Collective procedure of the SREI Group: FIA reconciliation of borrowers of SREI equipment


SREI Equipment Finance Limited, one of the two companies in the SREI group subject to resolution under the Insolvency and Bankruptcy Code, has borrowers who were also part of the “investee” companies in the group alternative investment fund (AIF), for a total amount of Rs 4,156.66. crore.

There was also a second group of borrowers of SREI equipment where the investment was also made by issuing companies of AIF. The loan amount involved was Rs 3,216.97 crore.

The SREI group manages several AIFs with investments in equity, debt and mezzanine.

These were the findings of the Reserve Bank of India (RBI) initial inspection report in 2019-2020. The regulator had noticed that some borrowers were probably related or related companies. SREI Equipment has been asked to reassess and reassess the relationship with the identified borrowers to determine whether they are related parties to the company or the holding company, SREI Infrastructure Finance Ltd.

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The total exposure to these borrowers, which have been classified as related and related parties by the RBI, was Rs 8,575.65 crore as of March 31, 2021.

Hemant Kanoria, founder of the SREI group, defended himself by claiming that SREI lends to borrowers on the basis of projects, equipment and assets being an asset finance and infrastructure finance company. “The AIF has investors and the companies that depend on it are also eligible borrowers if they meet the necessary credit conditions,” he said in a statement.

“The proposals are prepared by the team and finally the sanction is made after the approval of the committee. Therefore, the loans to borrowers invested by the AIF fall well within the framework of the lending standards, which the ‘company has been doing for twenty years, “he said. noted.

The company had responded to RBI when preparing its 2020-21 accounts, stating that “loans to these borrowers are secured by the assets and cash flows of the borrowers.” SREI Infra and SREI Equipment have no advantage for these borrowers other than lending to these companies in the ordinary course of business, ”he said.

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The Kolkata-based infra finance group defended itself by claiming that SREI Equipment or its holding company SREI Infrastructure had no control or influence over these borrowers and was not a related party to the company or its holding company. .

The company also claimed that transactions with these borrowers were carried out in the ordinary course of business after proper due diligence. “The loans were made to these borrowers in accordance with the established credit and risk process on an arm’s length basis,” the company said.

The company also claimed that the loans to these borrowers were secured by the borrowers’ assets and cash flows.

The regulator’s current action against the two SREI group companies as well as the auditor Haribhakti & Company seem to suggest that there is something more to these related party transactions.

Based on RBI’s request last week, the National Company Law Tribunal has already given the green light to initiate insolvency proceedings against SREI Infrastructure and its wholly owned subsidiary SREI Equipment which is engaged in lending in areas such as construction, mining and other related industries.

The RBI had first replaced the board of directors of these two companies citing governance problems and defaults of these two non-bank financial companies.

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