Regulatory Lapses Under Scanner as Early Evidence Points to ‘Quid-Pro-Quo’ Lending Pattern Among NBFCs; Sammaan Capital Rejects Allegations
New Delhi. The long-silent Indiabulls–YES Bank saga has resurfaced with new intensity after the Securities and Exchange Board of India (SEBI) filed an important affidavit in the Supreme Court, prompting nationwide discussions on regulatory accountability. The case, which had largely remained inactive for nearly three years, has gained fresh momentum after the apex court expressed displeasure over the slow pace of the investigation, citing concerns over weak inter-agency coordination and prolonged delays.
According to SEBI’s affidavit, the regulator had identified early red flags related to the lending operations of several NBFCs, including Indiabulls Housing Finance Ltd (IHFL), during the period when the group was controlled by promoter Samir Gehlaut. The findings indicate indications of mutual lending arrangements among a cluster of NBFCs and promoter-linked entities, raising suspicion of a quid pro quo pattern.
Three-Year-Old SEBI Findings Back in Spotlight
The affidavit brings to light a three-year-old SEBI report that had first discovered abnormal lending behaviour across multiple finance companies:
- NBFCs allegedly extended loans to one another’s promoter-connected entities,
- These transactions exhibited signs of circular movement of funds, and
- The structure appeared designed to mask actual credit risk.
SEBI had flagged the issue as regulatorily concerning and forwarded the matter to the Reserve Bank of India (RBI) for a deeper analysis due to its link with the larger banking ecosystem.
These findings have once again turned the spotlight on the opaque funding practices prevalent in India’s shadow-banking sector.
YES Bank Link Re-Emerges as Old Files Reopened
The matter is closely tied to the period when YES Bank, under its earlier leadership, had extended substantial credit exposure to several large corporates. Investigators had previously suspected that funds lent by the bank may have:
- been routed through NBFCs and intermediary companies,
- eventually reached promoter-related entities,
- thereby concealing the true nature of the loans and
- distorting the bank’s risk-assessment framework.
With SEBI’s affidavit resurfacing, authorities are likely to revisit earlier investigative trails, potentially bringing new scrutiny for both corporate borrowers and lenders.
Sammaan Capital Responds: “Industry-Standard Structure, No Regulatory Breach”
One of the firms mentioned in SEBI’s report, Sammaan Capital, has issued a detailed clarification countering the allegations. According to the company:
- Lending to Special Purpose Vehicles (SPVs) is a standard practice in the real estate sector.
- Loans were extended only against robust promoter guarantees.
- There was no direct linkage to Indiabulls or Samir Gehlaut.
- No regulatory norms were violated in any of its transactions.
The firm’s stand presents a contrasting narrative to SEBI’s early conclusions, adding a new dimension to the debate.
Supreme Court Unimpressed: “Why Has the Case Not Moved in Three Years?”
During a recent hearing, the Supreme Court expressed frustration over the prolonged inertia in the case. The bench noted:
- Regulators appeared to be passing responsibility among themselves.
- The case involves significant financial system implications.
- Loan structures worth thousands of crores cannot remain unexamined for years.
- Delays undermine investor confidence and question the efficiency of oversight institutions.
The Court emphasised that cases linked to systemic financial risks require zero tolerance and swift institutional action.
Broader Impact: Corporate Governance and NBFC Regulation Under Scrutiny
The revival of the Indiabulls–YES Bank matter has implications far beyond a single corporate group. It raises fundamental questions about India’s shadow banking system and governance culture:
- Potential circular lending models between NBFCs and promoter entities,
- Multi-layered corporate structures used for risk obfuscation,
- Gaps in regulatory supervision and inter-agency coordination,
- Potential implications for banks’ bad-loan portfolios.
Experts argue that the episode reinforces the necessity for a more robust risk-monitoring framework, especially in the NBFC sector, which plays a crucial role in India’s credit landscape.
