Deviations in loan approvals done on account of ‘vintage relationship’ with clients: RBI report

New Delhi: The Economic Offences Wing (EOW) of the Delhi Police is probing the role of top executives at Religare Enterprises and its lending arm, Religare Finvest, in allegedly facilitating approval of hundreds of crores of loans to some shell companies with little scrutiny.

Informing this to a local court last week, the EOW said if any “incriminating evidence” was found against them, they would be charged in a supplementary charge sheet. The agency said this in its charge sheet against Religare Enterprises’ former promoters Malvinder and Shivinder Mohan Singh, its former chairman Sunil Godhwani and two others, in a funds-misappropriation case filed by Religare Finvest.

The executives, reads the charge sheet, facilitated fraudulent approval of unsecured loans without checking the repayment capacity of the borrowers, who had not even formally sought any loans. The officials allegedly approved loans merely at “verbal instructions” and on the assurance that the borrowers were known to Malvinder and Shivinder Mohan Singh.

The Singh brothers and other accused had denied all allegations against them.

The alleged role of NK Ghoushal, a stock broker and an alleged associate of the Singh brothers, is also under the scanner of the EOW, the charge sheet said. Five entities who allegedly owe Rs 676 crores to Religare Finvest are also being probed. The EOW has told the court that an inquiry initiated by the Securities and Exchange Board of India against the five companies was also pending. The agency had examined Ghoushal, who has claimed that he paid back all the loans.

The EOW has relied on the findings of the Reserve Bank of India which in a report dated January 27, 2017 had red-flagged umpteen deficiencies in the corporate loan book (CLB) of Religare Finvest. The central bank had said “the credit appraisal notes in most of the loan accounts indicated that the borrower companies were having weak financial standing with no revenue from operations, negative PAT, cash losses, accumulated losses and a negative net worth. However, approval for deviations was sought due to good repayment track record and vintage relationship with clients”.

The RBI report, obtained by the EOW, said the “CLB existed to take care of financial needs of promoter link entities”. It added that the borrowers “were related entities” and that there were “interlinkages between the borrowers as the funds were routed from one borrower to another in various instances”.

The RBI analysed 51 transactions pertaining to unsecured loans granted by the financing company. “It was seen that in 21 cases, funds disbursed to nine borrowers ultimately came back to the group companies” of Religare Finvest, the report said and added: “Accounts of various other borrowers were used by the company to route funds to the group companies.”

Questioning of the company’s executives by the RBI revealed that “loans were given on the recommendation of promoters as the owners of the borrowing entities had good relations with promoters,” the charge sheet citing the RBI report said, adding that a majority of the loans in this portfolio were unsecured. No documents, except for a loan agreement or memorandum of understanding entered into between Religare Finvest and other the company, including analysing financial statements of borrowers were taken before giving the funds, the RBI had said. “The company was not aware of the end use of these funds.”

Submitting the report, the RBI had warned the lender of “poor corporate governance structure” and advised it to submit a roadmap on loan repayments by February 2017.

The EOW has relied also on a March 2016 “inspection report” of Sebi which said the loan policy of Religare Finvest was “deficient”.

The EOW, in its charge sheet, said its investigation had found that the corporate loan book was created primarily for the purpose of utilising funds at the disposal of the promoters. “This was done through loan product, primarily unsecured, and also through investment route in a systematic manner,” it alleged.

Inter-corporate loans were given to various companies under the direct or indirect control of the promoters, through which the funds were routed to the promoters or promoter-owned companies who were the ultimate beneficiaries, it said.