The Reserve Bank of India rejected Religare Finvest Ltd’s proposal to rename itself Care Financial Services and declined to new management status to the existing management – a move that would derail debt restructuring of the finance company, said people aware of the matter.
As per the RBI’s regulations, lenders cannot restructure loans of borrowers tagged as fraud, unless there is a change in management. Lenders have tagged its parent company Religare Enterprises Ltd (REL) as fraud.
Religare Finvest itself filed a case of financial irregularities against REL and have also proposed a debt recast plan with REL as its promoter company. “There is a dichotomy here and this may be a reason for the banking regulator to reject the change in management status,” one of the persons quoted above said.
Religare Finvest is under a corrective action plan (CAP) since January 2018, which restricts it from expanding business, including giving new loans. The existing board is seeking new management status since the old promoters, the Singh brothers, are no longer in control of the existing board. Also, a new management status would encourage its lenders to restructure its debt, the people said.
Separately, to clean its books Religare Finvest on Wednesday declared Asset Reconstruction Company of India as the winning bidder for its ₹480-500 crore distressed loan auction. Arcil had offered ₹180-190 crore for the SME portfolio, said a third person aware of the deal.
Religare did not respond to requests for comments.
Meanwhile, some existing lenders are of the view that recast of the loan is possible only after the regulator removes the company from CAP, the people quoted above said.
Last year, the insurance regulator permitted Religare Health Insurance to rename it as Care Health Insurance. However, the banking regulator was against a name change of a loss-making finance company, said the first person.
In March 2020, Religare Finvest itself filed a case alleging financial irregularities against its former management following which a first information report against Religare Enterprises and its promoters, siblings Malvinder and Shivinder Mohan Singh, was filed.
Subsequently, it submitted a debt recast plan with REL continuing to be its promoter company, according to the annual report of REL for FY21. “A proposed debt recast with the same management as a promoter that is tagged as fraud is not acceptable to RBI,” said one of the lenders aware of the matter.
In March 2020, RBI rejected TCG Advisory’s proposal to acquire a stake in Religare Finvest and its housing finance subsidiary on grounds that the acquirer is not fit and proper.
Subsequently, it submitted a debt recast plan with FEL continuing to be its promoter company, according to the annual report of REL for FY21. “A proposed debt recast with the same management as a promoter that is tagged as fraud is not acceptable to RBI,” said one of the lenders aware of the matter.
Religare Finvest, which focuses on funding small and medium enterprises (SME), has ₹2,787 crore outstanding rated loans. State Bank of India has the highest exposure of ₹500 crore followed by Canara Bank at ₹485 crore