RBI may look into IREDA and PFC loans to Gensol Engineering

The RBI is understood to be considering launching a probe into the underwriting processes of IREDA and PFC after a SEBI investigation into Gensol Engineering revealed non-repayment of instalment dues on loans taken from them, sources said. Rating agencies too flagged non-repayment of loans, leading to the company being downgraded.

In an interim order on the company and its promoters on Tuesday, markets regulator, Securities and Exchange Board of India (SEBI) said the term loans provided by the two non-banking finance companies to the company for purchasing electric vehicles had been diverted to the personal use of the founders including buying an expensive flat in a luxury project in Gurgaon.

Funds misused

SEBI’s analysis of the utilisation of the loans received by Gensol from IREDA and PFC showed that the company had misutilised the funds and also diverted funds to the promoter and promoter-related entities.

The company was also a defaulter in making instalments payments on the loans, according to the investigation by SEBI.

IREDA and PFC did not respond to emails sent to them seeking clarification on the loans to Gensol and their monitoring of its end-use. RBI had not yet responded by print time.

From FY22 to FY24, the two lenders had advanced loans of around ₹978 crore to the company, the bulk of which was for the procurement of electric vehicles and a small portion for carrying out EPC works. Gensol Engineering is engaged in providing solar consulting services and is also an EPC contractor for renewable energy projects.

Loans taken to buy electric vehicles from a related party entity and lease them to ride-hailing service BluSmart were not fully utilised for the purpose they were intended.

Regulatory lapses

IREDA and PFC are public financial institutions governed by RBI’s prudential norms and, as such, have a duty to report defaults, misstatements or suspected fraudulent activity.

“Their failure to flag the alleged discrepancies promptly raises concerns about regulatory inertia. Under RBI’s Master Directions on Frauds and the Fair Practices Code, such institutions are obligated to report fraudulent activities not only to credit bureaus but also to relevant regulatory authorities, including SEBI, when a listed entity is involved,” said Sonam Chandwani, Managing Partner KS Legal & Associates

 Their silence in this matter is problematic and may merit an independent enquiry into lapses in oversight,” she added.

Details of the information provided by IREDA and PFC to SEBI on Gensol’s debt servicing status showed that from December onward the company had been defaulting in its payments, either not paying at all or making late payments.

“IREDA and PFC need to tighten their lending norms,” said S Subramanian, Founder and MD of proxy advisory firm InGovern Research Services.

Published on April 17, 2025