Hemant Kanoria, the embattled businessman who pioneered infrastructure financing in the country way back in 1989, has said the pandemic and the resultant cash-flow issues coupled with his own earnestness to pay back the lenders by legitimately approaching the courts for debt restructuring are the reasons for the mess at the Srei Group at present.

Kanoria also said that if the Reserve Bank had given the Srei Group more time to adjust to the new regulatory norms which are mostly suited for banks and other NBFCS not an infra financing company, which began after the IL&FS downfall, and accepted that their business was not typical of other retail/housing NBFCs, the group wouldn’t have ended up the way it has now.

“But I’ve no regrets, instead I am happy that I pioneered infrastructure financing in this part of the world and successfully run it for more than three decades — from what was a Rs 150-crore industry when we started off to a Rs 50,000-crore industry now,” Kanoria told PTI in his first media interaction since October 4, 2021, when the Reserve Bank superseded the boards of Srei Infrastructure Finance and Srei Equipment Finance and sent them to the Kolkata NCLT for bankruptcy resolution later that week.

These two owe around Rs 32,000 crore to the system: around Rs 18,000 crore to banks led by Uco Bank (Rs 3,000 crore), SBI and Union Bank (Rs 2,000 crore each), Axis Bank etc; and over Rs 10,000 crore in ECBs and bondholders and around Rs 4,000 crore to others.

The RBI acted even as Srei’s equity infusion proposals from many global investors, including Singapore’s Makara Capital (Rs 2,200 crore) and US-based Arena Investors (Rs 2,000 crore), were pending with it.

“The only reason for our January 2021 move to get a debt recast proposal approved by the NCLT was to ensure that we fully repaid our lenders after we found cash-flow issues since the pandemic; in fact, our problem began after IL&FS went belly-up in October 2018. The problem cropped up because the RBI allowed our borrowers to avail of the moratorium but did not allow banks to offer moratorium to their NBFC borrowers,” Kanoria said.

“In fact, by going to the NCLT with a 10-year repayment schedule under the provisions of section 230 of the Companies Act 2013, and not under the IBC, we were pre-empting a default. But instead we are in the IBC now!,” he said.

But ironically, lenders led by Uco Bank rejected the NCLT approved debt restructuring proposal, saying Srei was not a defaulter and “even today I don’t understand why we were refused a moratorium”, he said.

“Had the then Uco Bank chairman (Atul Goyal) not taken our going to the NCLT as a personal affront, I am sure none of us would have been in the mess we are in today,” Kanoria said, adding they have no plans whatsoever to challenge the IBC resolution as and when it comes in at any higher legal forum.

In fact, Srei and also the entire NBFC universe began to feel the ground under their feet slip away when IL&FS wet belly up in October 2018. Another problem began when RBI changed its guidelines and wanted NBFCs to conform to policies laid out for banks, in a very short time, he said, adding he had been personally writing to the regulator to treat infra financing NBFCs differently as in infra financing, it is the operator who is facing problem and not the assets it operates because an “asset cannot simply be in default but the operator”.

And the last nail was the pandemic that hit hard their cash flows as their borrowers got moratorium but was not extended to NBFCs, which led to the eventual mismatch in cash-flows.

On its alternative investment fund joint venture Trinity, in which Srei owns 51 per cent and the rest with Payaash Capital of Singapore, Kanoria said Trinity is a pureplay fund manager with various schemes, including a stressed asset fund among other funds and invests through structured finance and pays back its investors.

On the RBI-nominated resolution professional (EY’s Abizer Diwanji) seeking to take control of the fund, he said this fails logic as the RP on one hand wants to take control of the AIF which has around Rs 8,500 crore of assets, but at the same time does not want to accept the claims by a few of its investee companies. This is noting but standing logic on its head, Kanoria said.

On the alleged related-party lending between Srei entities and Trinity investee companies, he said the same was disclosed in the 2021 annual report by auditors after the RBI asked us to do so.

Forewarning that the days of infra financing NBFCs are over in the country–Srei being the last of the three since IL&FS went belly-up and IFDC merged with its banking subsidiary — Kanoria said he does not see NBFCs even functioning beyond the next five years, as as it seems the RBI does not want NBFCs around at all but want them to become banks.

Kanoria, however, refused to talk to his other companies which are into power (India Power), realty and hospitality (city’s Westin hotel is owned by them) and rural infra and housing arms, saying all of them are run by their boards.