Why Did SREI Infrastructure Finance Fail?
The Lender That Lent to Itself and Collapsed
📜 What Happened
SREI was a respected Indian infrastructure financier — a lender to construction companies, equipment buyers and road builders, listed on the stock exchanges for decades. Its collapse in 2021 was sudden and total: an RBI inspection found that a huge share of its loans had gone to a web of related parties — companies linked to its own promoters — with collateral that was largely overvalued or illusory. When the RBI took over the board, the true picture emerged: the books showed a healthy lender; the reality was a system designed to move depositors' money to promoter-linked entities. Lenders who had trusted a 30-year-old institution were left with recoveries of a few paise per rupee, and thousands of small investors lost their savings.
☠️ The Fatal Mistake
Lending to itself through related parties — the classic Indian corporate failure: the promoter's companies were both the borrower and the lender, and the 'collateral' was the fiction that made it all look safe.
🧠 The Lesson (Free for You)
The related-party question is the first question, not the last: if the borrower and the lender share a promoter, the audit is the product. SREI's lesson: when a lender's biggest customers are its own family of companies, the balance sheet is a story, not a statement. Check who owes whom before you check the interest rate.
📕 The Antidote Book
Graham — Buffett's teacher and the father of security analysis — built the intellectual foundation of rational investing on a handful of unbreakable ideas: an INVESTMENT operation promises safety of principal and…
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