The Reserve Bank on Monday superseded the boards of Srei Infrastructure Finance as well as Srei Equipment Finance, citing concerns over governance and payment defaults, and decided to refer the two NBFCs for resolution under the insolvency law.
This is only the second time in as many years that the Reserve Bank of India (RBI) is referring entities for the resolution process under the Insolvency and Bankruptcy Code (IBC) after taking first ever such step in the case of DHFL back in 2019.
Superseding the boards of the crisis-hit Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL), the RBI has appointed Rajneesh Sharma, former Chief General Manager of Bank of Baroda as the administrator to manage the affairs of the two companies.
A Srei group spokesperson said SIFL was ""shocked" by the RBI's move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020, and added that necessary steps as advised by its lawyers will be taken.
In a statement, the RBI said it has "superseded the Board of Directors of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL), owing to governance concerns and defaults by the... companies in meeting their various payment obligations".
The central banks intends to shortly initiate the process of resolution of the two NBFCs under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019, the statement said.
Further, the RBI will approach the National Company Law Tribunal (NCLT) for appointing the administrator as the insolvency resolution professional.
In recent years, the central bank has been taking strict action against defaulting entities. Under the governorship of Shaktikanta Das, boards of lenders have been superseded on four occasions earlier.
Those actions pertained to PMC Bank, Yes Bank, DHFL and Lakshmi Vilas Bank.
Srei group, which mainly caters to the MSME and infrastructure sectors, owes around Rs 18,000 crore to around 15 lenders, including Axis Bank, UCO Bank and State Bank of India, and another nearly Rs 10,000 crore of external commercial borrowings and bonds.
The Kolkata-based Srei group has been battling a human resource crisis since December last year with nearly 230-250 people leaving the group as the pandemic-induced economic crisis created an asset-liability mismatch.
Last month, SIFL's chief executive officer Rakesh Kumar Bhutoria had resigned, mainly on account of salary payment issues.
In a statement on Monday, the Srei group spokesperson said it was "shocked" by the RBI's move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020.
"Moreover, we have not received any communications from banks on any defaults.
"However, 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," it said.
Further, the spokesperson said the banks have been controlling the company's cash flow since November 2020 and almost Rs 3,000 crore has been collected by them.
Over the last three decades, Srei has paid Rs 30,000 crore as interest and another Rs 20,000 crore principal to banks.
There has never been any delay in loan servicing by Srei in the past before COVID ravaged the country, the spokesperson said in the statement.
"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," it added.
SIFL reported a consolidated net loss of Rs 971.05 crore in the quarter ended June. In 2020-21, it had posted a record loss of Rs 7,338 crore.
In late 2019, SIFL had transferred its business to SEFL by way of a slump exchange through a business transfer agreement in lieu of fully paid-up equity shares to SIFL.
Photograph: PTI Photo