Indostar hit by irregularities, provisions to rise

lndostar Capital Finance, a non-banking finance company backed by private equity firms, is staring at an increase in its provisions after lapses such as deviation from polices were detected for sanctioning loans in the commercial vehicle (CV) portfolio. The potential provisioning burden is pegged between ~557 crore and ~677 crore.

The company in its filing with BSE said on March 31, 2022 that its management informed the audit committee of the board that certain observations and control deficiencies were observed during the interim statutory audit of the annual financial statements, specifically in its CV loan segment. The NBFC had appointed EY for conducting its loan portfolio review.

Certain preliminary findings of loan portfolio review primarily pertain to control deficiencies. The EY review found deviations from the credit policy in the approval processes for loans to existing customers and waivers for closure of cases of certain loans.

The company did not follow the steps as detailed in the control description for restructured loans, review observed.

The NBFC said it might be required to make an additional estimated credit loss provisioning of ~557-677 crore. The loan portfolio review is ongoing and the assessment of the potential additional provisioning and relevant issues may undergo revisions, the company said.

Any additional provisioning is likely to impact the company’s net worth and capital adequacy ratio. However, the company is expected to continue to be adequately capitalised, be in compliance with capital adequacy norms, and have sufficient liquidity to satisfy its short-term and longterm 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 the potential additional provisioning, the revised CAR as on December 31, 2021 would be approximately above 25 per cent, Indostar said.

The potential provisioning burden is pegged between ~557 cr and ~677 cr