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IndoStar could take Rs 677 cr hit after EY audit finds deviations in processes

Preliminary findings of consultancy firm E&Y after the review of the commercial vehicle (CV) loan portfolio in IndoStar Capital Finance have found deviations from the company’s loan approvals, foreclosures and restructured loans, for which the company will have to take a provision of between Rs 557 crore to Rs 677 crore, the company said in a notice to the stock exchanges late on Friday.

E&Y was hired by IndoStar to review policies, procedures and practices relating to the sanctioning, disbursement and collection of CV loans after the management observed certain control deficiencies during the course of the interim statutory audit of the annual financial statements of the company in March 2022.

The preliminary findings have found deviations from the credit policy of the company in approval processes for loans to existing customers and waivers in foreclosure cases in cases of certain loans.

“For restructured loans the company did not follow the steps as detailed in the control description…In this regard, it is likely that the company may be required to make an additional estimated credit loss (ECL) provisioning between Rs 557 crores to Rs 677 crores (“Potential Additional Provisioning”). The loan portfolio review is ongoing and the assessment of the potential additional provisioning and relevant issues may undergo revisions,” IndoStar said in the notice.

The company expects the review to be completed by the time of finalisation of the audited financial statements for the year ended 31 March 2022.

“While the potential additional provisioning is expected to impact the company’s net-worth and capital adequacy ratio, the company is expected to continue to be adequately capitalized, will be in compliance with capital adequacy norms and have sufficient liquidity to satisfy its short-term and longterm liabilities. The capital adequacy ratio (“CAR”) of the company as of 31 December 2021 was 35.1%. Assuming the higher end of the range of potential additional provisioning, the revised CAR as on 31 December 2021 would be approximately above 25%,”the company said.

US private equity giant Brookfield and local private equity company Everstone Capital are the promoters of IndoStar Capital.

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