The forensic audit of RHFL has reportedly found outstanding loans worth Rs 8,884.5 crore with "Potentially Indirectly Linked Entities" at the time of review, just weeks after the SEBI banned Anil Ambani and 24 other entities from the capital markets for five years.
These auditing practices brought to light a number of lapses in its lending practices. Some of these anomalies related to the loan sanctioning process and the reclassification of loans to related parties just before disbursement as non-related loans. The trends in the repayment pattern of borrower entities, the auditors identified, included circular transactions and evergreening of loans in a number of transactions.
It has barred Anil Ambani and 24 other entities from the capital markets due to the diversion of funds from Reliance Home Finance Ltd., while RHFL itself was barred for only six months.
SEBI based its action on two reports: one by PwC, the statutory auditor of RHFL, and another by Grant Thornton, the forensic auditor appointed by Bank of Baroda, which was the lead bank in the consortium of lenders to the company.
RHFL disbursed loans to PILEs between April 1, 2016, and June 30, 2019, according to the reports by Grant Thornton, dated January 2, 2020, and May 6, 2020.
The first report has revealed that RHFL, during the review period, disbursed general-purpose corporate loans aggregating Rs 14,577.7 crore to various entities, out of which Rs 12,487.6 crore was disbursed to 47 PILEs.
Besides, it was found that Reliance Power Ltd and Reliance Infrastructure Ltd had identified eight borrower entities as related parties but reclassified them as non-related parties just before the disbursal of loans. Loans aggregating to Rs 1,323.4 crore were sanctioned to reclassified entities.
The first report also found 15 cases of possible evergreening of loans amounting to Rs 785.8 crore and three cases of possible circular transaction amounting to Rs 412.9 crore.
The second report, relating to 'fund tracing activity', showed that an amount of Rs 12,573.1 crore was sanctioned under 150 loan cases in the category of PILEs during the review period. Of these, 100 loan cases involving Rs 8,884.5 crore were still open, that is, these loans continued to be outstanding in the books.
"A scrutiny of such 100 open loan cases indicated that some amount of funds advanced by RHFL have returned back to RHFL through circular transactions and also substantial amounts of such loans have been used by the borrowing entities for repayment of existing loans availed by them earlier from RHFL, which means such huge amounts of loans have been used by the borrowing entities for ever-greening of earlier loans," the report said.
PwC had said it was forced to withdraw its audit engagement as per the code of ethics. "The amount disbursed by RHFL under general-purpose working capital loans has increased exponentially from approximately Rs 900 crore as at March 31, 2018 to approximately Rs 7,900 crore as at March 31, 2019," PwC had said.
Similarly, PwC found that the loan sanction dates were some times the same as, or even prior to, the date of application for a loan.
RHFL denied giving loans to group companies in a letter on May 9, 2019.
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