Lenders approach RBI after ₹30,000 crore Srei loans turn NPA – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banking/lenders-approach-rbi-after-30000-crore-srei-loans-turn-npa/articleshow/86668737.cmsSynopsis

In response to a query from ET, a Srei Group spokesperson said the economic downturn and loan moratoriums provided by the regulator had affected operations. The group is now in discussions with banks to implement a restructuring scheme.

A consortium of lenders led by UCO Bank has sought central bank directions on pursuing recovery of dues from the Srei Group after loans worth about Rs 30,000 crore to the Kolkata-based financier officially qualified to be moved to the list of non-performing assets (NPA) this quarter, two people aware of the development told ET.

The Srei Group, however, said it expects banks to chalk out a debt recast plan that will map repayment milestones to future cash flows.

Since the group entities involved are non-banking financial companies (NBFC), the lenders concerned compulsorily need the Reserve Bank of India’s (RBI) approval to take the Srei Group to the National Company Law Tribunal (NCLT) for insolvency proceedings.

In response to a query from ET, a Srei Group spokesperson said the economic downturn and loan moratoriums provided by the regulator had affected operations. The group is now in discussions with banks to implement a restructuring scheme.

“We hope banks will decide on the debt realignment at the earliest so that the company can pay all its bondholders and other creditors,” a Srei spokesperson said in the mailed response to ET. “We are very hopeful that banks will propose a payment schedule in consonance with the company’s cash flow that will enable payments to all creditors and help run the company smoothly.”

To be sure, Srei Infrastructure Finance is likely to become the next big bankruptcy candidate from the financial services space after Dewan Housing Finance (DHFL). Banks are free to classify loans to Srei Group as NPAs after the National Company Law Appellate Tribunal (NCLAT) lifted a stay earlier this month on marking such exposure as bad, setting aside a lower bench order.

“All banks will have to classify loans to Srei as NPAs this quarter and make the minimum provisions required,” said a person familiar with banking-sector exposure to the Srei Group. “Many banks have excess provisions; so, that should not be a cause for concern. But with such a big loan account slipping, the gross NPA ratio of some banks will increase at the end of the quarter.”

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

Bankers say they have already set the ball rolling for recovery of loans by writing to the RBI and a regulatory nod to take the company through the bankruptcy courts could mean another DHFL-type insolvency process.

“Already two letters have been sent to apprise RBI of the conditions. If the central bank gives the permission, banks will go ahead with a court monitored process,” said a second person aware of the Srei-related banking-sector exposures. “It remains to be seen what the central bank’s response is.”

Meanwhile, Srei Equipment Finance received investment interest from Arena Investors LP and Makara Capital, and the proposal has been sent to the RBI for the regulator’s approval, the Srei Group spokesperson said.

Srei has been facing a severe liquidity crunch for some time. Latest available results show the company’s condition has deteriorated.

Srei Infrastructure reported a loss of Rs 971 crore in the quarter ended June as provisions on loans increased to Rs 439 crore, rising more than six times from just Rs 67 crore a year ago, as collections were hit due to the severe impact of the Covid 19 pandemic.

The company had posted a net profit of Rs 23 crore in the same quarter a year ago.

The sharp deterioration in the NBFC’s books has not escaped the attention of the regulator. In November last year, Srei informed the stock exchanges that an RBI appointed auditor will conduct a special audit of Srei Infra and its subsidiary Srei Equipment Finance.

In July this year, while announcing its earnings for the year ended March, Srei disclosed that the RBI-directed audit had flagged Rs 8,576 crore of lending to “probable” related parties of the group.

As a result, banks are wary of participating in any restructuring proposed by the company and might rather opt for a central bank-mandated NCLT process.

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