Religare auditors issue qualified opinion on dismal FY17 results

RBI move on Rs 1,845 cr corporate loan book of NBFC arm raises concerns

The auditors of Religare Enterprises have issued a qualified opinion on results for the financial year ending March 2017. Price Waterhouse highlighted directions from the Reserve Bank of India (RBI) in January over the corporate loan portfolio of Religare Finvest Ltd (RFL), the company’s non-banking financial company (NBFC) arm.
 
The auditors also emphasised a matter of communication with markets regulator Securities and Exchange Board of India (Sebi). The qualified opinion and the emphasis was part of the results approved by the board on Thursday.
 
The financial services firm, promoted by billionaire brothers Malvinder Mohan Singh and Shivinder Mohan Singh, reported a net loss of Rs 159.24 crore against a net profit of Rs 83.82 crore in the previous year, as revenue fell sharply to Rs 34.59 crore from Rs 125.24 crore.

 

The company has sold several arms such as asset management, capital markets and health insurance in the past year. Its NBFC arm is also in the process of unwinding its corporate loan book following regulatory directions.
 
The auditors drew attention to a letter from the RBI, dated January 27, in respect of inspection of the corporate loan book for financial year 2014-15, aggregating Rs 1,845 crore. “RBI has raised concerns around creditworthiness of some borrowers, credit appraisal and loan sanctioning mechanism followed by RFL. The letter also stated that accounts of these borrowers have been used to route funds to other group entities,” the audit report said.

 
Further, the RBI letter has raised concerns around governance norms followed by RFL and has sought a clear road map with a month-wise plan for liquidation of the portfolio. RFL has submitted the plan.
 
But, the auditors added, “Pending further direction from RBI and its inspection report for FY16, we are unable to comment on likely impact on financial statements resulting from penal provisions (if any), recoverability, impact of classification/reclassification in the consolidated financial statements and capital adequacy ratio etc.”
 
Elsewhere, the auditors added that there were inherent limitations in internal financial control over financial reporting. These included “possibility of collusion or improper management override of controls, material misstatements,” the auditors said in their report.

 
The auditors also drew shareholders’ attention to a dispute with Strategic Credit Capital, to which certain loan accounts were transferred. An amount of Rs 519 crore shown under other current assets has become a subject of legal dispute and have been written off, it said.
 
The communication with Sebi pertained to a penalty of Rs 50 lakh levied on a whole-time director for alleged transfer of 800,000 Religare shares to his wife during the trading closure period in October.
 
A letter informing about the investigation and penalty levied was sent to Sebi on May 17. The company has not received any further communication from Sebi in this regard yet, the auditors noted.

 
Last month, Religare had postponed its results board meet without assigning reasons.