This is on the expected line as the central bank announced on October 4 that it would take steps to refer the Srei case. bankruptcy Court.
The central bank’s inspection of the books of Srei Infrastructure Finance (SIFL) and its wholly-owned arm Srei Equipment Finance (SEFL) revealed that the group’s financial health started deteriorating long before the pandemic, which the Kolkata-based financier has repeatedly called. -times blamed for its low cash. flows.
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 Bank of India (RBI) to put the companies under administration. “SEFL is not compliant reserve Bank of India Rules and Supervisory Instructions. 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.,” RBI said in its October 1 order separating the two boards. Came three days before the announcement.
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 SEFL had turned negative (-3.4%) as on March 31, 2020, 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.