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Indostar To Create Additional Provision After Review Finds Process Deviations

The impact of additional provisioning will be disclosed in the audited financial results of the company.

<div class="paragraphs"><p>[Source: Masarath Alkhaili/Unsplash]</p></div>
[Source: Masarath Alkhaili/Unsplash]

Indostar Capital Ltd. will create an additional credit-loss provision on account of financial control deficiencies found in its commercial vehicle loan portfolio.

The additional provision will be between Rs 557 crore to Rs 677 crore, the company said in an exchange filing citing preliminary findings by an external agency.

The impact of such a provisioning will be disclosed in the audited financial results of the company, it said. The provision, however, "is expected to impact the company's net-worth and capital adequacy ratio".

The capital adequacy ratio would fall to 25%, assuming the higher end of the provision, from 35.1% as on Dec. 31, the filing said.

The non-bank lender had appointed Ernst and Young to review policies, procedures and practices at the company after the management was informed of control deficiencies observed during an interim statutory audit.

According to the filing, preliminary findings of the review stated:

  • Deviations from the credit policy in approval processes for loans to existing customers and waivers in certain foreclosure cases.

  • For restructured loans, it did not follow the steps as detailed in the control description.

"The Audit Committee is initiating a review for undertaking root cause analysis of deviations to policies and gaps in the internal financial controls and systems," it said.