lndoStar Capital Finance Ltd, non-banking finance company backed by private equity firms, has found certain lapses like deviation from polices for sanctioning loans and control deficiencies in commercial vehicle loan portfolio. The potential provisioning burden for this is pegged between Rs 557 crore to Rs 677 crore.
The company in filing with BSE said on March 31, 2022 that its management informed the audit committee of board that certain observations and control deficiencies were observed during the interim statutory audit of the annual financial statements specifically in CV loan segment.
The NBFC appointed Ernst & Young LLP (E&Y) to conduct Loan Portfolio Review. The ambit of work covered review of the policies, procedures and practices relating to the sanctioning, disbursement and collection of CV Loans E&Y was also to assess the adequacy of the expected credit loss allowance.
The certain preliminary findings of Loan Portfolio Review primarily pertain to certain control deficiencies. E& Y review found deviations from the credit policy in approval processes for loans to existing customers and waivers in foreclosure cases in cases of certain loans.
The company did not follow the steps as detailed in the control description for restructured loans, review observed.
NBFC said the company may be required to make an additional estimated credit loss (ECL) provisioning between Rs 557 crore to Rs 677 crore. The Loan Portfolio Review is ongoing and the assessment of the Potential Additional Provisioning and relevant issues may undergo revisions.
The Potential Additional Provisioning is expected to impact the Company's net-worth and capital adequacy ratio. However, the company is expected to continue to be adequately capitalized, will be in compliance with capital adequacy norms and have sufficient liquidity to satisfy its short-term and long-term liabilities.
The capital adequacy ratio (CAR) of the company was 35.1 per cent as of December 31, 2021. Assuming the higher end of the range of Potential Additional Provisioning, the revised CAR as on December 31, 2021 would be approximately above 25 per cent, IndoStar said.
These estimates are based on the Potential Additional Provisioning and are subject to finalisation of audited financial statements of the Company for the year ended March 31, 2022, it added.