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IndoStar Capital to provide up to Rs 677 crore as review finds lapses in CV lending operations

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In this regard, it is likely that the company may be required to make an additional estimated credit loss (ECL) provisioning of between Rs 557 crore and Rs 677 crore. The loan portfolio review is ongoing and the assessment of the potential additional provisioning and relevant issues may undergo revisions,” IndoStar said in a notification to the exchanges.

IndoStar Capital Finance on Friday said it will be making additional provisions of up to Rs 677 crore to account for operational lapses in its commercial vehicle (CV) lending portfolio. The lapses pertained to sanctioning of loans to existing customers, loan documentation and policy implementation gaps, according to the findings of a review commissioned by the board and conducted by E&Y.

While the review is still on, E&Y on Friday informed IndoStar’s audit committee of its preliminary findings. The agency found deviations from the credit policy of the company in the approval processes for loans to existing customers and waivers in foreclosure cases for certain loans. Also, for restructured loans, the company was found to have not followed 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 of between Rs 557 crore and Rs 677 crore. The loan portfolio review is ongoing and the assessment of the potential additional provisioning and relevant issues may undergo revisions,” IndoStar said in a notification to the exchanges.

The loan portfolio review is expected to be completed by the time of finalisation of the audited financial statements of IndoStar for FY22 and the impact of the review will be disclosed in the statements.

While the potential additional provisioning is expected to impact the company’s net worth and the capital adequacy ratio, IndoStar will continue to be adequately capitalised in compliance with capital adequacy norms and have sufficient liquidity to satisfy its short-term and long-term liabilities, the notification said.

IndoStar’s 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.

The audit committee commissioned the review by E&Y after it was informed by the company’s management on March 31 of certain observations and control deficiencies during the course of the interim statutory audit of the annual financial statements. The deficiencies were primarily concerned with a part of the CV loan portfolio and may have arisen following liquidity issues on the customers’ end caused by the onset of the pandemic.

The review is to cover the policies, procedures and practices of the company relating to the sanctioning, disbursement and collection of the CV loan portfolio as also assessing the adequacy of the expected credit loss allowance.

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