The regulator was furious with repeated violations of prudential norms, including income recognition, asset classification and provisioning (IRACP), greening of loans and deteriorating corporate governance standards.
The group has not been following regulatory directions for the past one year, forcing the Reserve to
(RBI) to put companies under administration. reserve Bank of India And Srei did not immediately respond to ET’s questions.
RBI, in its order dated October 1, said, “SEFL is not complying with RBI regulations and supervisory directions. Despite continuous engagement and follow-up action by the Reserve Bank, SEFL has failed to take corrective action on governance, systems and controls, compliance etc. has failed.” Superseding two boards. The order came three days before the administration’s announcement.
ET has reviewed the copy of the order.
The regulator was also upset over the fact that Srei Infrastructure Finance transferred its business, assets and liabilities to SEFL in October 2019 through a slowdown sale despite objections from most lenders.
RBI had observed that the capital adequacy of SEFLs turned negative (-3.4%) as on March 31, 2020, as against the prudential norm of 15%. Non-compliance with IRACP norms resulted in wide gaps in key financial parameters between what the company reported and what was assessed by the RBI’s inspection team.
Srei Group, on the other hand, had maintained that its extreme financial malaise was due to cash flow disruption following the stress caused by the COVID-19 pandemic on its borrowers. But the rot had started much earlier, the RBI report suggested.
RBI had conducted a special audit of both SIFL and SEFL between November 2020 and January 2021.
The report revealed that SEFL disbursed loans to some borrowers only to get them back on the same day or closer to the disbursement dates, indicating the loans being evergreen, which is a violation of norms.
RBI is now preparing to send SIFL and SEFL to bankruptcy court to recover dues of creditors worth Rs 28,000 crore.
Meanwhile, the Bombay High Court on Thursday dismissed the writ petition of Shreya’s promoter Hemant Kanoria against the RBI’s move to separate the boards of the two companies.