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Thursday, February 9, 2023

IndoStar Capital finds Rs 677cr discrepancy in commercial vehicle portfolio

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IndoStar Capital Finance Limited has said that anomalies have been discovered in its commercial vehicle loan portfolio. The business may be required to make extra anticipated credit loss (ECL) provisions ranging from Rs 557 crore to Rs 677 crore.

IndoStar Capital Financing Limited, a non-banking finance firm (NBFC) funded by private equity, has revealed that several anomalies have been discovered in its commercial vehicle loan portfolio. According to an exchange notice, the business may have to make extra anticipated credit loss (ECL) provisions ranging from Rs 557 crore to Rs 677 crore as a result of “some observations and control shortcomings” reported by an external auditor, IndoStar said.

“The audit committee of lndoStar Capital Finance Limited met on May 7 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 Company’s annual financial statements interim statutory audit, primarily relating to the Company’s commercial vehicle loan portfolio.”

The audit committee was advised that the control flaws principally related to loan sanctioning to current clients, loan paperwork, and policy implementation gaps.

“It also appears that such features were largely focused with a portion of the CV Loan Portfolio and may have emerged as a result of liquidity problems with clients induced by the commencement of the COVID-19 epidemic,” the NBFC disclosed.

The NBFC further stated that Ernst &Young LLP (E&Y) was appointed following a meeting of the audit committee on March 31, which proposed appointing an independent external firm to conduct a full evaluation of the CV loan portfolio.

While the loan portfolio examination is still ongoing, E&Y informed the audit committee of several early results in a meeting conducted on Friday.

E&Y allegedly identified deviations from lndoStar Capital Finance’s credit policy in the approval processes for loans to current clients, as well as exemptions in foreclosure proceedings for specific loans.  The examination also discovered that the corporation did not follow the measures outlined in the control description for restructured loans.

IndoStar Capital Finance stated, “In this regard, it is expected that the Company would be required to make an extra estimated credit loss (ECL) provisioning ranging from INR 557 crores to INR 677 crores or potential additional provisioning.”

The loan portfolio evaluation is ongoing, and the assessment of potential extra provisioning and pertinent issues may be revised, according to the statement.

The review is expected to be finished by the time IndoStar’s audited financial accounts are finalized, according to the NBFC, and the impact of the review would be reported in the audited financial results.

While the potential additional provisioning is expected to have an impact on the company’s net worth and capital adequacy ratio, IndoStar said it is expected to remain adequately capitalised, in compliance with capital adequacy norms, and with sufficient liquidity to satisfy its short-term and long-term liabilities.

Separately, the corporation has begun an investigation to conduct root cause analysis of policy violations and deficiencies in internal financial controls and systems.

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