MC Exclusive: Forensic audit believed to be underway at Spandana Sphoorty to assess cash position

According to the sources cited, the regulator’s apprehension at this juncture is whether collection at branches, which is predominantly in the form of cash, is being accounted for properly.

A detailed forensic audit is being conducted at Spandana Sphoorty Financial Limited, which figures among India’s top five microfinance companies.

The audit is primarily focused on assessing the actual cash balances at the branches of the company and the overall corporate level. The audit is also targeted at mapping the money trail and its movement within branches, including among branch staff and those handling cash at a corporate level.

Sources say an RBI inspection began around mid-October, weeks after the central bank issued an embargo on four non-banks, including Sachin Bansal-led Navi Finserv. Subsequently, a forensic audit was initiated a few weeks after the conclusion of the RBI’s inspection. The sources cited say the audit was at the behest of the regulator.

“Consequently, from mid-December, the lender stopped loan disbursements across most branches. In the last week or so, a few branches have resumed disbursements, especially those identified by the audit agency as branches with negligible concerns,” said a highly placed source aware of the developments. He added that business may have resumed in less than 30 percent of the branches, though this could not be independently verified by Moneycontrol.

According to the sources cited, the regulator’s apprehension at this juncture is whether collection at branches, which is predominantly in the form of cash, is being accounted for properly. “Whether the cash collected is directly used for lending or there is siphoning off of cash is not clear, because collections may not be tallying with what is disclosed in the books,” said a highly placed source who did not want to be named.

Kedaara Capital-promoted Spandana Sphoorty is set to announce its March FY25 quarter results today. The company also plans to raise capital, either by way of debt or equity.

Responding to an email seeking comment about a forensic audit underway at the company, the company said: “The Company denies any ongoing forensic audit as alleged currently or in the past. Further, we reiterate that the Company follows robust internal audit and financial control processes. Observations arising in the normal course of business are appropriately addressed, disclosed, and accounted for in the published financial results, in line with applicable regulatory and accounting standards. The Company confirms that all cash balances and collections, both at branch and corporate levels, have been duly recorded”.

However, when clarification was sought about the allotting of disbursements in branches, the email remained unanswered till the article was published.

Troubles at the MFI lender became apparent when the company’s then MD & CEO abruptly resigned on April 23. For the nine months ended December 31, 2024, the company reported a net loss of Rs 546 crore owing to high provisioning for bad loans.

The company’s statutory auditor, BSR & Co, an affiliate of KPMG, flagged the company’s weak financials and its ability to stay afloat as a going concern as it had breached loan covenants for most of FY25.