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Photo: Bloomberg
Photo: Bloomberg

Audit hints at diversion of funds at debt-laden Religare Finvest

  • Religare Finvest has been in talks with lenders on a debt resolution proposal, although it is yet to be approved
  • The audit has thrown up some suspicious transactions between Religare Finvest and the larger Religare Group

MUMBAI : A forensic audit of Religare Finvest Ltd ordered by the State Bank of India (SBI) has hinted at diversion of funds, two people aware of the development said, putting a resolution plan for the stressed non-banking financial company (NBFC) in jeopardy.

According to credit rating agency India Ratings and Research, the NBFC that serves mainly small businesses has long-term bank loans of 15,000 crore. The firm has been in talks with lenders on a debt resolution plan, although it is yet to be approved.

“We will now submit the resolution plan to an oversight committee, which is expected to complete the process by the end of October," said the first of the two persons, both of whom spoke under condition of anonymity. The oversight committee was appointed by the Indian Banks’ Association.

After signing an inter-creditor agreement (ICA), lenders typically appoint a forensic auditor to study the books of a stressed borrower. A forensic audit is an examination and evaluation of a firm’s or individual’s financial records to derive evidence that can be used in a court of law or legal proceeding, according to Investopedia, a website that demystifies financial jargons.

“This audit has thrown up some suspicious transactions between Religare Finvest and the larger Religare Group. Bankers had lent money to Religare Finvest for it to on-lend and if that is being used to transact within its group companies, then the funds clearly have not been well-utilized," the first person said.

The NBFC sector has been facing difficulties since the second half of fiscal year 2019, beginning with defaults by Infrastructure Leasing & Financial Services Ltd that sparked a liquidity crunch, and made banks averse to the sector. Several shadow lenders continue to reel under the effects of the liquidity squeeze, affecting their ability to make fresh loans and repay their debt to banks.

Religare Finvest is a subsidiary of Religare Enterprises Ltd, which had a 85.63% stake as of 31 March 2019.

The first person said the current resolution plan envisages division of the firm’s debt into sustainable and unsustainable debt. Some portion of the unsustainable debt, he added, will be sold to asset reconstruction companies (ARCs), and the rest will be converted into optionally convertible preference shares.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint


On 10 July, Religare Enterprises said it will sell its entire stake in Religare Finvest to TCG Advisory Services.

“Since this deal (between Religare and TCG) is bilateral in nature and is now being seen as part of the debt resolution process, bankers would like the oversight committee to have a look at it," the first person said.

The second person said very rarely do forensic audits show conclusive evidence of siphoning or diversion of funds but since the forensic report has hinted at it, bankers do not want to approve the resolution plan outright.

“Banks always have the option of debt restructuring by effecting a change in management as well," said the second person, adding the oversight committee will have to give a final clearance.

A spokesperson for Religare Finvest said in an email that as a policy, the company cannot comment on the internal processes of other institutions. “However, we would like to state that, the debt restructuring is progressing well and some banks have already given their in-principle approval for restructuring and others are going through their internal processes for approval of the restructuring," the spokesperson said.

An email sent to SBI remained unanswered till press time. Other lenders to the company include Bank of India, Bank of Baroda, Canara Bank, Central Bank of India, Corporation Bank, IDBI Bank, Oriental Bank of Commerce, UCO Bank and Union Bank.


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