Allegations Of Fraud Emerge At Micro Lender Sambandh Finserve

Borrowings by Odisha-based microfinance lender Sambandh Finserve Ltd. have been downgraded to ‘Default' rating by Brickwork Ratings after the company failed to repay lenders and allegations of fraud emerged.

The rating agency said it has downgraded non-convertible debentures worth Rs 50 crore and fund-based term loans worth Rs 383 crore availed by Sambandh Finserve to ‘D' from BBB- earlier. “The rating downgrade is on account of delay in meeting repayment obligations since 1 Oct, 2020 as per the feedback received from one of its lenders on 10 Oct, 2020,” it said in its statement.

According to Brickwork Ratings, it was informed by Sambandh Finserve's Chief Financial Officer James Raj that internal fraud was unearthed at the end of September 2020 wherein large quantum of bogus loan entries were made in the book of accounts of the company. This, according to the CFO, led to liquidity issues for Sambandh Finserve in the first week of October, the rating agency said.

An internal investigation had been initiated by the microfinance company's board to investigate the loan fraud, the rating agency said.

Microfinance Institutions Network, an industry body and a self regulatory organisation for the microfinance industry, said that it has sought a response from Sambandh Finserve regarding the allegations and is awaiting a detailed response.

“Detailed response from Sambandh Finserve Pvt., is still awaited.  Based on reply of the company, SRO will examine the matter and take action, as appropriate,” MFIN said.

Among Sambandh's major lenders are SIDBI, MAS Financial Services, Northern Arc Capital Ltd, according to Brickwork Ratings. MUDRA, Hinduja Leyland Finance Ltd, ICICI Bank, Canara Bank and IDFC First Bank are also large lenders to the company.

On Oct. 7, Sambandh Finserve's CFO and some other business heads had written a letter addressing the company's board, where they had listed the instances of fraudulent transactions in the company. BloombergQuint has reviewed a copy of the letter.

As per the letter, Sambandh Finserve's total assets under management are actually at Rs 140 crore compared with the reported number of Rs 391 crore as on Sept. 30. The gap in the loan book was managed by fictitious disbursements, subsequent withdrawals and deposited as fictitious collections.

As of March 31, the microfinance company had reported assets under management worth Rs 461 crore and a profit after tax of Rs 5.22 crore, according to Brickwork Ratings. The company's gross non-performing asset ratio was at 0.67%, while the capital adequacy ratio stood at 21.50% as of March 31, 2020.

Sambandh Finserve offers customised lending and financing options to low-income borrowers who otherwise do not have access to institutional lending. It has presence in Odisha, Chhattisgarh, Jharkhand, Bihar and Gujarat.