RBI Supersedes Boards Of SREI Group NBFCs, Sets Stage For Insolvency

The Reserve Bank of India on Monday superseded the boards of SREI Infrastructure Finance Ltd. and SREI Equipment Finance Ltd. with immediate effect. The regulator invoked its powers under Section 45IE (1) of the Banking Regulation Act to replace the board with an administrator. Rajneesh Sharma, former chief general manager from Bank of Baroda, has been appointed the administrator for both companies, the RBI said in a statement. Sharma has been the chair of the lenders' committee overseeing the accounts of SREI group companies.The regulator had to invoke its powers 'owing to governance concerns and defaults by the aforesaid companies in meeting their various payment obligations'.BloombergQuint reported on Monday morning that the regulator is preparing to file for insolvency proceedings against SREI Group's lending businesses.'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 in its statement. Following the announcement, the RBI also appointed a three-member advisory committee to help Sharma execute his duties as the administrator. The committee will also advise on running the two firms during the resolution process. The committee comprises:R Subramaniakumar, former MD & CEO, Indian Overseas Bank and former administrator of DHFL.TT Srinivasaraghavan, former MD, Sundaram Finance.Farokh N Subedar, former COO and company secretary, Tata Sons Pvt. According to notes by CARE Ratings on March 6, SREI Infrastructure Finance owes lenders and other creditors Rs 11,828 crore, while SREI Equipment Finance owes over Rs 17,400 crore. Cumulatively, the debt of the two companies exceeds Rs 29,000 crore..This is now the second instance where the RBI will initiate insolvency proceedings against a non-bank lender. In Nov 2019, the regulator had brought Dewan Housing Finance Corp. under insolvency proceedings. The case was finally closed last month, after Piramal group closed the transaction for a consideration of Rs 34,250 crore. Including the cash of DHFL's book, the lenders will recover over Rs 38,000 crore, ensuring about 46% recovery ratio.The corporate insolvency resolution process at SREI Group firms will enable foreign creditors, including external commercial borrowing lenders and bond holders, to restructure their debts alongside domestic creditors, said Aashit Shah, partner at J Sagar Associates.'If a resolution plan is successfully approved under the CIRP, it will allow the companies to start on a clean slate, which is missing under the RBI stressed assets framework,' he said. 'This decision of the RBI follows on the heels of a successful resolution process of DHFL.'According to Pratip Chaudhuri, former chairman, State Bank of India, there have been long-standing problems with SREI Group, which the RBI has been aware of. This issues have also led to rejection of some licence applications for allied businesses, he said. 'To avoid such issues, we need to ensure that early regulatory action addresses any gaps in a finance company's business activities,' he said. 'By waiting, things do not improve, but keep getting worse.'Srei Infrastructure Finance, a 35-year-old NBFC, has seen many ups and downs in its lifecycle. In recent years, it has been hit by liquidity troubles following the collapse of IL&FS and then a surge in overdue loans due to the Covid-19 crisis. For a while, the group managed to get relief from courts preventing banks from declaring it a non-performing asset. However, the National Company Law Appellate Tribunal set aside this restriction on Sept. 7. In the quarter ended June, Srei Infrastructure Finance reported a consolidated net loss of Rs 971 crore, compared with a profit of Rs 23 crore a year earlier and a net loss of Rs 3,555 crore in the quarter ended March.Total consolidated income for the first quarter dropped 35% year-on-year to Rs 793.34 crore. Expenses rose 48% from a year earlier to Rs 1,764 crore. Finance cost of Rs 936 crore and impairment cost of Rs 439 crore were the largest contributors to the company's expenses. The lender has attempted a restructuring and a fresh infusion of capital but neither has concluded yet.

RBI Supersedes Boards Of SREI Group NBFCs, Sets Stage For Insolvency

RBI supersedes the boards of SREI Group NBFCs; to invoke insolvency proceedings.

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