Fund diversion: Sambandh defaults; internal fraud, says CFO

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October 16, 2020 7:45 AM

The letter dated October 7, also alleges fund diversion by Kindo to other entities named Diya Dairy & Agroprocessors, Kshamta Foundation, Regional Rural Development Centre, DK Enterprises and Utkal Dairy, among others.

The rating report by Brickwork Ratings stated that in a telephonic discussion with the rating agency, the CFO of Sambandh conceded there had been some internal frauds unearthed at the end of September 2020, wherein a large quantum of bogus loan entries were made in the book of accounts of the company.The rating report by Brickwork Ratings stated that in a telephonic discussion with the rating agency, the CFO of Sambandh conceded there had been some internal frauds unearthed at the end of September 2020, wherein a large quantum of bogus loan entries were made in the book of accounts of the company.

Rourkela-based micro finance institution (MFI) Sambandh Finserve has defaulted on some repayment obligations even as a fraud was discovered at the lender, according to Brickwork Ratings.

The agency downgraded the MFI to ‘D’ or default grade after it was intimated by a lender of missed repayments on October 10. The rating agency said “…based on the information provided by one of its bankers, the outstanding ratings of the company have been downgraded in conformity with extant guidelines of RBI on default recognition.”

The MFI owes banks and non-bank lenders Rs 433 crore, of which Rs 383 crore is in the form of fund-based term loans and Rs 50 crore are non-convertible debentures (NCDs).

Sambandh did not respond to emailed queries till the time of going to press.

The rating report by Brickwork Ratings stated that in a telephonic discussion with the rating agency, the CFO of Sambandh conceded there had been some internal frauds unearthed at the end of September 2020, wherein a large quantum of bogus loan entries were made in the book of accounts of the company.

“This also resulted in the company facing sudden liquidity issues since the first week of October 2020,” Brickwork said. The CFO told Brickwork an internal investigation is being initiated by the company’s board.

A letter from senior executives at Sambandh to the MFI’s board, reviewed by FE, stated the MFI’s actual assets under management (AUM) as on September 30, 2020, were Rs 140 crore against the reported figure of Rs 391 crore. The Rs 251-crore hole was allegedly managed by “fictitious disbursement, subsequent withdrawals and deposited as fictitious collections” on the directions of MD and CEO Deepak Kindo and the practice is understood to have been on since FY16.

The letter dated October 7, also alleges fund diversion by Kindo to other entities named Diya Dairy & Agroprocessors, Kshamta Foundation, Regional Rural Development Centre, DK Enterprises and Utkal Dairy, among others.

The employees also said the MIS had been generated for fictitious clients with repayment schedules. The internal audit was also managed accordingly. “Recently, a huge withdrawal was also made by pressurizing the CFO/Accounts Head and the cash siphoned off,” the letter said, adding that the company now does not have sufficient liquidity to service its debt obligations. Therefore, it has defaulted on repayments “since 30th September 2020.”

In FY20, Sambandh had assets under management (AUM) of Rs 461.38 crore and its total income from operations stood at Rs 85.04 crore. It reported a net profit of Rs 5.22 crore for the year. Its gross non-performing asset (NPA) ratio was 0.67%, while the total capital to risk assets ratio (CRAR) was 21.5%, according to Brickwork. Sambandh was earlier rated BBB-.

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