Aavas Financiers Faces Regulator Probe, Top Executives Exit Amid Loan Irregularities

MUMBAI: The National Housing Bank (NHB) has begun a formal probe into CVC Capital Partners-backed mortgage lender Aavas Financiers after preliminary inquiries uncovered loan classification irregularities, with multiple instances of loans categorised under ineligible refinancing schemes, multiple sources aware of the development told ET.

The sector regulator has recalled refinancing support worth nearly Rs 500 crore —a punitive action that has set off a sweeping leadership overhaul at the company. ET was the first to report on April 13 that managing director and CEO Sachinder Bhinder was being asked to step down, with Manu Singh — former home loans head at Kotak Mahindra Bank — set to take over. A week later, on April 20, the company confirmed Bhinder's resignation and Singh's appointment as the new CEO.

The NHB’s investigation found that concessional refinance meant for SC/ST borrowers had been availed against loans where the borrowers did not belong to these categories.

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Loans were also classified as disbursed in hilly areas even though the underlying properties were not located in such regions, and non-home loans had been misclassified as home loans to access preferential funding — a trifecta of classification failures that triggered the regulator's action, sources said.

Aavas Financiers confirmed the NHB investigation, though it stopped short of acknowledging the specific findings.

“The NHB, in the ordinary course, conducts periodic audits and inspections of housing finance companies, including Aavas Financiers, and one such inspection is presently underway and has not yet been concluded,” the company said in a statement.

The company added that it has not received any direction from NHB requiring it to repay any funding lines.

Sources, however, said the scale of the irregularities went well beyond what might be expected in a routine inspection.

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“The regulator's concerns were not limited to isolated instances. The inspection identified multiple cases where loans were categorised under refinance schemes that they were not eligible for, resulting in the withdrawal of refinance support and prompting a wider review of internal controls,” said a person aware of the development.

TOP EXECUTIVES TOLD TO RESIGN

CVC Capital Partners, which holds a majority stake of over 50% in Aavas Financiers, has shown the door to chief financial officer Ghanshyam Rawat and chief risk officer Ashutosh Atre in the wake of the NHB’s findings. Sources said both officials were asked to resign on June 15, though the disclosures were made only after a hastily called board meeting on June 21.

The company subsequently informed stock exchanges that it had appointed Ghanshyam Gupta as interim chief financial officer and Punit Purushottam Agarwal as interim chief risk officer, with effect from June 22.

The exits are the latest in a series of senior management departures that paint a troubling picture of how the company was conducting its business.

In the span of barely two months, Aavas Financiers has replaced its MD and CEO, CFO and CRO — an unprecedented churn at the top that reflects the depth of the crisis the company is navigating. Markets have also taken note of the turbulence. With a market capitalisation of approximately Rs 11,673 crore, the stock has declined nearly 32% from its 52-week high of Rs 2,152, trading at around Rs 1,472 — reflecting deepening investor concerns around governance, growth visibility and execution amid the ongoing management churn, according toexchange data.