Odisha-based Sambandh Finserve Private Limited (SFPL) defaulted on its repayment obligations to its lenders due to liquidity issues after an internal fraud was unearthed at the end of September.

According to a note released by Brickwork Ratings, Sambandh Finserve’s lenders informed the credit rating agency of a delay in meeting repayment obligation since October 1, 2020, following which the microfinance lender’s rating was downgraded to ‘D’.

Brickwork Ratings’ note further says that the Chief Financial Officer of Sambandh Finserve disclosed that the lender had found internal frauds involving a large quantum of bogus loan entries made in its book. This also resulted in the company suddenly facing liquidity issues in the first week of October, leading to a default. SFPL is now conducting an internal investigation in the matter, which has been initiated by its board.

CNBC-TV18 has reviewed a letter written by the CFO, MIS (management information system), Accounts, & Internal Audit Heads addressed to the board describing the serious irregularities found in the lender's books, and has pointed the finger at MD & CEO Deepak Kindo.

This letter alleges that SFPL’s actual portfolio or Assets Under Management (AUM) is approximately Rs 140 crores against the reported figure of Rs 391 crore as of September 30, 2020. The reported AUM was found to be inflated and a gap of Rs 251 crores was found as per the internal assessment. The gap in the portfolio was managed by fictitious disbursements, subsequent withdrawals, and deposited as fictitious collections under the directions of the MD & CEO, as alleged in this letter. Further, it says such fraudulent practices have been ongoing since FY 2015-16, and the gap has widened over the years.

The letter alleges, “MIS has been generated with fictitious clients with repayment schedules and shown as loan portfolio in the MIS system under the direct supervision of the MD & CEO.”

It goes on to say that there is “pilferage in cash withdrawal for disbursement by the MD & CEO and diverted to other entities namely Diya Dairy & Agroprocessors Pvt Ltd, Kshamta Foundation, Regional Rural Development Centre, DK Enterprises, Utkal Dairy, and other unknown persons or entities.” The letter also alleges that a huge withdrawal was recently made after pressuring the CFO/Accounts Head and the cash siphoned off.

All of this resulted in the lender having insufficient liquidity to service its debt, leading to the default.

Sambandh Finserv is an RBI registered NBFC-MFI, that first started operations as a microfinance institute in 2006, before converting to an NBFC in 2009. SFPL offer microfinance loans under self-help group and joint liability models through its 100 branches across 39 districts in Orissa, Chhattisgarh, Jharkhand, Bihar and Gujarat.

SFPL has a total debt of Rs 433 crores, including Rs 383 crores in the form of long term fund-based loans, and Rs 40 crores of NCDs. SIDBI (Rs 41.33 crores), UCO Bank (Rs 23 crores), IDFC First Bank (Rs 10.06 crores), Hinduja Leland Finance (Rs 17.30 crores), Northern Arc Capital (Rs 31.51 crores), ICICI Bank (Rs 14.32 crores) are among its 34 lenders.

CNBC-TV18 has emailed Sambandh Finserve for a comment. This copy will be updated if and when a response is received.

Note:

This article has been updated to incorporate latest developments.

First Published:Oct 15, 2020 4:01 PM IST