The forensic auditor found “anomalies” in the credit appraisal process of the home financier and noted that more than 80% of disbursals comprised corporate loans to a group of 47 borrowers that shared these common characteristics, according to these people. This included similar registered addresses, common directors and key management personnel.
The company’s exposure to corporate loans was purportedly in violation of regulatory guidelines that prescribe limits for non-housing disbursement as per the forensic auditor’s findings, said the people cited above.
Reliance Home said it had cooperated fully with the investigation and had revealed all information voluntarily.
The auditor also found that eight of the 47 were “related parties” of Reliance Group companies Reliance Power and Reliance Infrastructure Ltd prior to disbursal of loans worth Rs 1,300 crore.
Low Paid-up Capital
Just before the loans were disbursed however, the shareholding pattern of these eight companies changed. The eight were RPL Solar Power, RPL Star Power, RPL Surya Power, RPL Aditya Power, Worldcom Solutions, Hirma Power, Jayankondam Power and Reliance Cleangen.
The auditor also found instances where loans granted to the group of 47 borrowers eventually found their way back to Anil Ambani group companies through onward lending, according to these people. Many of these corporate borrowers were incorporated recently and loans were disbursed to them within days or months of their incorporation.
The group of 47 borrowers identified by Grant Thornton have to repay around Rs 7,900 crore to Reliance Home Finance, according to the sources. Around Rs 2,700 crore of these loans have already been declared as nonperforming by the home financier.
Many of the borrowers have minimal or negative net worth and low paid-up capital. The paid-up capital of the borrowers ranged from Rs 10,000 to Rs 12 lakh, but they were given loans exceeding Rs 100 crore in some cases, as per the people aware of the auditor’s findings.
The auditor also found that prudential norms were not followed while disbursing loans to the specified group of corporate borrowers that had shared characteristics, these sources said.
Transparent Disclosures: Reliance Home
A Reliance Home Finance spokesperson said the company had voluntarily and publicly disclosed this information even before the commencement of the probe to its auditors, regulators, lenders and also in the latest annual financial statements.
“As can be noticed from your query above mentioning around Rs 12,000 crore disbursed to alleged group entities, only around Rs 7,984 crore (including interest) is outstanding,” the spokesperson told ET in an email. “Clearly, a large amount of over Rs 4,000 crore has already been repaid.”
The company also informed the stock exchanges through a late evening notification on Sunday that “no adverse findings” were reported by Grant Thornton in the forensic audit.
The audit was commissioned by a consortium of more than 20 banks led by Bank of Baroda that are owed money by Reliance Home Finance.
“We have received the final report and have called a lenders’ meeting on January 16 to discuss the same,” Bank of Baroda executive director Murali Ramaswami told ET. Banks that have loaned money to the home financier have outstanding dues of over Rs 10,000 crore.
Grant Thornton declined to comment, citing client confidentiality clauses.
Reliance Home Finance further said that the funds disbursed were used for debt servicing of other group companies.
“The company had also disclosed transparently that the enduse of such group exposure was for their debt servicing. Such disclosure was made even before the commencement of forensic audit, to its auditors, regulators, lenders, and also in the latest annual financial statements which were duly approved by the shareholders,” the spokesperson said.
The company official further said that Reliance Home Finance had cooperated fully in the investigation. “Observations on regulatory anomalies in the forensic audit had already been reported to the National Housing Board (NHB),” the company’s statement read. It also stated that penalties had been imposed by the regulator for these.
Lenders plan legal action
The lenders are now considering legal options based on the findings of the forensic audit though a decision will only be taken on Thursday, according to several people aware of the matter.
They are also to decide on the course for resolution of the company’s outstanding loans. The options being considered by banks include plans to find an investor to infuse capital in the company or taking it to the National Company Law Tribunal (NCLT). The second option will require a regulatory nod.
Reliance Home Finance’s credit rating was downgraded to ‘D’ or default status by CARE Ratings in September. The company, which held an initial public offering (IPO) two years ago, informed the stock exchanges in June that auditors Price Waterhouse & Co. had resigned prematurely citing certain “observations/transactions” that if not resolved satisfactorily could be “significant or material” to the financial statements of the company.
The company had said in its defence that it disagreed with “the reasons given by PwC for their resignation.” The auditor had declared that it didn’t receive information sought on the transactions and asserted that an audit committee meeting was not convened in time to address its queries despite repeated requests.
Subsequently Dhiraj & Dheeraj, appointed by Reliance Home Finance to replace PwC, issued a qualified opinion on the company’s financial statements for the year ended March 2019 and noted that it had found “significant deviations” in the corporate loan book of the company. It also noted that there had been a material shift in business from housing finance to non-housing finance.