₹2,434 crore fraud: The state-owned Punjab National Bank (PNB) has reported to the Reserve Bank of India (RBI) about an alleged loan fraud against the former promoter of Srei Equipment Finance and Srei Infrastructure Finance. The alleged loan fraud reported by the bank PSU amounts to ₹2,434 crore.
Out of ₹2,434 crore alleged loan fraud flagged, ₹1,240.94 crore pertains to Srei Equipment Finance, while ₹1,193.06 crore relates to Srei Infrastructure Finance, PNB said.
In an exchange filing on Friday evening, PNB informed Indian stock market exchanges about the report to RBI, saying, “Pursuant to the applicable provisions of SEBI (LODFR) Regulations, 2015 and the Bank’s Policy for determining materiality of events/information required to be reported to the Stock Exchanges, it is hereby informed that the bank has reported borrowal fraud to RBI against the erstwhile promoters of the below mentioned entities: SREI Equipment Finance ( ₹1240.94) and SREI Infrastructure Finance ( ₹11 93.06 crore).”
Forensic audit findings
The PSU bank, as reported by Zee Business, stated that loan fraud by former promoters of the companies in question is based on the findings of a forensic report in this regard. PNB said the matter was reported to the RBI after the findings of serious irregularities in the report. The irregularities, as said by the PNB in the Zee Business report, included loans being extended to connected parties and possible evergreening of borrowings. Evergreening refers to the practice of taking out new loans to repay existing ones, thereby concealing financial stress in accounts.
The PSU bank further clarified that it has already made 100% provisioning for these loans, meaning the financial impact of the fraud classification has been fully accounted for in its books.
However, Srei Group founder and former promoter Hemant Kanoria has challenged the PNB's forensic audit report, arguing that such findings cannot be used as the basis for declaring the accounts fraudulent. He has maintained that the matter is currently sub judice.
For the information of our readers, PNB is not the only bank to have taken action against the Srei Group companies. Earlier, Punjab & Sind Bank, Bank of Baroda (BoB) and Union Bank of India (UBI) had also declared loan frauds linked to the SREI Group companies.
The Srei Group has been undergoing the insolvency resolution processsince 2021. In October 2021, the RBI took control over the boards of related Srei Group companies due to the mentioned governance failures and loan defaults. The RBI forwarded the cases to the National Company Law Tribunal (NCLT).
In February 2023, the National Asset Reconstruction Company Ltd (NARCL) emerged winning bidder for the two Srei Group companies. The total debt of these two Srei Group companies was approximately ₹32,750 crore owed to various Indian banks. The resolution plan was approved by the NCLT in August 2023, and the acquisition was finalised by January 2024.
