Indostar Capital Finance Ltd., a non-banking finance company (NBFC) backed by private equity, has said that it has found certain discrepancies in its commercial vehicle loan portfolio. The company, in an exchange notice, said it may have to make additional required credit loss (ECL) provisions between Rs 557 crore and Rs 677 crore due to “certain observations and control deficiencies” made by the external auditor.
“The Audit Committee of Indostar Capital Finance Limited held a meeting today to consider and discuss matters relating to the ongoing review by an independent external agency appointed by the Company, and with respect to certain observations approved by the Audit Committee and the identification of control deficiencies. , during the interim statutory audit of the company’s annual financial statements, primarily relates to the commercial vehicle loan portfolio (“CV loan portfolio”) of the company,” the company said in a filing with the BSE on Friday, May. 6.
The Audit Committee was informed that the control deficiencies were mainly with respect to sanction of loans to existing customers, loan documentation and policy implementation gaps. The NBFC, in its disclosure, said, “It appears that such aspects were primarily related to a portion of the CV loan portfolio and arising out of liquidity concerns with customers due to the onset of the COVID-19 pandemic.” can be.”
The NBFC further said that it appointed Ernst & Young LLP (E&Y) after the audit committee meeting on March 31, which had proposed to appoint an independent external agency to conduct a detailed review of the CV loan portfolio.
While the review of the loan portfolio is still in process, E&Y informed the audit committee in its meeting held on Friday about some preliminary findings of the same. The agency has reportedly found deviations from the company’s credit policy in the approval processes for loans to existing customers and exemptions in foreclosure cases in cases of certain loans. The review also observed that the Company did not follow the steps mentioned in the Control Statement for the restructured loans.
In this regard, it is likely that the company may be required to make additional Estimated Credit Loss (ECL) provisions between Rs 557 crore to Rs 677 crore (likely additional provision), Indostar Capital Finance said in its notice. The loan portfolio is under review and the assessment of potential additional provisions and related issues may be revised.
The NBFC said the review is expected to be completed by the time IndoStar’s audited financial statements are finalized, while the impact of the review will be disclosed in the audited financial statements.
“While the potential additional provision is expected to affect the net worth and capital adequacy ratio of the company, the company is expected to be adequately capitalized, in compliance with the capital adequacy norms and to satisfy its short-term and adequate liquidity There will be adequate liquidity for long-term liabilities,” Indostar said.
The company is also launching a separate review to analyze the root cause of deviations from policies and deficiencies in internal financial controls and systems. “The company is committed to continue to operate at the highest standards of compliance and governance,” Indostar said.
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