IndoStar Capital Finance Limited, a non banking finance company (NBFC) that is backed by private equities, has said that it has found certain discrepancies in its commercial vehicle loan portfolio. The company in an exchange notice said that it may have to make additional expected credit loss (ECL) provisions between Rs 557 crore-Rs 677 crore due to the “certain observations and control deficiencies” made by an external auditor.
“The audit committee of lndoStar Capital Finance Limited held a meeting today to consider and discuss matters pertaining to an ongoing review by an independent external agency appointed by the company, and approved by the audit committee, with regard to certain observations and control deficiencies identified, during the course of the interim statutory audit of the annual financial statements of the Company, primarily relating to the commercial vehicles loan portfolio of the Company (“CV loan Portfolio”),” said the company in a filing with the BSE on Friday, May 6.
The audit committee was informed that the control deficiencies were primarily with respect to sanctioning of loans to existing customers, loan documentation and policy implementation gaps. “It further appears that such aspects were primarily concerned with a part of the CV Loan Portfolio and may have arisen pursuant to liquidity concerns with customers caused by the onset of the COVID-19 pandemic,” the NBFC said in its disclosure.
The NBFC further said that it appointed Ernst &Young LLP (E&Y) after a meeting by the audit committee on March 31, which had proposed to appoint an independent external agency for conducting a detailed review of the CV loan portfolio.
While the loan portfolio review is still in process, E&Y informed the audit committee in a meeting held on Friday regarding certain preliminary findings of the same. The agency has reportedly found deviations from the credit policy of the company in approval processes for loans to existing customers and waivers in foreclosure cases in cases of certain loans. The review also fount that for restructured loans, the company did not follow the steps as detailed in the control description.
“In this regard, it is likely that the Company may be required to make an additional estimated credit loss (ECL) provisioning between INR 557 crores to INR 677 crores (Potential Additional Provisioning),” IndoStar Capital Finance said in its notice. The loan portfolio review is ongoing and the assessment of the potential additional provisioning and relevant issues may undergo revisions, it added.
The review is expected to be completed by the time of finalisation of the audited financial statements of IndoStar, the NBFC said, while adding that the impact of the review will be disclosed in the audited financial statements.
“While the potential additional provisioning is expected to impact the company’s net-worth and capital adequacy ratio, the Company is expected to continue to be adequately capitalised, will be in compliance with capital adequacy norms and have sufficient liquidity to satisfy its short-term and longterm liabilities,” IndoStar said.
The company is also separately initiating a review for undertaking root cause analysis of deviations to policies and gaps in the internal financial controls and systems. “The Company is committed to continue to operate at highest standard of compliance and governance,” IndoStar has said.
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