InvestorQ : What exactly went wrong with the SREI group of Kolkata?
Mitali Bhutta made post

What exactly went wrong with the SREI group of Kolkata?

2 months ago

While a lot of things may happen now that SREI has been referred to the NCLT for resolution, here is a quick look at what led to this situation and what went wrong with the SREI business model. The SREI problem started off with IL&FS and DHFL in the NBFC crisis in 2018 and had worsened over the years. Let us look at how the entire business model imploded for SREI.

· When the RBI decided to refer SREI Infra and SREI Equipment Finance to NCLT for insolvency proceedings, it was just a culmination of a series of events.

· The problems that began 3 years ago in 2018 were never really rectified and that pushed SREI to the verge of default on a number of its core obligations.

· The creditors, led by the UCO Bank consortium, had to recover Rs.30,000 crore and therefore had already taken control of cash flows of SREI last year.

· SREI group was working out a resolution plan with banks. However, UCO Bank approached RBI only after the Kanoria family, promoters of SREI, asked for a 1-year standstill on all payments with immunity from legal action by banks and regulators.

· That was not done since the banks are already conducting a forensic audit of the group. That impelled UCO Bank to request RBI to initiate DHFL kind of bankruptcy process for SREI group also, as a special case.

· As a result, the RBI referred SREI to bankruptcy resolution at the request of UCO Bank led consortium, which is also the head of the committee of creditors.

· The problems arose at SREI because they had a major maturity mismatch. They were borrowing short end and lending long end. That imploded once the funding became tight.