Loan portfolio lapses cloud growth plans of Indostar Capital Fin

Plans for growth, including branch expansion, of Indostar Capital Finance have come under a cloud after irregularities in its commercial vehicle loan portfolio came to light.

Deep Jaggi took charge in January as chief executive officer (CEO) of the NBFC, which is backed by private equity firm Brookfield.

Then the firm had articulated plans to expand its network to 700-800 branches in the next four-five years, grow the loan book four-five times, and finance used cars and tractors.

Jaggi had joined the NBFC as chief business officer in October 2020.

R Sridhar, executive vice-chairman, relinquished office on completing a five-year term in April.

Meanwhile, lenders to the NBFC and rating agency CARE have sought details to understand the implications for exposures and the asset quality of Indostar Capital Finance.

Executives of lenders to the NBFC said this episode was likely to make a big dent on its profits.

The financiers of Indo-star Capital Finance include State Bank of India, HDFC Bank, and ICICI Bank, the Annual Report for FY21 showed.

The company, in a response to queries about business implications of loan irregularities, said the loan portfolio review was going on and it would provide updates in due course. The company has estimated additional provisions at ~557-677 crore. In the light of the loan portfolio review, the assessment of the potential additional provisioning and relevant issues may be revised.

The NBFC has appointed Ernst & Young (E&Y) to do the loan portfolio review and assess the adequacy of the expected credit loss allowance. Indostar reported a net profit of ~17.1 crore for the nine months ended December 2021. Its net worth stood at ~3,678.4 crore as of December 31, 2021. Its consolidated assets stood at ~9,712 crore with the commercial vehicle finance book of ~4,057 crore at end of December 2021.

CARE Ratings has an “AA-” rating on Indostar Capital’s long-term debt with a stable outlook. The agency is talking to the company on matters like the circumstances in which it happened and the clean-up.

LENDERS TO THE NBFC AND RATING AGENCY CARE HAVE SOUGHT DETAILS TO UNDERSTAND THE IMPLICATIONS FOR EXPOSURES AND THE ASSET QUALITY