InvestorQ : What has gone wrong with SREI Finance and why has the company reported such a huge loss in the current Dec-20 quarter?
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What has gone wrong with SREI Finance and why has the company reported such a huge loss in the current Dec-20 quarter?

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Niti Shenoi answered.
4 months ago
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Kolkata based SREI Finance has been at the centre of problems for some time now. The company had apparently made some bad bets on infrastructure and was stuck in a liquidity and maturity mismatch warp. For the Dec-20 quarter, SREI Finance ended up posting a net loss of Rs.3800 crore, an unprecedented loss considering its size.

These huge losses were largely on account of higher and accelerated provisions that have been specifically made for loan losses. The impacting was visible on the top line too. For example, the operating revenues for the Dec-20 quarter fell to almost one-third of last year on a yoy basis from a level of Rs.1450 crore to Rs.490 crore in the current quarter.

Due to these massive losses booked, the net worth of SREI Finance stood at just about Rs.296 crore as of Dec-20. According to Hemant Kanoria the founder of SREI Infrastructure Finance, the company had accumulated losses on account of huge asset liability mismatches in the midst of the COVID pandemic. That claim is yet to be verified.

It is yet not clear whether the losses are purely on account of a maturity mismatch or due to bad asset decisions. The dividing line can be quite thin as we saw in the case of IL&FS as well as in the case of Dewan Housing. Of course, it must be admitted that the tight credit squeeze on NBFCs only worsened matters for SREI.

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