A UCO Bank-led consortium of lenders has reached out to RBI, seeking a resolution for Srei Group. The Group owes the UCO Bank-led consortium about Rs 36,000 crores.
A UCO Bank-led consortium of lenders has reached out to the Reserve Bank of India (RBI), seeking a DHFL-like resolution for another financial services firm—Srei Group, multiple people aware of the matter told CNBC-TV18.
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Economic Times had first reported the development on October 1. “We are optimistic after the DHFL (Dewan Housing Finance Limited) resolution. If a financial services company that large and complex can be resolved under NCLT, why not Srei?” opined one of the largest lenders to Srei Group.
Three of the key lenders to Srei Group told CNBC-TV18 that banks are in favour of RBI-driven resolution for the firm, under the National Company Law Tribunal.
“RBI conducted a forensic audit on their books themselves. We know there’s possible fraud, so the best way forward would be for RBI to appoint an administrator, and go to NCLT for resolution,” said another banker in the know.
“We have written to RBI, let us see what the regulator says,” said another banker on the condition of anonymity. The final decision on NCLT will be up to RBI, under IBC’s Section 227 for financial service providers, said this person.
Also Read | RBI flagged over Rs 8,000 crore of potential related-party lending by Srei Group in FY20, show disclosures
Srei Group, with SREI Infrastructure Finance and its subsidiary SREI Equipment Finance, together owe the UCO Bank-led consortium about Rs 36,000 crores, as per a banker involved. State Bank of India, Bank of Baroda, Bank of India, Indian Bank, PNB, Axis Bank, Canara Bank, Union Bank of India are some of the other lenders to the group.
On 7 September, the National Company Law Appellate Tribunal (NCLAT) set aside a December 30, 2020 order issued by the Kolkata bench of the National Company Law Tribunal (NCLT). The order said any non-payment of dues by SREI Infrastructure Finance and SREI Equipment Finance will not be recognised as an event of default. It was valid till a scheme of arrangement is signed by all creditors, which included its lenders as well as bondholders.
With the stay lifted, several banks may classify the account as non-performing in the September quarter. State Bank of India, UCO Bank, Bank of India, and others have already done so, CNBC-TV18 has learnt.
Disclosures made by Srei Equipment Finance in the March quarter showed the RBI had flagged lending to probable related and connected parties during 2019-20. RBI identified certain borrowers with loans worth Rs 8,576 crore as “probable” connected or related parties, the lender said.
“We know that the books are not clean. Its best if we go through a court-led process for resolution with the blessing of the regulator,” said another key lender to the company.
Response from UCO Bank was still awaited at the time of publishing this story.
SREI Group, in response to CNBC-TV18’s query, said: “The question of IBC does not arise because we have already submitted a debt realignment plan which has been accepted by some creditors. This plan involves paying every creditor their entire dues in a structured manner over time. In the past 10 months, the banks have collected Rs 3000 crore through the TRA account. Hence, we are already repaying our loans. So, the question of default does not arise. As banks had control over the Company's cash flow, we could not pay any other creditors. Nevertheless, the matter is sub-judice since it is with the Tribunals and Courts.”
Srei further said, “We understand Banks want to follow a set process. However, we are in discussions with them for arriving at a resolution that will allow payments to all creditors and bondholders... We hope banks will decide on the debt realignment at the earliest so that the Company can pay all its bondholders and other creditors.
In the meantime, Srei Equipment Finance has received expressions of interest ("EoIs") from 11 global investors, including Arena Investors LP. Subsequently, the Company has received non-binding term sheets from Arena Investors LP and Makara Capital Partners.
Additionally, Arena Investors has submitted a defined term sheet. Srei's Board of directors has accepted it and sent it to the Reserve Bank of India (RBI) for approval. Makara Capital has also sent their proposal, which was presented to the Board and forwarded to the Reserve Bank.”
(Edited by : Yashi Gupta)