As the Reserve Bank of India is conducting a special audit in Srei Infrastructure Finance and its subsidiary Srei Equipment Finance, chairman Hemant Kanoria says the special audit will soon conclude and will quell all “unnecessary speculation”. In an interview with Mithun Dasgupta, Kanoria claims that Srei will be able to service all its creditors […]
Srei Infrastructure Finance and its subsidiary Srei Equipment Finance, chairman Hemant Kanoria
As the Reserve Bank of India is conducting a special audit in Srei Infrastructure Finance and its subsidiary Srei Equipment Finance, chairman Hemant Kanoria says the special audit will soon conclude and will quell all “unnecessary speculation”. In an interview with Mithun Dasgupta, Kanoria claims that Srei will be able to service all its creditors in an orderly manner. Edited excerpts:
The Reserve Bank of India is conducting a special audit in Srei Infrastructure Finance and its subsidiary Srei Equipment Finance. Isn’t it unusual for the regulator to conduct such an audit?
The RBI conducts various inspections/audits from time to time in entities under its regulations. The regulator has recently directed NBFCs to align themselves with the norms that govern banks, in certain areas like provisioning. We have started adhering to these regulations and are currently in the process of changing our business model. This transition will not happen overnight. The USP that we had was the flexibility of NBFCs in the financing structure. But since regulations have evolved, we are transitioning into the present guidelines. Srei has and will always comply with the regulatory guidelines prescribed by the banking regulator. The special audit will soon conclude and will quell all unnecessary speculation.
You have decided to exit the infrastructure project finance and has been focusing on growing the equipment finance portfolio, primarily through co-lending arrangements. How resilient is this business model in this challenging environment?
Our model has been to finance against assets/projects/securities, which are monitored on a continuous basis, so that if the need arises, our teams can step in to address the underlying issues and recover the money. The NBFC model has allowed us that flexibility in the past. Under extant guidelines, there is closer alignment with banking regulations and given the macro environment, we have been progressively reducing our infrastructure loan book. The focus is now on building the co-lending driven equipment financing business. Our strong OEM (Original Equipment Manufacturer) relationships, around 100,000 customer base and long standing institutional partnerships with capital providers is the ideal platform to tap the impending growth in the CME (construction and mining equipment) segments. The impact of the pandemic and other macro challenges cannot last forever.
What is the repayment performance of your borrowers? Are you witnessing improvements in collections? What is your outlook on asset quality?
The outbreak of Covid-19 has created an unprecedented situation. Payments of our borrowers have been stuck with the government agencies and arbitration awards remaining unresolved due to the intermittent operations of courts. Since our customers are primarily from the construction and mining space, most of them have been impacted by the lockdown and movement of migrant workers. More than half of our borrowers have requested for one-time restructuring of their loans. Our priority is to accelerate collections and monetise various arbitration awards. Despite the challenges, we expect that given the underlying assets against our loans, we will be in a position to recover our loans over a period of time.
As per the NCLT order, meetings of creditors were scheduled in December for the purpose of their consideration, and if thought fit, approving the slump exchange. What is the status now?
Unfortunately, because of the Covid and the lockdowns there was a huge disruption in getting approvals from some of the banks. It is our misfortune that the pandemic affected the implementation of slump exchange. While we had received approvals from our lead banks, shareholders, bond holders and other creditors, we could not envisage the outbreak of Covid-19. However, we hope to find an acceptable solution in conjunction with our creditors in the best interest of all stakeholders. The meeting of creditors on December 23, 2020 did not take place in the absence of the chairman appointed by the NCLT. The matters will go back to the tribunal and we will communicate their decision as and when the order is passed.
What is Srei’s consolidated borrowings? And what is the repayment plan?
As of now, Srei has a consolidated debt of around Rs 20,000 crore from Indian banks and around Rs 10,000 crore through bonds and from other financial institutions. In last 31 years, the company has paid more than Rs 30,000 crore interest to banks and around Rs 20,000 crore as principal, always on time. The pandemic has made things complicated as many of our borrowers’ cash flows have been impacted and many arbitration awards have remained unresolved. The collaterals/ securities against our loans, together with our receivables, are sufficient to repay all our liabilities in an orderly fashion. We are certain that we will be able to service all our creditors.