As special audit of Srei Infra Finance begins, it's déjà vu for banks and fixed income market

As special audit of Srei Infra Finance begins, it’s déjà vu for banks and fixed income market

KOLKATA: For bond buyers and India’s top banks, it is a sense of déjà vu as the Reserve Bank of India (RBI) conducts a special audit into Srei Infrastructure Finance, hinting that something might be amiss at the financier that has more than Rs 30,000 crore in outstanding loans. The company, on its part, described the audit as a ‘regular’ regulatory scrutiny.

Some of the lenders have already rescheduled Srei’s loans when the entity faced cash-flow mismatches following the lockdown and RBI-guided moratorium of loan repayment to its term loan borrowers, two people familiar with the matter said.

The quantum of loans rescheduled is not known, but lenders said that the company was facing liquidity tightness. Out of a total of Rs 31,435 crore of borrowings at the end of September, about Rs 25,000 crore is by way of working capital and term loans from banks.

The non-banking finance sector (NBFC) has been going through doldrums following the defaults by some big names like IL&FS and DHFL making investors and lenders ultra cautious.

“COVID-19 has definitely affected the cash flow of our clients, who are primarily contractors and infrastructure companies. In view of the present situation, many of our customers have sought to align repayments with their cash flows. Our liquidity is similarly aligned to those of the clients, which has been in accordance thereof,” a Srei spokesperson said.

The group has now been focusing on co-lending with banks to conserve cash.

“The strategy for the ensuing year will be to conserve cash by conducting low risk business, reduce cost wherever practically possible, focus on improving customer relationship with a view to have better recovery and to make technology the principal medium for doing business,” Srei chairman Hemant Kanoria had said in the company’s annual report for FY20.

The company has just about Rs 1 crore in current accounts with banks as on September as against Rs 45 crore a year back.

The company on Friday told stock exchanges that an auditor appointed by RBI is doing a special audit of the company and its subsidiary, Srei Equipment Finance.

Last year, the management had done a slump sale of Srei Infrastructure Finance to Srei Equipment Finance Limited, which involved the transfer of businesses, assets and liabilities including the liabilities toward outstanding non-convertible debentures. The scheme was challenged by one of the debenture holders of SEFL holding. Consent from other lenders is still awaited.

“In the past six years, it has been a conscious decision on part of the management to grow the equipment financing business where we have market leadership, and to gradually bring down our exposure to project financing where the progress has been slow due to various policy hindrances,” Kanoria said in the annual report.

The group’s disbursement fell to Rs 11,681 crore in FY20 from Rs 21,229 crore in the previous year.

Srei holds 3.34% in Lakshmi Vilas Bank, which is now under a 30-day moratorium and to be merged with DBS Bank India. As the shares of the bank have now been extinguished, it would be a loss for shareholders including Srei.

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