Indostar Cap slumps on detecting lapses in CV lending portfolio

9 May 2022 , 10:01 AM

IndoStar Capital Finance in an exchange notice said that it may have to make additional expected credit loss (ECL) provisions between Rs 557 crore-Rs 677 crore due to the certain observations and control deficiencies made by an external auditor. The NBFC appointed Ernst &Young LLP (E&Y) after a meeting by the audit committee on 31 March 2022, which had proposed to appoint an independent external agency for conducting a detailed review of the CV loan portfolio. ?The audit committee of lndoStar Capital Finance Limited held a meeting today to consider and discuss matters pertaining to an ongoing review by an independent external agency appointed by the company, and approved by the audit committee, with regard to certain observations and control deficiencies identified, during the course of the interim statutory audit of the annual financial statements of the Company, primarily relating to the commercial vehicles loan portfolio of the Company (?CV loan Portfolio), said the company in a filing on Friday, 6 May 2022. The audit committee was informed that the control deficiencies were primarily with respect to sanctioning of loans to existing customers, loan documentation and policy implementation gaps. ?It further appears that such aspects were primarily concerned with a part of the CV Loan Portfolio and may have arisen pursuant to liquidity concerns with customers caused by the onset of the COVID-19 pandemic, the NBFC said. E&Y has 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. The review also fount that 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 INR 557 crores to INR 677 crores (Potential Additional Provisioning), IndoStar Capital Finance said in its notice. The loan portfolio review is ongoing and the assessment of the potential additional provisioning and relevant issues may undergo revisions, it added. The review is expected to be completed by the time of finalisation of the audited financial statements of IndoStar, the NBFC said, while adding that the impact of the review will be disclosed in the audited financial statements. ?While the potential additional provisioning is expected to impact the companys net-worth and capital adequacy ratio, the Company is expected to continue to be adequately capitalised, will be in compliance with capital adequacy norms and have sufficient liquidity to satisfy its short-term and longterm liabilities, IndoStar said. IndoStars capital adequacy ratio as of December 31, 2021 was 35.1%. Assuming the higher end of the range of potential additional provisioning, the revised CAR as on December 31, 2021 would approximately be above 25%, the company said. Separately, the audit committee is initiating a review for undertaking root cause analysis of deviations to policies and gaps in the internal financial controls and systems, the notification said. IndoStar is a non-banking finance company (NBFC) engaged in providing structured term financing solutions to corporates, used and new vehicle financing for transporters, home finance through our wholly-owned subsidiary IndoStar Home Finance and loans to SME borrowers in India. On a consolidated basis, Indostar Capital Finances net profit fell 39.83% to Rs 14.53 crore on 12.70% decline in total income to Rs 292.53 crore in Q3 December 2021 over Q3 December 2020. Powered by Capital Market – Live News