Payment defaults: RBI supersedes boards of two Srei companies

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October 05, 2021 6:00 AM

The regulator also intends to shortly initiate the process of resolution of the NBFCs under the Insolvency and Bankruptcy Rules, 2019.

rbi sreiTo clarify, the MPC is mandated to vote on the policy rate, i.e. repo rate only. The reverse repo rate adjusts automatically once the repo rate changes.

The Reserve Bank of India (RBI) on Monday said that it has superseded the boards of Kolkata-based non-banking financial companies (NBFCs) Srei Infrastructure Finance and Srei Equipment Finance. The two companies will now be referred for insolvency proceedings in the second such instance after Dewan Housing Finance (DHFL).

“In exercise of the powers conferred under Section 45-IE (1) of the Reserve Bank of India Act, 1934, the Reserve Bank has today superseded the Board of Directors of Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL), owing to governance concerns and defaults by the aforesaid companies in meeting their various payment obligations,” the central bank said.

Rajneesh Sharma, former chief general manager at Bank of Baroda, has been appointed the administrator of the two companies under Section 45-IE (2) of the RBI Act. In addition, the RBI appointed a three-member advisory committee to assist the administrator. The members of the committee are R Subramaniakumar, former MD & CEO, Indian Overseas Bank, and former administrator for DHFL, TT Srinivasaraghavan, former managing director, Sundaram Finance, and Farokh N Subedar, former chief operating officer and company secretary, Tata Sons.

The regulator also intends to shortly initiate the process of resolution of the NBFCs under the Insolvency and Bankruptcy Rules, 2019.

The RBI will apply to the National Company Law Tribunal (NCLT) for appointing Sharma as the insolvency resolution professional.

According to rating reports by CARE Ratings dated March 6, Srei Infrastructure Finance owes banks loans worth Rs 11,117.71 crore, apart from outstanding bonds and non-convertible debentures (NCDs) worth Rs 710.63 crore. Srei Equipment Finance has outstanding bank loans worth Rs 16,912.21 crore and other debt instruments worth Rs 499.45 crore. All these facilities and instruments were rated ‘D’, or default grade, in March.

In 2019, Srei Equipment Finance had approached the Kolkata bench of the NCLT seeking a merger with Srei Infrastructure Finance. Thereafter, in December 2020, it received the tribunal’s nod to pursue a scheme of arrangement with six types of creditors — secured and unsecured debenture holders, secured and unsecured external commercial borrowing (ECB) holders, perpetual debt instrument holders and individual debenture holders. The proposed scheme consisted of a moratorium on coupon payments during January 1, 2021, to June 30, 2021, along with postponement of redemption dates based on the type of creditor. The court also restrained banks for carrying out any coercive action against the two NBFCs or changing their account status.

The RBI and CARE Ratings challenged the court order in the National Company Law Appellate Tribunal (NCLAT) in March 2021. Eventually, in September, the NCLAT upheld the RBI’s contention that banks cannot be prevented from classifying the two borrowers’ accounts as non-performing assets (NPAs).

Hemant Kanoria, chairman, Srei Infrastructure Finance, said that the company was shocked by the RBI’s move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020. “Moreover, we have not received any communications from banks on any defaults. However, we had submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act, 2013, in October 2020. However, they have neither accepted the scheme nor proposed a payment schedule acceptable to them, he said, adding that banks have collected almost Rs 3,000 crore.

“We will take all necessary steps as advised by our lawyers in this regard,” Kanoria said.

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