at ₹26,476 crore. This includes term loans, working capital facilities, collateral borrowings and unsecured loans. Liabilities in the form of debt securities and subordinated liabilities stood at ₹2,441 crore and ₹2,785 crore respectively.

Governance concerns

RBI had, on October 4, 2021, superseded the Board of Directors of SIFL and SEFL. The central bank, in a statement, said it took this action owing to governance concerns and defaults by these companies in meeting their various payment obligations.

It appointed Rajneesh Sharma, Ex- Chief General Manager, Bank of Baroda, as the Administrator of the aforesaid companies.

The central bank’s applications for initiation of CIRP against SIFL and SEFL under the Insolvency and Bankruptcy Code (IBC), 2016, read with Financial Service Providers Insolvency Rules were admitted by the Kolkata Bench of the National Company Law Tribunal on October 8.

Published on November 06, 2021

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