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Updated on: Tuesday, November 16, 2021, 04:27 PM IST

Teji Mandi Explains: Defaulting times of SREI Group

Teji Mandi Explains: Defaulting times of SREI Group | File Image

Teji Mandi Explains: Defaulting times of SREI Group | File Image

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The SREI Group is one of India's leading finance and leasing institutions. The company’s two subsidiaries - SREI Infrastructure Finance and SREI Equipment Finance - are mirror images of default and bankruptcy. It’s said both the companies owe nearly Rs 36,000 crore to the banks. Meanwhile, the Reserve Bank of India (RBI) has superseded the company’s boards. What went wrong with the giant company? Read to know!

A Sneak Peek Into The Company

SREI Infrastructure is an infrastructure finance advisory, while SREI Equipment is a financier in the construction and mining sector. Additionally, the group also had businesses in other sectors like insurance broking, capital market, alternative investment etc. Now, SREI Infra and SREI Equipment have a total debt exposure of Rs 36,000 crore, which is classified as ‘stressed loans’ by the banks. To cut the long story short, the company’s businesses did not scale, and the massive debt resulted in a downward spiral.

How Did Things Get Worse?

The Finance Ministry instructed the RBI to provide relief by extending the moratorium and offering a one-time loan restructuring to the stressed borrowers during the pandemic. However, NBFCs were never allowed to restructure their debt, which resulted in revenues drying up. This led to a severe asset-liability mismatch and a ballooning debt, which SREI couldn’t pay to the banks. This situation soon arrived on the RBI’s table, and the central bank decided to take infra financing SREI Group to insolvency, on October 4.

It further superseded the board after the visible traces of governance issues in the companies. RBI pointed out governance concerns and defaults by the two companies in meeting their various payment obligations as the reason for superseding the boards.

Why Should This Bother You?

This will majorly affect those invested in finance, housing finance, NBFCs and banking companies. The sentiment of the lending space has turned quite sour after this episode because if one company defaults, investors become cautious and tend to exit the peer companies. This is unfair, especially to the companies that are still fundamentally intact.

What’s Ahead?

The RBI will now initiate the resolution process of the two NBFCs under the Insolvency and Bankruptcy Code (IBC). The SREI Infra and SREI Equipment will be bidded by strategic global investors or domestic investors to buy assets at a good price. The money from these investors will go to the banks that are waiting to receive their dues.

On another note, since RBI has superseded the company’s boards, the central bank will also make necessary adjustments in the top brass cabins to ensure the smooth functioning of the business.

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Published on: Tuesday, November 16, 2021, 04:27 PM IST
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