Srei 'shocked' by RBI move, says will take all necessary legal steps

SREI has been beset by a litany of troubles in the recent past. It recently saw its ratings cut to junk by two rating agencies. [Image: Reuters]

Crisis-ridden Srei Group said on October 5 that the company was shocked by the Reserve Bank of India's move to supersede the board and would take all necessary steps as advised by lawyers.

On October 4, the RBI announced the takeover of the boards of directors of Srei Infra and Srei Equipment Finance Limited due to governance concerns and defaults by Srei Group companies.

Srei Group said banks were regularly appropriating funds from the escrow account they controlled since November 2020. "Moreover, we have not received any communications from banks on any defaults," the group said in a statement made available to Moneycontrol.

The RBI also appointed Rajneesh Sharma, the former Chief General Manager at Bank of Baroda, as administrator.

Also read: RBI appoints advisory committee to advise administrator of Srei Infrastructure Finance & Srei Equipment Finance

The move came a week after creditors of Srei Group rejected the management’s proposal to grant the company a one-year standstill from any action—legal or otherwise—to recover dues estimated at around Rs 30,000 crore.

Srei Group said it submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. The banks neither accepted it nor proposed a payment schedule acceptable to them, it said.

"Banks have been controlling the company's cash flow since November 2020. Almost Rs 3,000 crore has been collected by them, out of which they have been disbursing to themselves," the statement said.

Over the last three decades, Srei has already paid Rs 30,000 crore as interest and another Rs 20,000 crore principal to banks, it said.

There has never been any delay in loan servicing by Srei in the past before Covid-19 ravaged the country, the group said.

"We are also surprised because the NCLT order for all creditors is still in process. There is also an order for "no coercive measures" by the creditors and/or regulators. We will take all necessary steps as advised by our lawyers in this regard," the Group said.

The RBI would soon initiate the process of resolutions of the non-banking finance companies (NBFCs) under the Insolvency and Bankruptcy Rules 2019 and ask National Company Law Tribunal (NCLT) to appoint the administrator as the insolvency resolution professional, the central banks said in a statement.

Debt problem

Srei Group owes around Rs 30,000 crore. Of this, about 18,000 crore is owed to banks and the remaining to other creditors, a group spokesperson said.

On October 1, Moneycontrol reported that the lenders adjusted Rs 3,000 crore from Srei Equipment Finance Ltd’s cash flow against the loan dues in the last 10 months, drawing money from the trust and retention account.

Talks for debt realignment were still on and lenders were waiting for a forensic audit to take a call on realignment. The group has seen senior-level exits, including that of Srei Infrastructure Finance CEO Rakesh Bhutoria, in the last six months as the lenders imposed salary caps.

Sandeep Kumar Lakhotia resigned as company secretary and compliance officer of Srei Infrastructure Finance on March 20. Pavan Trivedi, Srei Equipment Finance’s Chief Operating Officer had also stepped down a month later.

In December 2020, the lenders had taken control of the finances of the company.