RBI acts against SREI Equipment Finance auditor Haribhakti & Company

Even as the Reserve Bank of India (RBI) has initiated insolvency proceedings against two SREI group companies, it has now penalised the independent auditor, Haribhakti & Company, which was the auditor to one of the non-banking finance companies (NBFCs) -- SREI Equipment Finance Limited.

SREI Equipment Finance is the lending arm of the holding company, SREI infrastructure Finance Ltd.

According to the RBI, it has debarred Haribhakti & Company from undertaking any type of audit assignments in any of the entities regulated by RBI for a period of two years, with effect from April 1, 2022.

While the RBI's release is silent about the NBFC as it says this action has been taken on account of the failure on the part of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a Systemically Important Non-Banking Financial Company.

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Haribhakti & Company has audited the SREI Equipment's annual accounts for 2020-21 as an independent auditor.

The RBI had earlier raised a number of issues regarding the related and connected party borrowers in its inspection in 2019-20. The auditor Haribhakti, on the other hand, had raised some issues regarding the value of unlisted shares or unquoted shares.

Based on RBI's request, the NCLT had already given its nod for starting insolvency proceedings against SREI Infrastructure Finance, the holding company and its wholly-owned subsidiary, SREI Equipment Finance, which is into the lending business in areas such as construction, mining, and other related sectors.

The RBI had earlier superseded the board of these two companies citing governance concerns and loan defaults by these two NBFCs.

SREI was doing the fund-based activity through SREI Equipment Finance Ltd. The company is one of the largest financiers in construction and mining activity. The company enjoys domain knowledge in the infrastructure space, which is very crucial as the country doesn't have any infra financing institutions. The DFIs like ICICI, IDBI, and IDFC have already transformed into commercial banks, whereas the new DFI, which the government had proposed in the Union budget 2021-22, is yet to see the light of the day.

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