Concerns over ever-greening of loans, negative Capital-to-Risk (Weighted) Assets Ratio (CRAR) and default in payments of over ₹10,000 crore to lenders had prompted the Reserve Bank of India to supersede the boards of Srei Infrastructure Finance and Srei Equipment Finance.

Documents seen by BusinessLine reveal that the RBI had conducted a special audit in December 2020 and January 2021 that revealed that funds disbursed by Srei Infrastructure Finance to certain borrowers were received back from the borrowers and their group companies the same date or dates close to disbursement, indicating ever-greening of loans.

Bombay HC dismisses petition by Srei promoters

All norms flouted

The statutory inspection of Srei Equipment by the central bank revealed “serious deterioration in its financial position” as on March 31, 2020. It revealed a negative CRAR of 3.4 per cent against the regulatory requirement of 15 per cent and non-adherence to Income Recognition, Asset Classification and Provisioning norms, which revealed huge divergences. The RBI listed out several other reasons too for superseding the boards of the two firms. It said that Srei Equipment had remained non-compliant with RBI regulations despite continuous engagement and follow up and had failed to take corrective action on governance, systems, control and compliance.

Srei Infra and Equipment Finance have debt obligations of over ₹29,000 crore

Srei Equipment had defaulted in repayment of bank and market borrowings, raising serious concerns. Its borrowings totalled ₹20,411 crore as on June 30, 2021 and it had defaulted with 13 lenders for ₹10,457 crore.

“The supervisory concerns (example, negative CRAR, high net NPA ratio, violation of IRACP norms, ever-greening of NPA accounts, connected lending, weak corporate governance standards, inadequate systems and control, poor compliance standards) observed during past inspections by the RBI were communicated through supervisory letters, DO letters and also reiterated in the meetings the Reserve Bank had with the management of the company,” the RBI noted in its internal report.

The central bank said that the companies gave effect to the slump exchange despite not getting a NOC (no objection certificate) from the majority of the lending institutions. “The board of directors of SEFL and SIFL had on July 4, 2019 approved the transfer of assets of SIFL by way of slump sale to SEFL with effect from October 1, 2019,” it said.

No fund diversion: Kanoria

When contacted, Hemant Kanoria, promoter and former chairman of Srei Infrastructure, said, “From our side, we have been very clear that there has been no diversion of funds and all the money has gone into projects, and assets have been created out of that. It is sad that these kinds of charges were levelled.”

The NBFC reported a sharp decline in CRAR and this was mainly due to all the provisions “we made in the last two quarters,” he said. On the appeal in the Bombay High Court, Kanoria said it was only to see if the RBI would give it time to seal a deal with two investors — US-based Arena Investors LP and Singapore-based Makara Capital Partners Pte Ltd, which had earlier evinced interest to pick equity stake in Srei.

“But then it was not accepted (by the court). With full faith, we have built this organization and we have full faith in the regulator, the bankers and the government to take necessary steps to do what is appropriate for the company,” he told BusinessLine .

When asked if he would consider moving the Supreme Court, he said, “We have to see what is the stand of the regulator…..this is a financial institution so we have to work as per the blessing of the regulator only.”

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