SREI Equipment Finance Chief Operating Officer (COO) Pavan Trivedi has quit, becoming the latest top executive leaving the crisis-ridden firm, after lenders capped the salaries of top deck in December in a desperate bid to recover their dues. SREI top level employees are miffed over banks capping the salaries at Rs50 lakh per annum and controlling the cash flows causing hardships even for routine operations.
There has been an exodus of at least a dozen top level executives from SREI since December which includes Sandeep Kumar Lakhotia, company secretary and compliance officer of SREI Infrastructure Finance. According to sources familiar with the development, few more top management exits are likely soon. Last week, lenders held a meeting to discuss developments at Srei but did not remove the salary caps, the source said.
“While senior bankers understand this, they seem helpless in getting all branch level officials across multiple banks on board to do the right things,” the source added.
When contacted, Trivedi confirmed his exit but declined to elaborate on the reasons. “This was discussed for a while. March 31 was my last day at office,” said Trivedi. An email sent to SREI Group seeking an official response didn’t elicit any response till the time of filing this story.
On March 21, Moneycontrol broke the story on Lakhotia’s exit and said more senior level exits are likely.
What’s triggering the exodus?
In December, SREI’s lenders’ moved to cap the employee salaries at Rs 50 lakh a year regardless of seniority and position, tightening the screws on the embattled Kolkata-based group in a desperate effort to recover their dues. The salary caps caused disquiet in the rank and file of SREI, a non-banking finance company (NBFC) that is facing a severe financial crunch, and led to more than ten senior-level exits, Moneycontrol reported. Since December, at least 200 employees out of SREI’s total workforce of 1,500 have quit the company.
SREI owes around Rs 18,000 crore to around 15 lenders including Axis Bank, Uco Bank and SBI. According to SREI, its finances took a hit due to COVID-19 and it has secured a moratorium from the Kolkata branch of bankruptcy court National Company Law Tribunal (NCLT).
The Kolkata-based NBFC, which has assets worth around Rs 43,000 crore, faced significant stress due to COVID-19. It faced difficulties in recovering money from businesses—that were hit hard by a slump in business due to the pandemic—it lent money to and, consequently impacted its repayments to its own lenders. Around 60 percent of businesses that borrowed money from SREI have approached the company to restructure the loans due to financial stress caused by the pandemic.
SREI received a favourable verdict from the NCLT in January, securing a reprieve in the form of a six-month moratorium on all loans. NCLT also gave permission to arrive at a mutually agreed repayment schedule with the lenders. The Kolkata NCLT order further said creditors could not classify SREI loans as bad until the order stands and asked raters not to revise the ratings during the said time period. Soon after, the raters and creditors moved the Delhi NCLAT challenging the Kolkata NCLAT order.
The NCLAT in Delhi stayed the Kolkata NCLT order with respect to rating actions on a petition moved by CARE rating agency. CARE and Acuite subsequently cut the rating of SREI Group. Another rating agency, Brickwork, put its rating action on hold, saying it would wait for the final order from the Delhi NCLAT.
The rating downgrades have put more pressure on the company. SREI told Moneycontrol in an email response on March 15 that legal actions were being evaluated against the raters’ decisions. To explain in simple terms, a rating downgrade of a firm to junk status is a signal to the investors from a rating agency to stay away from that company. Banks will also not extend further financial assistance to such a firm.
Rating agencies are in no mood to relent. They have indicated that the Delhi NCLAT order permits the rating action. The raters have cited the defaults on the payment obligations to its creditors and also taken into account the significant losses incurred by SREI as well as the recent business disruptions of the company.
CARE classified SREI Equipment Finance Ltd’s debt of Rs 17,411.96 crore and SREI Infrastructure Finance Ltd’s Rs 11,828.34 crore in the ‘CARE D’ category suggesting default. A day before that, Acuite rating agency downgraded SREI Equipment Finance, a group company, to junk rating (ACUITE D). It rated total facilities of Rs 3492.45 crore. SREI posted consolidated losses of Rs3,810 crore in the third quarter of the current fiscal on account of higher provisions. It had posted a net profit of Rs 60 crore in the year-ago period.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
