Informist, Monday, Oct 4, 2021

--RBI: Superseded Srei cos' boards due to defaults, governance issues    

--Rajneesh Sharma to be Srei Infra, Srei Equipment's administrator  

--Plan to shortly initiate IBC process vs Srei Infra, its arm  

By Alekh Archana

MUMBAI – The Reserve Bank of India today superseded the boards of Kolkata-based Srei Infrastructure Finance and Srei Equipment Finance owing to governance concerns and default on meeting various payment obligations.

Thses two Srei Group companies are the second set of non-bank lenders whose boards were superseded by the RBI. Dewan Housing Finance Corp Ltd, which has been taken over by Piramal Group, was the first lender.  

The central bank said that it has appointed Rajneesh Sharma, the former chief general manager at Bank of Baroda, as the administrator of the aforesaid companies under Section 45-IE (2) of the RBI Act.

In line with the process followed for resolution of Dewan Housing Finance, Srei Infrastructure and Srei Equipment will also be referred for insolvency proceedings at the National Company Law Tribunal. 

"The Reserve Bank also intends to shortly initiate the process of resolution of the above two NBFCs under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the NCLT for appointing the administrator as the insolvency resolution professional," the RBI said.

It could be noted that the Insolvency and Bankruptcy Code, in its original form, did not include non-banking finance companies. Later, amendments were made to include financial companies under the insolvency law, but the petition could be only filed by the central bank. 

Srei Infrastructure and its subsidiary Srei Equipment are not new to RBI action. Last year, the central bank had initiated a special audit into the companies. 

The RBI had identified certain parties as probable related companies as part of its inspection and risk assessment report for 2019-20 (Apr-Mar), the parent company had said in an exchange filing in July. 

Following this, Srei Group had said it was reassessing and renegotiating the terms of loans worth 85.8 bln rupees after the RBI flagged exposure to certain borrowers as part of its inspection.  

Meanwhile, lenders to Srei Infrastructure and its subsidiary Srei Equipment, which have defaulted on loan payments, were in active discussion to restructure the debt as part of the resolution process. The management had also promised to rope in potential investors. 

In June, Srei Equipment had said it received a term sheet from Makara Capital Partners Pte. Ltd, Singapore, indicating an interest to invest up to 22 bln rupees by subscription to equity shares and other securities.

KPMG Assurance and Consulting Services LLP and DMKH & Co were also appointed as forensic auditors as part of the proposed debt realignment. The results of the audit are awaited. 

With no solution in sight, UCO Bank-led consortium of lenders approached the RBI to seek a Dewan Housing Finance-style resolution, according to two people aware of the development. 

Srei Group exposures would be downgraded as non-performing assets in Jul-Sep despite the payment defaults since last year. This is because of a Dec 30 order of the Kolkata bench of NCLT, which had barred downgrading the accounts to the non-performing assets category for six months, that ended on Jun 30. 

The RBI and rating agencies were also barred from taking action. However, the National Company Law Appellate Tribunal stayed a NCLT order after both the RBI and CARE Ratings moved the appellate tribunal. 

In case of lenders, the order was reversed on Sep 7, allowing them to mark the account as NPA and pursue recovery options, according to a report by Moneycontrol. 

Last week, creditors had also rejected a proposal by the Srei Group management to grant a one-year standstill from any action, the report had said, adding that Axis Bank, ICICI Bank, Punjab National Bank, State Bank of India and Union Bank of India were the key lenders.

"Since, the accounts were stressed since last year, most banks had started to make provisions even if it was not marked as NPA. That should help ease some provisioning burden," said a senior official with a state-owned bank.

While Srei Equipment owes 169 bln rupees to banks, its parent Srei Infrastructure owes 111 bln rupees, according to CARE Ratings, which on Mar 6 slashed the rating on the long-term bank facilities and non-convertible debentures of these companies to 'D', a junk category.  End

Edited by Mainak Moitra

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2021. All rights reserved.