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A consortium of lenders led by State Bank of India has ordered a forensic audit of Videocon Industries' account to investigate whether the company stumbled because of tough business conditions or financial mismanagement.
The measure is a precursor to the debt restructuring process, which has now become inevitable for Videocon after the company defaulted on loans totalling Rs 43,000 crore, The Economic Times reported, citing two sources privy to the information.
KPMG is the audit firm tasked with examining Videocon’s books. Once the auditor publishes its findings, the process of restructuring the company’s debt can be started under the Insolvency and Bankruptcy Code.
"Lenders and promoters are now looking at restructuring of the loans and before they go ahead with it, it has been decided to conduct a forensic audit," one of the two people cited above was quoted as saying.
The decision of conducting an audit before going ahead with the debt restructuring proceedings is primarily due to banks’ increasing wariness of taking decisions based on discretion of the management. This started after 5 employees of IDBI Bank were recently arrested in the Kingfisher Airlines loan default case.
If the auditor concludes that the financial stress was on account of tough business conditions, then the bank can go ahead and commence restructuring the company’s debt.
"The account has turned into non-performing loans since we were not able to service the principal part," Venugopal Dhoot, Chairman of Videocon Industries, was quoted as saying. "We continue to service interest. We do not want deep restructuring of loans. We are not asking for a haircut. All we want is a longer time to repay the loan."
Smaller banks like Dena Bank had classified the company’s debt as non-performing in the March quarter itself, while bigger banks like Punjab National Bank and Central Bank of India did so in the June quarter.
The country’s largest lender State Bank of India is also expected to classify the loans as bad when it declares its results for the June quarter on August 11.
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