SREI Group.
A clutch of present and former employees of Srei Infrastructure Finance are planning to approach the Reserve Bank of India (RBI)-appointed administrator to seek clearance of their salary dues, according to two people familiar with the development. One of them is a former employee. Both declined to be named.
“The employees whose salary arrears remain unpaid due to the coercive action taken by UCO once they started controlling the Company accounts in Nov 2020, will now file their claims with the Administrator,” said one of the employees quoted above.
“Many of the employees suffered huge financial losses as they and their families had also invested in the bonds of Srei Equipment Finance,” the person added.
Lenders had capped the salaries of Srei executives at Rs 50 lakhs per annum in December last year. The salary cap was removed in April this year. However, even after around six months, the arrears are yet to be paid to Srei employees.
On October 11, Srei administrator Rajneesh Sharma had issued a public notice asking SIFL’s creditors to submit their claims after the Kolkata NCLT ordered the commencement of the corporate insolvency process against the Srei group firm on October 8.
The Bombay High Court on October 7 dismissed Srei Group’s plea against the Reserve Bank of India’s (RBI) action on Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL).
Srei Group promoters, Adisri commercial private ltd, had filed a writ petition against the RBI challenging the order and had also sought a stay on initiating insolvency proceedings against SIFL and SEFL.
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.
The RBI also appointed Rajneesh Sharma, the former Chief General Manager at Bank of Baroda, as administrator.
On October 1, Moneycontrol had reported that lenders to Srei Group had adjusted Rs 3,000 crore from Srei Equipment Finance Ltd’s cash flow against the loan dues in the last ten months drawing money from the trust and retention account (TRA).
Talks for debt realignment were still on and lenders were waiting for a forensic audit to take a call on realignment.
The group had also seen senior-level exits in the last six months as the lenders had imposed salary caps including Srei Infrastructure Finance CEO Rakesh Bhutoria. 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.
The trigger for Srei’s downfall was the collapse of Infrastructure Leasing & Finance Ltd in late 2018. The resultant liquidity crunch affected all non-banking financial companies (NBFCs). Banks shut funding channels to all such entities and SEFL had to call off its initial share sale. The group didn’t recover from the liquidity shock.
July 2019, the SIFL board decided to transfer the lending business to SEFL in what was seen as a move to enable the latter obtain a banking licence. The proposed step would also have helped SEFL attract strategic investors and also prepare the entity for a conversion into a bank, SIFL said in a stock exchange filing.
However, Srei’s lenders were not taken into confidence about the move, leading to a significant trust deficit between the group and the lenders. Major lenders to the group include UCO Bank, Axis Bank, State Bank of India and Union Bank of India.
But a bigger jolt came the following year. The Covid-19 pandemic severely hit Srei’s operations as the infrastructure sector suffered a body blow. When the RBI announced a moratorium on loan repayments, NBFCs had to extend the moratorium to their customers as well. Given that NBFCs rely on repayment of loans they have extended to, in turn, repay the banks they have taken funds from, this had a severe impact on Srei’s cash flows.
