Sebi bans Anil Ambani, 24 others from security market for five years over RHFL loan scandal, levies ₹25 crore penalty

India's market regulator, the Securities and Exchange Board of India (Sebi), has imposed a five-year ban on industrialist Anil Ambani and 24 others, including top executives of Reliance Home Finance Ltd. (RHFL), from participating in the securities market. This action follows a probe into RHFL, where funds were allegedly diverted through questionable loans, leading to significant losses and raising concerns among investors.

In addition to the ban, Sebi has levied a ₹25 crore penalty on Ambani and barred him from holding any directorial or key managerial positions in listed companies or intermediaries registered with the regulator for five years.

RHFL has been barred from the securities market for six months, and fined ₹600,000.

Sebi's investigation uncovered instances of financial mismanagement at RHFL, where Ambani and key executives were found to have channeled funds through Guaranteed Payment Credit (GPC) loans. These loans were extended to entities with weak financial profiles—entities that, under normal circumstances, would not have qualified for such substantial financial support.

Unprecedented loan disbursements to unworthy entities

Sebi noted that during FY18 and FY19, RHFL disbursed thousands of crores in GPC loans to entities with negative net worth and minimal assets. These loans were issued without any collateral or security, representing a significant deviation from standard credit due diligence.

RHFL’s management disregarded internal credit ratings and waived the requirement for assessing the probability of default, allowing these risky loans to proceed unchecked.

According to Sebi’s findings, RHFL’s management consistently deviated from standard credit due diligence, even when borrowers exhibited clear financial weaknesses. This lack of scrutiny allowed risky loans to be issued without proper oversight.

Despite a direct order from RHFL’s board on 11 February 2019 to cease GPC loan disbursements, the company continued to issue these loans, including those personally sanctioned by Anil Ambani as group head. This disregard for board directives underscores the significant internal control failures within the company, the regulator highlighted.

Further investigation revealed that the GPC loan borrowers and the entities receiving the funds were connected to the promoter group, with post-facto guarantees from promoter-group companies confirming these links. The statutory auditor, PwC, raised concerns about the quality and recoverability of the loans but resigned in June 2019, citing these issues.

Key players fined

Sebi has imposed fines of ₹27 crore on Amit Bapna, ₹26 crore on Ravindra Sudhalkar, and ₹21 crore on Pinkesh Shah—all key officials at RHFL. In addition, several entities associated with the fraudulent scheme have been fined ₹25 crore each. These penalties are a response to their involvement in facilitating or benefiting from the illegal loan disbursements.

Sebi’s findings indicate that Anil Ambani, as chairman of the Anil Dhirubhai Ambani Group and a key promoter of RHFL’s holding company, played a pivotal role in orchestrating the fraudulent loans. His influence was instrumental in approving substantial loan amounts and directing funds to related entities.

Bapna, the former CFO of RHFL and a member of the credit committee, played a key role in approving the loans despite clear deviations from standard procedures. He continued to facilitate GPC loan disbursements even after the board had directed that they be halted.

As chief executive of RHFL, Sudhalkar was responsible for overseeing the approval and management of these loans. Sebi noted that he failed to adhere to the board's instructions, neglected to recover funds, and did not enforce guarantees, all of which contributed to the company’s eventual downfall.

Shah, the CFO responsible for financial and accounting functions, certified the company’s financials as accurate despite being aware of the questionable loan practices and the auditor’s concerns, Sebi said in its order on Thursday.

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