After DHFL, central bank set to drag Srei group’s two financial arms to bankruptcy

By Beena Parmar

  • 04 Oct 2021
Credit: 123RF.com

After Dewan Housing Finance Corporation Ltd (DHFL), the Indian banking regulator is set to push two other non-bank lenders - Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL) -  into bankruptcy.

“The Reserve Bank has today superseded the board of directors of SIFL and SEFL, owing to governance concerns and defaults by the aforesaid companies in meeting their various payment obligations,” the Reserve Bank of India (RBI) said in a statement.

Former chief general manager of Bank of Baroda Rajneesh Sharma has been appointed as the administrator to oversee both the non-banking financial companies (NBFCs).

“The RBI 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 statement further said.

This comes days after DHFL, the first financial services firm to be dragged into bankruptcy in November 2019, got resolved via acquisition by the Piramal Group under the Insolvency and Bankruptcy Code (IBC).  

The total debt exposure of the Kolkata-based firms with the lenders is estimated to be around Rs 35,000 crore.

In April, SEFL, which is a wholly owned subsidiary of SIFL, had received an expression of interest (EoI) for capital infusion from Cerberus Global Investments B.V. It had also received expressions of interest for up to $250 million (around Rs 2,000 crore) capital infusion from international private equity funds including US-based multi-strategy investment firm Arena Investors LP and Singapore's Makara Capital Partners.

The RBI move comes a week after UCO Bank-led creditors of Srei Group rejected the top management’s proposal to grant the company one year of standstill from any action – legal or any other kinds  -- in order to recover their loans.

Other lenders to the financially-hit group include ICICI Bank, Axis Bank, State Bank of India, Punjab National Bank and Union Bank of India. 

Despite delays in loan repayments, lenders could not classify Srei Group's accounts as non-performing assets (NPAs) following a restraining order in December last year from a Kolkata bench of National Company Law Tribunal (NCLT).  

The insolvency court had directed banks not to classify loans of both companies as NPAs until all lenders and bondholders agreed on a scheme of arrangement providing for a new repayment structure. Rating agencies too were directed by the bench not to downgrade the loans to default status, said a report by Moneycontrol.

The NCLT order was set aside by the National Company Law Appellate Tribunal (NCLAT) early this month. 

Since December last year, Srei Group has been struggling with a large attrition with nearly 230-250 people leaving on fears of job losses as the pandemic-led financial crisis created an asset-liability mismatch. 

Meanwhile, in November 2020 itself the lenders of Srei group had taken control of the group’s finances and also capped the salaries of the top-level executives to Rs 50 lakh per annum, which was lifted in April this year. 

Last month, Srei Infrastructure Finance CEO Rakesh Kumar Bhutoria had resigned, mainly on account of salary payment issues. 

For the quarter ended June 30, SIFL had reported a consolidated net loss of Rs 971 crore as against a profit of Rs 23 crore in the year-ago period and a net loss of Rs 3,555 crore in the preceding quarter ended March 2021.  

Total income for the April to June period fell 35% to Rs 793.34 crore from a year ago’s Rs 1,228.88 crore. However, it was up from Rs 594 crore in March quarter ended 2021.