National Housing Bank (NHB) has classified Star Housing Finance Ltd's (SHFL) refinance account as fraud following comprehensive audits that uncovered serious irregularities. According to reports from 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 through the company's loan management system. The April snap audit had previously flagged the creation of phantom loan accounts, including for transferring funds to non-individual entities, disbursements to invest in company shares, and adjustment of receipts towards closure of phantom loan accounts.
SHFL acknowledged receipt of the fraud classification order and stated it was working towards taking necessary corrective steps to address the said findings, as reported by Mint. The company is actively seeking a change in ownership, with a potential investor seeking a majority stake through purchase of shares held by promoters and the single largest shareholder. The investor has proposed a primary capital infusion to strengthen the balance sheet, subject to regulatory approvals. Two independent directors have already been appointed to the board pursuant to the potential investor's recommendation, while further board strengthening including executive directors will continue subject to necessary approvals.
SHFL announced today that it has received a significant order from the National Housing Bank (NHB) classifying the company's account as 'Fraud'. According to the company's official statement, the management is currently undertaking a thorough review of the NHB's order to determine the most appropriate course of action in response to this regulatory classification. The company has committed to transparency and will provide updates as necessary regarding this matter. This intimation is being made to inform all relevant stakeholders, including investors and regulatory bodies, about the receipt of the NHB's order.
SHFL shares fell 1.96% to ₹4.99 on Thursday, extending their decline to 26.83% over the past six months and 76.18% over the past year, according to Mint. The company, founded in 2005 as Akme Buildhome Pvt. Ltd. and listed on BSE since 2015, is a rural-focused affordable housing lender. 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.
According to the Mint report, after receiving the snap audit report in April, SHFL filed a Fraud Monitoring Report (FMR-1) on the CRAMIS portal and appointed Parikh & Associates to independently audit the findings. NHB subsequently decided to conduct a forensic audit through Ravi Rajan & Co LLP, which began on 4 May with physical visits to SHFL's corporate office in Andheri. NHB issued a show-cause notice on 19 May asking why the account should not be classified as fraud, with SHFL submitting its response on 5 June. The audit raised further concerns around EMI receipts through journal entries, management of non-performing assets, overstatement of revenue through recognition of income on phantom loan accounts, and suspected bogus expense vouchers.
