Srei’s failure to get investor sealed fate – Times of India
MUMBAI/ NEW DELHI: The repeated failure of the Srei management to induct an investor for over a year as well as the findings of the RBI’s special audit has prompted the regulator to supersede the boards of two group companies and send them for insolvency action.
Describing it as “pre-emptive” action, sources told TOI that the RBI decided to initiate the move as some of the banks had also approached sharing their concerns, with the DHFL resolution — the first action against a financial services outfit under the Insolvency & Bankruptcy Code (IBC) — providing it additional comfort to initiate the move. Banks have an exposure of over Rs 30,000 crore and are keen to ensure that they are not impacted by problems at the Kolkata-headquartered entities.
Srei said that it was shocked by the move as banks were already in control of cash flows and have been appropriating funds from an escrow account. They had also not heard about the insolvency action from the banks. The company has been trying to strike a deal with lenders for a stand-still agreement which would give it more time to repay.
Since problems surfaced in the non-banking finance companies space nearly two years ago, following the collapse of IL&FS and DHFL, the RBI has been keeping close tabs on the health of the top 100 outfits and working with some of them to resolve their governance and other issues.
During this exercise, Srei had emerged as a prominent NBFC, which was facing stress, prompting the regulator to initiate a dialogue with the management. While Srei had been promising to rope in investors, it repeatedly failed to find a candidate, with officials seeing it as nothing more than delaying tactics. “No serious proposal was on the table to provide comfort to the RBI,” said a source.
What complicated matters were the findings of a special audit and supervisory assessment carried by a team from the RBI, which pointed to alleged evergreening of loans with some related-party transactions seen to be areas of concerns. “There have been discussions on the issue for several months and the RBI wanted to act on it in a non-disruptive manner,” said a source.
Official sources said that the problems at Srei are unlikely to cause any systemic ripples given that the market now finds comfort in the IBC framework for financial services companies after the recent resolution of DHFL. In any case, the RBI’s assessment of the NBFC space has suggested that the situation is not alarming and there may be stray cases of pressure, which is more than manageable.
“We had submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. However, they have neither accepted the scheme nor proposed a payment schedule acceptable to them. We are also surprised because the NCLT order for all creditors is still in process. There is also an order for “no coercive measures” by the creditors and/or regulators. We will take all necessary steps as advised by our lawyers in this regard,” said a Srei spokesperson.
Describing it as “pre-emptive” action, sources told TOI that the RBI decided to initiate the move as some of the banks had also approached sharing their concerns, with the DHFL resolution — the first action against a financial services outfit under the Insolvency & Bankruptcy Code (IBC) — providing it additional comfort to initiate the move. Banks have an exposure of over Rs 30,000 crore and are keen to ensure that they are not impacted by problems at the Kolkata-headquartered entities.
Srei said that it was shocked by the move as banks were already in control of cash flows and have been appropriating funds from an escrow account. They had also not heard about the insolvency action from the banks. The company has been trying to strike a deal with lenders for a stand-still agreement which would give it more time to repay.
Since problems surfaced in the non-banking finance companies space nearly two years ago, following the collapse of IL&FS and DHFL, the RBI has been keeping close tabs on the health of the top 100 outfits and working with some of them to resolve their governance and other issues.
During this exercise, Srei had emerged as a prominent NBFC, which was facing stress, prompting the regulator to initiate a dialogue with the management. While Srei had been promising to rope in investors, it repeatedly failed to find a candidate, with officials seeing it as nothing more than delaying tactics. “No serious proposal was on the table to provide comfort to the RBI,” said a source.
What complicated matters were the findings of a special audit and supervisory assessment carried by a team from the RBI, which pointed to alleged evergreening of loans with some related-party transactions seen to be areas of concerns. “There have been discussions on the issue for several months and the RBI wanted to act on it in a non-disruptive manner,” said a source.
Official sources said that the problems at Srei are unlikely to cause any systemic ripples given that the market now finds comfort in the IBC framework for financial services companies after the recent resolution of DHFL. In any case, the RBI’s assessment of the NBFC space has suggested that the situation is not alarming and there may be stray cases of pressure, which is more than manageable.
“We had submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. However, they have neither accepted the scheme nor proposed a payment schedule acceptable to them. We are also surprised because the NCLT order for all creditors is still in process. There is also an order for “no coercive measures” by the creditors and/or regulators. We will take all necessary steps as advised by our lawyers in this regard,” said a Srei spokesperson.
