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Lenders to Srei group are planning to conduct forensic audits of two companies, Srei Infrastructure Finance and Srei Equipment Finance, two people aware of the development said.

A final decision will be taken at a core group meeting of lenders to be held in the coming weeks, according to the people cited above.

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“The audit is being considered after an agency for specialized monitoring (ASM) appointed for Srei’s loans raised some queries," said a banker, one of the two people cited above. “Such agencies are used by lenders to monitor cash inflows, outflows and several other parameters, to submit detailed reports on borrowers. We want to dig deeper into queries raised by the ASM report," the banker said, adding a forensic audit may take about three months to be completed.

A Srei spokesperson said in an emailed response: “As we have mentioned to you on multiple occasions, there is a motivated campaign to spread fabricated and false information. We will request you to not pay heed to any unsubstantiated claims made by individuals/groups who choose to stay anonymous and are not able to provide documentary evidence in support of their claims."

According to the first person, lenders on Wednesday also voted against Kolkata-based Srei’s proposal to consolidate its lending business into Srei Equipment Finance. The Kolkata bench of the National Company Law Tribunal had set two dates for creditor meetings on 16 and 23 December, meant to ratify the proposal to transfer assets between two Srei firms.

Asked about the voting, the Srei spokesperson said the company cannot comment on the matter as it is sub judice. Srei is fully engaged with creditors, and expects an orderly outcome in the best interest of all stakeholders, the person said.

According to Care Ratings, Srei Infrastructure’s long- and short-term bank facilities stood at 11,117.71 crore and at 16,912.21 crore for Srei Equipment Finance.

A forensic audit studies financial records to check for possible evidence for use in a legal proceeding. To be sure, banks often order such audits before they restructure loans, and some forensic reports also turn out to be inconclusive. However, in some cases, banks have relied on forensic audits to report loan fraud to the Reserve Bank of India (RBI). A recent case is Punjab National Bank (PNB) classifying its exposure to Reliance Home Finance as fraud, prompting the borrower to approach the Delhi high court in August.

In September, markets regulator Securities and Exchange Board of India (Sebi) said there is a concern of information asymmetry when it comes to a forensic audit of listed firms. Sebi mandated that listed entities would need to disclose any audit initiated, the final report and management commentary to the stock exchanges. Only the audits initiated by regulators and enforcement agencies need not be disclosed.

The National Company Law Appellate Tribunal (NCLAT) on 14 December declined to stay a Kolkata tribunal order that initiated the process of transfer of assets between two Srei firms. The appeal was filed by lenders claiming Srei group did not take their nod before consolidating its lending business into Srei Equipment Finance.

Meanwhile, Care Ratings on 14 December said the consensus of creditors in the proposed meetings is critical for the consolidated credit risk profile of the company amid stressed liquidity position.

“There is no clarity as yet on the stance of the consortium on the slump exchange and restructuring scheme. Meanwhile, Care understands that the lenders have maintained status quo in terms of reporting on the accounts of the group even in case of overdues," the rating agency said.

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