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MUMBAI : The Reserve Bank of India (RBI) on Monday seized two lenders of the Kolkata-based Srei group citing governance issues and payment defaults, in preparation for referring them to a bankruptcy court.

The central bank named former Bank of Baroda chief general manager Rajneesh Sharma as administrator of Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd, superseding their boards. Sharma will be assisted by an advisory committee of R. Subramaniakumar, T.T. Srinivasaraghavan and Farokh N. Subedar. Subramaniakumar was earlier administrator for Dewan Housing And Finance Corp. Ltd (DHFL), the only non-bank lender so far referred to insolvency court.

“The Reserve Bank also intends to shortly initiate the process of resolution of the above two NBFCs under the Insolvency and Bankruptcy Rules, 2019, and would also apply to the National Company Law Tribunal for appointing the administrator as the insolvency resolution professional," an RBI statement said. RBI refers non-bank lenders to insolvency proceedings following a recommendation from lenders.

The development follows the group’s protracted wrangling with lenders, and its attempt to merge the two companies under a contested plan.

Srei Group said in a statement that it was “shocked" by the RBI move. It said lenders had been regularly appropriating funds from an escrow account they have controlled since November 2020, and the group had not received any communication from banks on any defaults. It said lenders had not responded to its loan repayment proposal submitted in October 2020, nor proposed a schedule of their own. It said lenders had already collected 3,000 crore from Srei’s cash flows. “We are also surprised because the NCLT order for all creditors is still in process. There is also an order for ‘no coercive measures’ by the creditors and/or regulators. We will take all necessary steps as advised by our lawyers in this regard," it said.

Srei Infrastructure Finance was hit by a liquidity crunch following the collapse of Infrastructure Leasing and Finance Ltd (IL&FS) in 2020. However, the group got some relief after the Kolkata bench of NCLT asked lenders not to classify the account as a non-performing asset as it was in the process of merging the two group companies.

In November 2020, RBI conducted a special audit of Srei Group, which brought out certain related-party transactions and under-provisioning. Lenders hired KPMG to conduct their own forensic audit, which is yet to be completed.

Srei Infrastructure had been pursuing a merger with Srei Equipment Finance since 2019. The scheme of arrangement submitted before the Kolkata bench of NCLT had broadly proposed a moratorium in coupon payments from 1 January to 30 June and postponed redemption dates based on the type of creditors.

On 13 September, Mint reported that banks were likely to classify 35,000 crore loan given to Srei group as non-performing assets (NPA) in the September quarter.

In the June quarter, Srei Infrastructure Finance reported a consolidated loss of 971 crore, compared with a profit of 23 crore a year earlier and a loss of 3,555 crore in the quarter ended March. Total consolidated income for the first quarter dropped 35% to 793.34 crore from a yer earlier.

In March, CARE downgraded ratings of Srei Infrastructure Finance on account of continued delays in servicing debt obligations. The rating agency also considered significant losses incurred by Srei Equipment Finance Ltd in the first nine months of FY21, which had stood at 3,762 crore due to accelerated provision of 1,542 crore.

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