‘Company shifting focus away from housing finance’
MBAI: The accounts of Reliance Home Finance Ltd (RHFL) for the half-year ending September 30, 2019 have been qualified by the company’s auditors on account of serious concerns arising out of certain general purpose corporate loans extended to some bodies corporate including its group companies.
The auditors have also made another serious observation that the company has made a shift in its primary business from ‘housing finance’ to non-housing finance.
The auditors are forced to qualify accounts when they develop doubts or disagree with certain aspects of the accounts of a company, and this is viewed with concern by both shareholders and regulators.
Meanwhile, Reliance Home Finance closed the half year ending September 30 with a loss of Rs63 crore compared with a net profit of Rs123 crore RHFL reported for the same period last year.
The total assets as of September end, 2019 declined to Rs16,291 crore from Rs18,125 crore the company had six months ago.
Explaining the basis for qualification of RHFL accounts, the auditors said the general purpose corporate loans had been advanced with significant deviations and the outstanding of such loans as of September 30, 2019 amounted to Rs7949.34 crore.
“These loans are secured by charge on current assets of the borrowers,” the auditors noted.
As stated by the company in its notes to financials, majority of these loans have been used for onward lending and they included loans to group companies that used the funds for settling their financial obligations.
As of September, 30, 2019, there has been overdue of Rs2880.31 crore (including NPAs of Rs2259.16 crore).
“We are not getting sufficient audit evidence to ascertain recoverability of principal and interest, and also the time frame of recovery of the dues,” the auditors further noted.
The auditors said the company’s exposure to the borrowers are secured against charge on current assets and is dependent on the recovery of onward lending of the borrowers, which in turn depends on external factors not wholly within the control of the company or the borrowers.
More importantly, the auditors also drew the attention to the statement made by the company on the material shift in primary business of the company from ‘housing finance’ to non-housing finance, which comprise more than 50 per cent of total loan portfolio, raising concern about company continuing as a housing finance company.