Sambandh Finserve, a microfinance firm, was hit by a fraud allegedly committed by CEO Deepak Kindo.
The Reserve Bank of India (RBI) has started inspection of books of fraud-hit Odisha-headquartered microlender Sambandh Finserve to understand the depth of the financial mess alleged by a section of the top management executives in a letter written to the board on October 7.
Meanwhile the lenders to Sambandh met last week to discuss the way forward. In the meeting, lenders have explored ways to take over the management control of the company and have asked SIDBI to take the lead. SIDBI is yet to come back on the matter as it requires Board-level decision, people familiar with the development said. None of them want to be named.
“RBI has already begun looking at the book of the company. That process is underway,” said one of the persons quoted above.
Banks want money back
Lenders also asked the company that whatever repayments come from borrowers need to be used for making repayments to banks. According to Brickwork, 34 lending institutions have exposure to Sambandh Finserve, including commercial banks and NBFCs. Total exposure to these lenders stands at Rs 383 crore. The lenders include Canara Bank, ICICI Bank, MAS Financial Services, Hinduja Leyland Finance, Northern ARC Capital, SIDBI among others.
Brickwork has cut the ratings of NCDs and bank loan facilities of SFPL to BWR D from BWR BBB-/Positive, the rating agency said in a review note. The total value of these instruments works out to Rs 433 crore. Meanwhile Ernst & Young, the consultancy firm which was appointed by the Board to conduct a forensic audit has sought more time to complete the audit.
On October 23, Moneycontrol reported that Kuchibhatla Prasad, one of the independent directors, has quit the Board.
What is the alleged fraud?
A letter written by the senior management personnel to the Board of Directors on October 7 alleges that under the “express instructions and directions” of managing director and CEO Deepak Kindo, the management has been cooking the books from the financial year 2015-2016. Moneycontrol has a copy of the letter.
At the end of March 2020, SFPL has total reported assets under management of Rs 461 crore and has a profit after tax of Rs 5.22 crore. It has gross NPAs of 0.67 percent and has a total capital adequacy ratio of 21.5 percent. But these numbers are disputed now.
According to the letter sent by a section of the management to the company’s Board, the management was allegedly forced to create fake loan accounts for inflating the AUM (assets under management) figures under the direction of MD & CEO Deepak Kindo, and the current credit head.
According to the letter, the actual portfolio as AUM is approximately Rs 140 crore, against the reported figure of Rs 391 crore, as on September 30, 2020.
“The reported AUM is inflated and non-existent. The gap is approximately Rs 251 crore,” the letter said. The letter is signed by James Raj, Chief Financial Officer of Sambandh, and three other officials, including the internal audit head.
Interestingly, the Board of Sambandh is headed by Chairman Livinus Kindo, the father of Deepak Kindo. Other members include Dia Vikas Capital nominee director Saurabh Baroi, BOPA PTE nominee director Niroshani Sawanawadu, SIDBI nominee director Girish Meher, and independent director Vinod Jha.
In 2013, SFPL secured an NBFC-MFI licence from the RBI. NBFC means Non-Banking Financial Company and MFI is Micro Finance Institute.Its head office is located at Rourkela in Odisha. SFPL offers microfinance loans under both joint liability and self-help group models. SFPL operates through 100 branches in 39 districts across Odisha, Chhattisgarh, Jharkhand, Bihar and Gujarat.