National Housing Bank (NHB) has classified Star Housing Finance Ltd’s (SHFL), formerly known as Akme Star Housing Finance Ltd, refinance account as “fraud” after snap and forensic audits flagged alleged phantom loan accounts, fund diversion and other irregularities at the housing finance company, according to a document reviewed by Mint.
The forensic audit by Ravi Rajan & Co LLP flagged ghost/phantom loan accounts, alleged siphoning of funds through phantom loan disbursements, use of loan funds for share-market manipulation and disbursement of unsecured loans to employees and others through the company's loan management system, according to the order.
SHFL acknowledged receipt of the order and said it was “working towards taking necessary corrective steps to address the said findings,” in response to Mint's queries sent on Thursday morning.
The April snap audit had flagged the creation of phantom loan accounts, including for transferring funds to non-individual entities, disbursements to invest in shares of the company and the adjustment of receipts towards closure of phantom loan accounts.
The audit raised further concerns around EMI receipts through journal entries, management of non-performing assets (NPAs), and the overstatement of revenue through recognition of income on phantom loan accounts. It also flagged suspected bogus expense vouchers, the creation of suspected ghost fixed assets and instances where the same underlying loan pool was allegedly hypothecated to multiple lenders.
The company is also seeking a change in ownership, with a potential investor seeking a majority stake through the purchase of shares held by the promoters and the single largest shareholder. The investor has proposed a primary capital infusion to strengthen the balance sheet, subject to regulatory approvals, the company said in an exchange filing on Thursday.
The measures are expected to result in new ownership and a complete transition of the existing promoters and the current single largest shareholder, the company said. Two independent directors have already been appointed to the board pursuant to the potential investor’s recommendation, while further strengthening of the board, including the induction of executive directors, will continue subject to necessary approvals.
Founded in 2005 as Akme Buildhome Pvt. Ltd., SHFL is a rural-focused affordable housing lender and has been listed on the BSE since 2015. Arkfin Investments invested $2 million in October 2019 to acquire a minority stake of about 21.5% in the firm.
The company saw Kalpesh Dave step down as chief executive last month, following the exit of its chief financial officer last year.
On Thursday, SHFL shares fell 1.96% to ₹4.99, extending their decline to 26.83% over the past six months and 76.18% over the past year.
The developments also come as NHB has been conducting inspections of mortgage financiers following fraud at Aviom Housing Finance last year to ensure proper fund allocation, accurate data reporting on bad loans, and validating investment portfolios.
According to the document, after receiving the snap audit report in April, SHFL filed a Fraud Monitoring Report (FMR-1) on the CRAMIS, an online portal by NHB for housing finance companies to submit financial and regulatory data. The company had also appointed Parikh & Associates, a chartered accountant firm in Ahmedabad, to independently audit the snap audit findings.
NHB, however, subsequently decided that an independent entity appointed by it would conduct the forensic audit and tasked Ravi Rajan & Co LLP with the exercise. The audit began on 4 May, with the team physically visiting SHFL’s corporate office in Andheri and commencing data exchange with the company, according to the order.
NHB issued a show-cause notice to SHFL on 19 May, asking why its account should not be classified and reported as fraud.
SHFL submitted its response on 5 June. According to the NHB order, SHFL said its executive director received the show-cause notice and shared it with the company’s promoters for guidance.
