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IndoStar Capital Finance posted a net loss of ₹754 crore in the March quarter against a net loss of ₹317 crore logged in the same period last year. The financial results of the company for Q4FY22 and FY22 were delayed due to the audit reviews, the company said in June.
Income increased to ₹341 crore (₹278 crore). Impairment on financial instruments for the quarter ended March was ₹1,032 crore compared with ₹377 crore in the year-ago period. Provisions for expected credit loss for FY22 were at 1,151 crore.
In a release, lndoStar Capital said that it continues to see a strong improvement in collections and expects a material reduction in the quantum of stressed assets in Q1FY23, the results for which it expects to declare by August 14. “Liquidity continues to remain strong in Q1FY23 and the company has a robust pipeline to raise incremental funding for its growth plans,” it said.
CV loan audit
The audit committee of IndoStar Capital had appointed Ernst &Young LLP as an independent external agency to review the policies, procedures and practices related to sanctioning, disbursement and collection of CV loans.
In May 2022, IndoStar declared that it may be required to make additional estimated credit loss provisions of ₹557-677 crore. Following that, on June 3, the scope of the review was expanded to include small and medium enterprise loans.
As of March 31, gross loan balances for CV and SME loans were ₹4,484 crore and ₹1,535 crore, respectively, out of the total portfolio of ₹7,608 crore. The impairment allowance of ₹1,117 crore as of March 31, included ₹886 crore for CV loans and ₹85 crore for SME loans. Further, security receipts relating to CV loans were ₹413 crore, for which the company had a related impairment allowance of ₹182 crore.
Audit findings
The company said that the final findings of the EY review, pertain largely to control deficiencies and are the same as were disclosed in May. These include deviations from credit policy in the approval process for loans to existing customers and waivers in foreclosure cases, and failure to comply with certain required steps while restructuring loans.
The audit committee in May also initiated a separate review for a root cause analysis of deviations to policies and gaps in the internal financial controls and systems. For this, the company has appointed an external law firm, and the review is currently ongoing, it said in an exchange filing.
Meanwhile, the audit committee has initiated corrective measures to strengthen the control deficiencies and ensure improvement in the process and control environment of the company. “The management has been tasked with identification, assessment, development of risk mitigation plans and monitoring of action plans,” it added.
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