More Than Three-Fourths Of Srei Group's Loans Had Gone Bad — BQ Exclusive
Srei Group's non-bank finance companies had seen nearly three-fourths of the collective loan book go bad, according to data compiled as part of the insolvency process which is underway.
Excerpts from an internal presentation by the Reserve Bank of India-appointed administrator show that Rs 22,463 crore out of the Rs 28,455-crore consolidated loan book was classified as non-performing at the end of the second quarter. This suggests that 79% of the loan book was stressed as on Sept. 30.
The data is provisional and subject to reconciliation, according to the excerpts — reviewed by BloombergQuint. A second person familiar with the matter confirmed the data.
Among the lending segments, construction, engineering and procurement (Rs 4,667 crore), as well as mining (Rs 1,025 crore) have 100% NPA ratios, according to the presentation. The real estate portfolio, with outstanding loans worth Rs 4,338 crore, had a gross NPA ratio of 76%.
The power book, with outstanding loans worth Rs 4,148 crore, had the lowest NPA ratio of 65%, according to the excerpts. A query sent on Thursday morning to Rajneesh Sharma, the administrator at Srei Group, remained unanswered.
According to data available in the presentation, Srei Equipment Finance holds provisions worth Rs 7,419 crore against the outstanding loans as of Sept 30.
Connected Party Lending
An initial review of the consolidated loan book reveals that of the total loan book, Rs 9,911 crore worth loans were extended to connected entities, the presentation shows. These are instances where Srei Infrastructure Finance holds direct or indirect control over the borrower to which either of the two NBFCs have extended loans.
A majority of loans to energy, roads and oil and gas sectors were to connected entities, the data in the presentation shows. This data is subject to a detailed review of the ultimate ownership of the borrower, the presentation states.
What Is The Administrator Doing?
According to the presentation, the administrator is taking four key measures to enhance recoveries and revive the business for Srei Infrastructure Finance and Srei Equipment Finance.
The first of these is to consult with internal teams, understand the status of the loan book, discuss the collateral Srei Group companies have against defaulting borrowers and provide targets for recovery.
The administrator has already held meetings with key borrowers representing Rs 2,800 crore in loans. Further, meetings have been organised with borrowers who have outstanding loans of over Rs 8,000 crore, this month.
The administrator has also asked the chief risk officer at Srei Group companies to review the loan restructuring and settlement policies. Lastly, meetings have also been organised with employee directors of subsidiaries of Srei Group.
According to four people in the know, the committee of creditors at Srei Infrastructure Finance Ltd. and Srei Equipment Finance Ltd. intend to pursue a consolidated insolvency proceeding for both NBFCs. Under such a process, the assets and liabilities of companies within a group are merged, if it is felt that the consolidated entity might garner more value than a sale of individual companies.
On Oct. 4, the RBI announced that it was superseding the boards of Srei Infrastructure Finance and Srei Equipment Finance. Rajneesh Sharma was appointed as the administrator. By Oct. 8, the Kolkata bench of the National Company Law Tribunal had admitted insolvency petitions. This is now the second instance where the RBI has used a special window of the Insolvency and Bankruptcy Code to put a non-bank lender under insolvency. In November 2019, it had invoked insolvency proceedings against Dewan Housing Finance Corp, which was sold to Piramal Group earlier this year.