RBI detects fraud in REI Agro; CBI probe likely

January letter to bankers points out large-scale irregularities by Basmati exporter, asks them to take action.

IN an ‘exceptional occurrence’, the Reserve Bank of India (RBI) reportedly wrote to bankers in January, pointing out large-scale irregularities and misappropriation by loss-making Basmati rice exporter REI Agro.

Bankers say they would soon approach the CBI over the alleged malpractices by the country’s largest Basmati maker.

Three senior public sector bank officials, part of a 20-lender consortium, confirmed to FE that RBI had written to banks. “The RBI instructed the banks in writing to declare the company a fraud and begin further action,” said a senior banker from one of the consortium of lenders. “Banks have to convene a consortium meeting and initiate a joint recovery action. The entire process should take 3-6 months,” the banker added.

rbi, rei agro, rbi reo agro

Another banker said that, on most occasions, it was the banks that declared any borrower a fraud after running audits on its books. However, bankers are still not sure how fraud was detected by RBI. One banker said: “The RBI runs audits on the books of banks and the officers may have spotted the irregularity during the process.”

A third banker said that, in his experience, there had been only a few instances of RBI drawing attention to a fraudulent account. “This does not happen very often as far as I can recall. Also, don’t remember such a large account being called up by RBI,” he said.

None of the bankers mentioned above wanted to be named given the sensitivity of the matter. An RBI spokesperson, in an email response, stated, “We generally do not respond to account or customer-specific queries.”

REI Agro did not respond to email queries or calls made to the company’s offices in Delhi and Kolkata.

REI Agro has been under financial stress for some time now, posting a R1,000-crore loss in the September 2014 quarter, when it last reported earnings. In 2013-14, after providing around R650 crore towards finance costs, REI Agro posted losses of R38 crore. Bankers say REI Agro operates in a working capital intensive industry and the higher interest rates added pressure to the company’s cash flows, resulting in a reduction in margins and a slowdown in receivables.

Last year, the 20-lender consortium, which lent REI a working capital finance of R4,000 crore, set up a joint lenders’ forum (JLF) to work out a corrective action plan for the financially stressed company. The company defaulted on its payment to certain lenders, which even led to a winding-up petition filed by the United Bank of India in the High Court of Calcutta.

United Bank of India is also a part of the JLF that signed the JLF Agreement on June 2014. “We believe that filing of a winding-up petition by UBI is against the spirit of ongoing restructuring and JLF Agreement and its terms,” the company’s 2013-14 annual report mentions.

In the annual report, REI Agro attributed its financial woes to an increase in the price of raw material — basmati paddy. “The increase in the prices of basmati paddy increased the working capital requirement of the company, on one hand, and may also affect the viability of the business, on the other. We face significant competition from both Indian and international producers of Basmati and other rice and food products,” it said.

REI is the country’s largest basmati maker and operates in two business segments — manufacturing, trading and marketing of agro products and power generation through wind farms.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.