As the Securities and Exchange Board of India (SEBI) barred Anil Ambani and 24 other entities from the capital markets for five years, the forensic audit of Reliance Home Finance Ltd found the company still had loans worth Rs 8,884.5 crore to “Potentially Indirectly Linked Entities” outstanding at the time of review.

The audit found various lapses in the company’s lending practices. Some of them included anomalies in the loan approval processes and the reclassification of loans to related parties as non-related parties just before the disbursal. Auditors also found that the repayment patterns of borrower entities indicated certain trends, like circular transactions and the evergreening of loans in a number of transactions.

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The markets regulator barred Anil Ambani and 24 other entities from the capital markets for the diversion of funds from Reliance Home Finance Ltd. RHFL was barred for six months only.

The SEBI took into account two reports by PWC – the statutory auditor of RHFL – and by Grant Thornton, the forensic auditor appointed by Bank of Baroda, which was the lead bank of the consortium of lenders of the company.

RHFL disbursed loans to ‘Potentially Indirectly Linked Entities’ between April 1, 2016, and June 30, 2019, according to two reports released by Grant Thorton, the forensic auditor the Bank of Baroda appointed. The reports were dated January 2, 2020 and May 6, 2020.

The first report revealed that the company disbursed general-purpose corporate loans worth Rs 14,577.7 crore to numerous entities over the review period. Of this, Rs 12,487.6 crore was disbursed to 47 PILEs.

Furthermore, it discovered instances in which Reliance Power Ltd and Reliance Infrastructure Ltd had previously listed eight borrower entities as related parties. However, they reclassified these entities as non-related parties just before the disbursal of such loans. To these reclassified entities, a total loan amount of Rs 1,323.4 crore was disbursed.

The first report also noted 15 instances of potential evergreening of loans worth Rs 785.8 crore and three instances of potential circular transactions worth Rs 412.9 crore.

The second report related to ‘fund tracing activity’ indicated that Rs 12,573.1 crore was disbursed under 150 loan cases, falling under the category of PILEs during the review period. Of these, 100 loan cases amounting to Rs 8,884.5 crore were still open, or, in other words, such loan cases were still outstanding in the books.

“A scrutiny of such 100 open loan cases indicated that some amount of funds advanced by RHFL have returned back to RHFL through circular transactions and also substantial amounts of such loans have been used by the borrowing entities for repayment of existing loans availed by them earlier from RHFL, which means such huge amounts of loans have been used by the borrowing entities for ever-greening of earlier loans,” the report said.

PwC said it was compelled to withdraw from the audit engagement in compliance with the code of ethics. It highlighted that the amount disbursed by RHFL under general-purpose working capital loans had increased exponentially from around Rs 900 crore as of March 31, 2018, to around Rs 7,900 crore as of March 31, 2019.

Like Grant Thorton, PwC also found that in some cases, the loan sanction dates were found to be on the same date as the date of application for a loan, or even before the dates of applications made by these borrowers.

RHFL denied giving loans to group companies in a letter on May 9, 2019.