Money & Banking

‘We are continuously exploring opportunities to strengthen our capital base’

Shobha Roy Kolkata | Updated on January 12, 2021 Published on January 12, 2021

Srei Infrastructure Finance, which has been in the eye of the storm lately following a special audit by the Reserve Bank of India, and its proposal to consolidate all its loan portfolio into one company facing a roadblock with a section of lenders alleging that it was done without their prior approval, is looking to accelerate collections, strengthen its capital base, and repay all its liabilities in an orderly fashion.

The company is also working closely with bankers, and expects an orderly closure in the coming months. In an exclusive interaction with BusinessLine, Hemant Kanoria, Chairman, Srei Infrastructure Finance, spoke about the challenges faced by the group and the way forward. Excerpts:

Give us a sense of the changes that you have made in your business model in the current operating environment.

We entered the infrastructure space through equipment financing in 1989, and over the years, attained market leadership through a pan-India presence and 1,00,000 customers. Along the way, we also entered the project financing business and started offering structured loans, directly and through SPVs, which have supported infrastructure development in India. We have always believed in asset-backed lending; in project financing, too, our model has been to lend against assets/projects.

These are monitored on a continuous basis so that if the need arises, our teams can step in to address the underlying issues and recover the money. The NBFC model has allowed us that flexibility. However, over the last few years, since NBFCs were directed to follow guidelines on provisioning and certain other norms just like banks, we took a conscious decision to reduce our loan book, especially our project portfolio. The focus now is only on equipment financing, primarily through co-lending model.

In keeping with the times, we have also adapted to the digital era by becoming the first company to take our core business of equipment financing online and partnering with a digital platform in order to leverage the opportunities and efficiencies that technology can bring to our sector. So, our business model is to focus on our key area of expertise, while at the same time leverage technology to support and enhance it.

As per your earlier plan, you were looking to consolidate your loans into the equipment finance company and exit infrastructure/project financing business completely. But that plan seems to have met a roadblock, with some lenders raising concern. What will be the way forward?

The slump exchange consummated effective October 1, 2019, with the intent to improve the group’s operational efficiency. The idea was to combine the loan book of Srei Infrastructure Finance, which includes structured infrastructure loans, with the loan portfolio of our equipment finance company and consolidate all our loan portfolios into one company.

We had gone through the entire process as per law, and had received approvals from our lead bankers, shareholders, bond holders and other creditors. Unfortunately, because of Covid-19 and the ensuing lockdown, there was a delay in getting approvals from some banks.

It is our misfortune that the Covid-19, which no one could have predicted, affected an orderly and smooth implementation of the slump exchange. However, we are working closely with the bankers and expect an orderly closure in the coming months.

The RBI’s special audit comes at a time when the overall sentiment for the NBFC industry is weak. How has this impacted your company? How do you

see tiding over this issue?

The regulator in its authority can at any time conduct inspections/audits/special audits on any entity regulated by it. It may not be appropriate to assume that special audit would adversely affect the overall sentiment for NBFCs.

Do you plan to raise capital?

For NBFCs, money is the raw material. We are continuously exploring opportunities to strengthen our capital base and remain confident of raising resources. Given our track record and strong franchise, there are potential investors who can be tapped as soon as we are able to realign our repayments with our customers’ cash flows.

The RBI has flagged concerns regarding the asset quality of the banking industry. How do you see the impact of NPAs on NBFCs and on your company?

The RBI expects the bad loans levels in banks to touch 12.5 per cent under the baseline scenario by March 2021. This is definitely worrying for the NBFC sector as the supply of funds from banks will further dry up as they will continue to be risk-averse. Until and unless NBFCs are able to tie up alternative sources of funds, NBFCs will not be able to grow beyond a point.

The outbreak of Covid-19 created an unprecedented situation which no one could have anticipated. More than half of our borrowers have requested for one-time restructuring of their loans.

Our priority is to accelerate collections and monetise various arbitration awards. Despite the challenges, we expect that given the underlying assets against our loans, we will be in a position to recover our loans over a period of time.

What is your total debt as on date and how comfortable are you in servicing the same?

Srei has a net debt of ₹28,000 crore, out of which net bank debt is ₹18,000 crore. In the last 31 years, we have paid more than ₹30,000 crore interest to banks and ₹20,000 crore as principal, and always on time. The pandemic has made things complicated. However, collaterals/securities against our loans, together with our receivables, are sufficient to repay all our liabilities in an orderly fashion.

Are you seeing any greenshoots any time soon?

While there are some greenshoots visible, so far, they have been restricted to only a few sectors. Our borrowers from the infrastructure, construction and mining sectors are still struggling, and the recovery in these segments will take more time. The government and the RBI have taken a number of steps to revive the economy. I hope the Budget will provide the much-needed push to the infrastructure sector which, in turn, will trigger demand at the grassroots.

We hope that 2021 will be a defining year ushering a fresh work culture where arbitration awards will be paid expeditiously, contractor payments get settled in time, and all infrastructure projects come with a ‘deemed clearance’ clause, whereby any approval or permission, if not provided within a deadline, are ‘deemed cleared’ so that no project is held up.

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Published on January 12, 2021
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