The banking regulator, the Reserve Bank of India (RBI), has issued a show cause notice before canceling the license of fraudulent Sambandh Finserve Pvt Ltd, as it has deteriorated beyond the regulatory minimum and financial condition in recent months Networth has deteriorated, two people directly familiar with the development.
One of the individuals quoted above said, “Sambhar Finnish has been issued a show cause notice asking why it should not be canceled due to a sharp drop in its net worth”. “The process of revoking the license has started,” the person said. An RBI spokesperson declined to comment for this story. Samand officials could not be reached immediately or commented.
Deepak Kindo, managing director and CEO of Sambhan, the main culprit of the alleged fraud, has been arrested by the Economic Offenses Wing, Chennai, another person said. Both men declined, citing the sensitivity of the case. The relationship is registered as NBFC-MFI. As per RBI norms, NBFCs are required to maintain minimum capital levels, which include Tier-I and Tier-II capital, which is not less than 15 percent of their total risk-weighted assets.
At the end of March 2020, SFPL has total assets under Rs 461 crore and profit after tax of Rs 5.22 crore. It has a gross NPA of 0.67 percent and its total capital adequacy is 21.5 percent.
Fraud by Top Management :
On October 7, in a letter written by senior management personnel to the Board of Directors, it was alleged that under the “express instructions and instructions” of Managing Director and CEO Deepak Kindo, the management is cooking the books from the financial year 2015-2016.
According to a letter sent by a section of management to the company’s board, the management was allegedly forced to create fake loan accounts for AUM (assets under management) and current credit under the direction of MD and CEO Deepak Kindo I went.
It further stated that the actual portfolio as AUM is approximately Rs 140 crore, as against the reported figure of Rs 391 crore as on 30 September 2020. “AUM is inflated and non-existent in the report. There is a gap of around Rs 251 crore in the letter.
The letter has the signature of three other officials, including Sambandh’s Chief Financial Officer James Raj and the Chief of Internal Audit.
On October 15, Brickwork Ratings cut long-term ratings of some of the debt instruments of Samand Finerve Private Limited (SFPL), after the company’s lenders defaulted on their commitments and reported a fraud in September is.
According to Brickwork, 34 lending institutions have contacts with Finnway, including commercial banks and NBFCs. The total risk of these lenders is Rs 383 crore.
Interestingly, Samband Mandal is headed by Livinus Kindo, father of Deepak Kindo. Other members include Diya Vikas Capital’s nominated director Saurabh Baroi, BOPA PTE’s nominated director Niroshan Savanavadu, SIDBI’s nominated director Girish Mehar and independent director Vinod Jha.
Lenders struggle to recover debt
Meanwhile, the bank’s lenders, including Canara Bank, ICICI Bank, MAS Financial Services, Hinduja Leland Finance, Northern ARC Capital, SIDBI, are struggling to recover their dues from the company. Shortly after the fraud became public, lenders took control of the firm and began an audit by E&Y. The audit report confirmed the fraud.
“The company faces serious challenges on the recovery front. A senior industry official, on the condition of anonymity, said that it would be difficult to either merge with another MFI or to cease operations.
In 2013, SFPL obtained NBFC-MFI license from RBI. NBFC stands for Non-Banking Financial Company and MFI Micro Finance Institute. Its head office is located in Rourkela, Odisha. SFPL offers microfinance loans under both joint liability and self-help group models. SFPL operates through 100 branches in 39 districts in Odisha, Chhattisgarh, Jharkhand, Bihar and Gujarat.