Srei may face problem in raising additional debt, say bankers

With the Reserve Bank of India (RBI) appointing an auditor to conduct a special audit of Srei Infrastructure Finance and its subsidiary Srei Equipment Finance (SEFL), banks will be cautious about Srei, and raising additional debt will be a problem for the group, according to bankers.

Further, Srei’s co-lending business with banks is likely to get affected as partner banks may also go slow on that model as they will wait for the final audit reports, bankers with knowledge of the development told FE. “It is very rare that the RBI appoints an auditor for a special audit of a company. It is very unusual. I think there must have some apprehension about Srei’s value and their numbers…” said a senior banker at a large PSB. On Monday, Srei Infrastructure Finance’ scrip on the BSE closed 12.22% lower at Rs 5.89, while the Sensex was up 0.44%.

In a stock exchange filing on last Friday, Srei Infrastructure Finance, an NBFC, said: “We would like to inform you that a special audit of the company and its subsidiary Srei Equipment Finance is being undertaken by an auditor appointed by Reserve Bank of India (RBI) in exercise of its powers under Section 45 MA(3) of the RBI Act, 1934.”

“The RBI normally does not engage a third party auditor to do this kind of audit for itself. RBI could have sent their own people. But now somebody else is doing it. That means that something that RBI is not very comfortable with,” another banker told FE.

“Obviously, lenders and bankers will be cautious about Srei. The point is, for any bank to increase exposure to Srei, it will wait for the final audit report to be released. The group is under stress. Banks will obviously like to know what comes out in the audit report,” said the first person cited above.

When contacted, sources at Srei said, “The RBI in regular course conducts various inspections/audits from time to time. This, we believe, is also conducted in the regular course of their process.” “Bankers will be little more careful. For Srei, to raise addition debt will be a problem… If everything is fine, there will be no problem. But if there are certain grey areas, then banks would take a call,” bankers said.

Company sources said banks have been cautious in offering loans to NBFCs, including Srei, after collapse of IL&FS, and the Covid has made them further reluctant. Some bankers said the RBI’s decision to go for a special audit may also be related to the process of the slump sale of Srei Infrastructure Finance (SIFL) to Srei Equipment Finance (SEFL), which comprised transfer of businesses, assets and liabilities (including outstanding non-convertible debentures issued by SIFL).

Company sources said, “We have now gone to the NCLT, Kolkata, which has called a bankers’ meeting. Banks are sitting on it over the last one year. We are telling the banks to take a decision. There is no difference between what we think and what the banks want. If the bank does not want the slump sale, we can reverse it. We can’t understand what is the problem.”