Forensic audit finds no fraud, fund diversion at Reliance Home Finance

PTI, Jan 13, 2020, 9:47 AM IST

New Delhi: Reliance Home Finance on Sunday said an independent forensic audit, mandated by lenders, has found no fraud, embezzlement or diversion and siphoning of funds in the company that is seeking debt resolution.

In a statement, the company said the audit made “no adverse findings” on the quantum and end-use of lending.

As part of the debt resolution process, lenders of the company, which had defaulted on some debt repayment obligation following the crisis in shadow banking industry, appointed Grant Thornton in August 2019 for forensic audit, as required under the RBI guidelines on Prudential Framework for Resolution of Stressed Assets under change of control and management.

The forensic auditors were specifically mandated by the lenders, as part of the Terms of Reference, to report on any diversion/ siphoning of funds, any embezzlement, malafide operations, falsification of accounts, fraudulent transactions and whether any frauds by promoter, company, employees or any associates had been observed, the statement said.

“The forensic auditors have submitted their report, and there are no adverse findings recorded on 11 key parameters, including diversion and siphoning of funds; embezzlement, malafide operations, falsification of accounts, fraudulent transactions and frauds,” it said.

The forensic report has confirmed the potential group entities exposure through several intermediate unlisted entities at Rs 7,984 crore (including interest).

This, the company said, had been voluntarily and publicly disclosed even before the commencement of forensic audit to its auditors, regulators, lenders, and also in the latest annual financial statements, which were duly approved by the shareholders.

Reliance Commercial Finance also made an almost identical announcement.

Reliance Home Finance said it had prior to the commencement of the forensic audit disclosed that the outstanding amount of Rs 7,984 crore has almost entirely been utilised by the potential group entities only for making principal repayment and interest to banks, financial institutions, NBFCs, NCD holders, etc.

“There is no adverse finding in this regard either, in the forensic audit report,” the company said.

The other findings in the forensic audit report are limited to “alleged regulatory anomalies as regards to group exposure and limit for non-housing loan portfolio; and alleged deviation from certain policies and procedures.

“The National Housing Bank (NHB), to whom all the facts have been provided before the commencement of the forensic audit, have already taken due note of the same, and has taken actions including imposition of requisite penalty,” the statement said.

NHB has also issued directions on the company as regards to the alleged regulatory anomalies which include periodic review of loans, the concentration of credit, related party transactions and extension of the maturity date of NCDs.

It has directed the company to increase the housing loan disbursements and reduce corporate exposure, it added.

“Based on completion of the forensic audit, the company has now requested its bankers to proceed on a fast-track basis with the debt resolution plan under ‘change of management and control’ in the overall interests of all lenders, including over 20,000 retail NCD holders, and over 8 lakh shareholders,” the company statement said.

Reliance Home Finance is part of the Anil Ambani Group that focused on affordable housing finance, high-value home loans, loan against property, construction financing and property services.

It started raising money through debentures around eight years ago and defaulted on some payments post-IL&FS crisis when entire NBFC sector came under pressure because of asset-liability mismatches as many of them borrowed short-term money to fund long-term assets.

Many investors to NBFCs such as banks, mutual funds, insurance companies and HNIs started withdrawing from the market. There was a total credit freeze in the market as rollover of money in the commercial paper market to NBFCs stopped. The new money was hard to come by or available at high-interest rates. These developments impacted the Reliance Home Finance severely.

On January 3, Reliance Capital had informed the stock exchanges that as directed by the lead bank to an inter-creditor agreement that was being worked on, the amounts due and payable by Reliance Home Finance in respect of unsecured NCDs were delayed.

After the company defaulted on bond repayments, bondholders were considering legal action that might include seeking recovery proceedings through the National Company Law Tribunal (NCLT).