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Banks are preparing to classify loans worth 35,000 crore made to Srei group as non-performing assets (NPA) in the September quarter after an appeals tribunal cleared the hurdles in this respect last week.

On 7 September, the National Company Law Appellate Tribunal (NCLAT) set aside a 30 December 2020 order issued by the Kolkata bench of the National Company Law Tribunal which said that any non-payment of dues by SREI Infrastructure Finance and SREI Equipment Finance will not be recognised as an event of default, till a scheme of arrangement is signed by all creditors, which included its lenders as well as bond holders. While many banks have already downgraded loans to Srei Equipment Finance Ltd and Srei Infrastructure Finance Ltd as stressed loans in the previous quarter, accelerated provisioning will be made in the current quarter.

According to analysts’ estimates, public sector banks Indian Bank and Canara Bank have exposures of 2,000 crore and 1,200 crore, respectively, to Kolkata-based Srei group, while private sector Axis Bank has an exposure of 800 crore.

 

Blowing a hole
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Blowing a hole

“We were expecting Srei to be classified as NPA and, hence, had already started setting aside provisions," a top banker at a large public sector bank said on condition of anonymity.

 

Srei Infrastructure had been pursuing a merger with Srei Equipment Finance since 2019. The scheme of arrangement submitted before the Kolkata NCLT broadly proposed a moratorium in terms of coupon payments from 1 January to 30 June 2021, along with postponement of redemption dates based on the type of creditor. Granting a request from Srei group, the NCLT on 30 December 2020 asked the banks not to take any coercive action against the two companies, including classifying the account as NPA, until the merger is completed. The tribunal granted the companies this relief. But Srei’s lenders led by Uco Bank appealed the matter in NCLAT, saying the majority of banks rejected the scheme of arrangement.

In March this year, CARE downgraded ratings of Srei Infrastructure Finance on account of continued delays in servicing debt obligations. The rating agency also took into account 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.

A Reserve Bank of India inspection report of Srei Equipment Finance flagged lending to probable related and connected parties during 2019-20, according to disclosures made by Srei Equipment Finance in its March quarter earnings. RBI identified certain borrowers with loans worth 8,576 crore as “probable" connected or related parties, the lender said.

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