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Will RBI move against Srei deliver dividends?

Kolkata-based company had earlier taken recourse of NCLT more times than one to take over its dues or take control of another company; Former BoB official Rajneesh Sharma takes charge as administrator of Srei after RBI superseded the board

Will RBI move against Srei deliver dividends?

Will RBI move against Srei deliver dividends?

- Srei Group is quite familiar with the NCLT procedures

- Prolonged NCLT proceedings over debt-ridden Deccan Chronicle Holdings is a case in point

- Possibility of the promoters getting back to the company can't be ruled out

- Banks controlling the company's cash flow via escrow account since Nov 2020

- Banks collected Rs3,000 cr so far

- Srei has not made any provision for loans

Kolkata: Even as the crisis-ridden Srei Group gears up to take legal recourse advised by the legal eagles against the latest RBI move, the Reserve Bank of India (RBI)-appointed administrator of Srei, Rajneesh Sharma, on Tuesday took charge at the company headquarters and held series of parleys with the heads of the departments. Earlier, the apex bank on Monday had superseded the Board of Directors of Srei Infra and Srei Equipment Finance, thanks to issues and concerns over governance and defaults by Kolkata-headquartered SI Group companies.

The RBI, it is learnt, will soon initiate the process of resolutions of the non-banking finance companies (NBFCs) under the Insolvency and Bankruptcy Rules 2019 and ask National Company Law Tribunal (NCLT) to appoint the administrator as the insolvency resolution professional.

Interestingly, the Kolkata-based NBFC is quite familiar with the NCLT procedures. In fact, the company has used this platform and taken recourse of NCLT more times than one to take over its dues or take control of another company. The ongoing and prolonged NCLT proceedings over the debt-ridden media house Deccan Chronicle Holdings is a case in point. Therefore, dragging Srei to insolvency should not be interpreted as beginning of an imminent resolution. And the possibility of the promoters getting back to the company cannot be ruled out altogether. The latest development and the move by the RBI have come as a potent tool in the hands of the lenders only.

An official communique from the company on Tuesday made it clear that Srei was not going to give in without a fight. Srei Group minced no word in pointing out that the banks were regularly appropriating funds from the escrow account they controlled since November 2020. Moreover, the company has not received any communications from banks on any defaults. The company said it 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. The banks neither accepted it nor proposed a payment schedule acceptable to them, it said.

"Banks have been controlling the company's cash flow since November 2020. Almost Rs 3,000 crore has been collected by them, out of which they have been disbursing to themselves," the statement said.

It is pertinent to mention here that the RBI had done a special audit a year ago, following which Srei had to make provisions for a stressed loan portfolio. The forensic audit is also underway and expected to be completed soon, said the head of risk management with a private bank.

Srei Equipment Finance, in particular, had some suitors. The US-based Arena Investors LP had in June had expressed an investment interest of Rs2,000 crore, and Singapore-based Makara Capital had offered Rs 2,200 crore.

Apart from UCO, other banks with substantial exposures to Srei are State Bank of India, Bank of Baroda, Bank of India, Indian Bank, Punjab National Bank, Axis Bank, Canara Bank, and Union Bank of India.

Not just these problems, the debt-ridden company has also seen senior-level exits, including that of Srei Infrastructure Finance CEO Rakesh Bhutoria, in the last six months as the lenders imposed salary caps. Sandeep Kumar Lakhotia also resigned as company secretary and compliance officer of Srei Infrastructure Finance on March 20. Pavan Trivedi, Srei Equipment Finance's Chief Operating Officer had also stepped down a month later. Few other directors and top-rung officials did the same.

The RBI move came within days of creditors of Srei Group rejecting the management's proposal to grant the company a one-year standstill from any action—legal or otherwise—to recover dues estimated at nearly Rs 30,000 crore.

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