Lenders to make Rs 5,000-crore provisions for Srei bad loans, say bankers

With Srei group exposures becoming bad loans in September, the immediate provisions that lenders have to make is over Rs 5,000 crore, bankers said.

 

Going by the Reserve Bank of India’s (RBI’s) norms, Srei exposure will be treated as substandard asset, the first stage of non-performing asset (NPA).

 

The banks will set aside around 15 per cent provision for secured loans. It would be higher for unsecured credit.

 

The total exposure — loans plus securities — to two Srei entities is pegged at Rs 30,000 crore. The RBI, on Monday, superseded the boards of Srei Infrastructure Finance and Srei Equipment Finance.

 

Public sector bank executives said both companies have been stressed accounts for many quarters. They could not classify them as NPAs due to curbs by tribunals. The restrictions were lifted in early September, paving the way for treating them as bad loans.

 

As a prudent step, banks had begun to set aside money for Srei exposure for a few quarters under general and Covid provisions. Now, that account is tagged as NPA.

 

Like in the case of Bank of Maharashtra, the lending is about Rs 550 crore and it has made accelerated provision for most of the exposure under general and Covid tag, a bank official said.

 

Insolvency proceedings may begin soon as the RBI decided to initiate action under IBC owing to governance concerns and defaults by these companies in meeting various payment obligations. Alongside, forensic audit is underway of books (of Srei).

 

Based on findings of the forensic audit, in case accounts are treated as fraud, banks would have to make 100 per cent provision for exposure spread over four quarters. This could be in the region of Rs 30,000 crore, said a top executive with a public sector bank.

 

Rajneesh Sharma, ex-chief general manager of Bank of Baroda, has been appointed as the administrator of the two companies.