After months of uncertainty over the debt-laden Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL), the Reserve Bank of India on Monday superseded the boards of the Kolkata-based non-banking financial companies on governance concerns and defaults by the companies in meeting their various payment obligations.

This will pave the way for a debt resolution process under the Insolvency and Bankruptcy Code, similar to the recently-concluded sale of Dewan Housing Finance Corporation Ltd (DHFL) to the Piramal group. The RBI has appointed Rajneesh Sharma, former Chief General Manager of Bank of Baroda, as the Administrator of the two companies.

3-member advisory panel

The central bank has set up a three-member Advisory Committee to assist the Administrator in the discharge of his duties. The members are R Subramaniakumar, former MD & CEO, Indian Overseas Bank; TT Srinivasaraghavan, former Managing Director, Sundaram Finance Limited; and Farokh N Subedar, former Chief Operating Officer and Company Secretary, Tata Sons Limited.

Srei ‘shocked’

A spokesperson for Srei said the RBI’s move comes as a “shock” as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020. “We are surprised by the RBI action because the NCLT order for all creditors is still in process. There is also an order for no coercive measures by the creditors and/or regulators. We will take all necessary steps, as advised by our lawyers in this regard,” the spokesperson said.

“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. Banks have been controlling the company’s cash flow since November 2020. Almost ₹3,000 crore has been collected by them, out of which they have been disbursing to themselves,” the spokesperson added.

The Kolkata headquartered Srei Group owes about ₹30,000 crore in loans to about 15 banks, including State Bank of India, Axis Bank and UCO Bank. UCO Bank is the lead lender and bankers had recently requested the RBI for a DHFL-type resolution for the two Srei companies. The companies have been battling a liquidity crisis due to the Covid-19 pandemic. The moratorium on payments had also impacted cash flows. On a consolidated basis, Srei Infrastructure had reported a net loss of ₹ 971.05 crore for the quarter ended June 30, 2021 against a net profit of ₹23.01 crore in the previous period.

SREI Equipment Finance, which is a wholly-owned subsidiary of Srei Infrastructure Finance, had earlier this year received an expression of interest for up to $250 million capital infusion from US-based Arena Investors and Singapore’s Makara Capital Partners. But these deals have not materialised.

The big question now will be how much money the banks can recover from the NCLT-led process. “Most banks have made provisions to the extent of 15 per cent to 25 per cent against the account, so incremental provisioning impact will be limited,” said Mona Khetan, VP Research, Dolat Capital.

Impact on NCD holders

The other significant impact could be on NCD holders. An investor who has invested close to ₹20,000 in an NCD of the company is worried if he would get his money back. “There was a lock-in for five years and right now I will not even be able to withdraw the money. I do not know if at all I will get my money back,” he said.

Another investor, who also had an investment in DHFL, is however not too worried. “I have an exposure of around ₹15,000 in Srei’s long-term debentures. They are supposed to be payable (interest component) some time soon. I had similar exposure in DHFL and got the money after Piramal took over. If something similar happens, then I am hopeful of getting my investment back,” he said.

 

Declining financial health

As of March 31, 2021, net loans decreased by nearly 25 per cent to ₹21,549 crore

Assets under management fell by nearly

12 per cent to ₹39,498 crore in FY21

Group revenue was down at ₹3,488 crore in FY21 against ₹6,120 crore in FY-20

Provision towards impairment loss allowance increased to ₹6,233 crore as of March 31, 2021

 

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