IL&FS Mess: If 90% of Lending by IL&FS Financial Services Are Bad, It Shows Deep Corruption Within
It now appears that as much as 90% of the loans advanced by IL&FS Financial Services Ltd (IFIN), the lending arm of the infrastructure conglomerate, Infrastructure Leasing and Financial Services Ltd (IL&FS) have turned bad. This again underlines the deep corruption and culpability of the previous management.
 
Of its loan book of Rs18,805 crore, Rs10,656 crore was lent to third-party borrowers and nearly Rs7,000 crore to group companies, N Sivaraman, chief operating officer at IL&FS group, has revealed. 
 
According to Kaushik Modak, who now heads IFIN, the company has recovered Rs931 crore since the new board led by banker Uday Kotak took over the IL&FS Group.
 
According to a senior banker, before funding, the lenders are supposed to analyse qualitative and quantitative parameters and sanction the debt only if these are satisfactory. The qualitative parameters are credentials of the management and organisational team plus comprehensive risk identification and mitigation.
 
Bankers are also supposed to use “quantitative parameters such the borrower's ability to bring the equity - fresh or through operating cash flow, and viability - standalone and overall. The lender cannot forego this due diligence and rely on credit rating. Post-sanction, there has to be intense monitoring of the fund use during project construction and operations, thereafter,” he continued.
 
 “All of this applies to special purpose vehicles (SPVs), setting up project or to infrastructure financing companies, which raises funds for downstream investments in SPVs. If a finance company is funding projects, it has to undertake strenuous due diligence as above,” he added.
 
According to him if “IFIN has bad loans of 90%, it only proves that it did not do any due diligence, worth talking about. In fact its short-term borrowing to invest in SPVs shows criminal negligence. Obviously, the banks, which financed I-FIN and IL&FS projects did absolutely no due diligence either. They blindly accepted the junk submitted by IL&FS. So the banks also cannot be absolved of the crime.” 
 
Amazingly, mutual funds, which are supposed to channel retail investors’ money into safe debt, have put the corpus of fixed maturity plans into IL&FS related debt paper. “This is a stunning commentary of their complacency and negligence. There should be claw back on hefty packages which find managers draw,” he suggested.
 
Unfortunately, given the mood of elections and slow process of establishing negligence and criminality, it is unlikely that any banker will be caught in what is turning out to be one of the biggest financial scandals of India.
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    COMMENTS

    SURAJIT SOM

    5 months ago

    This is mother of all ghotalas. All those bureaucrats ; nobody would call them fool now. Even subprime mortgage in 2008 USA probably was not that bad. Now two questions are : who were the beneficiaries and how much each got ? How many schools,hospitals etc could have been built with that money ?

    Parimal Shah

    5 months ago

    This is nothing new. We know how corruption was breeding throughout congress ruled decades. In UPA II days it reached post doctoral levels.
    And now with NYAY scheme there will be more corruption. Local authorities will certify on payment of a percentage that so and so has no income or income per month of much less that 12000/-.
    How will the scheme identify who is the poorest.
    A road side resident has no document no residential address or voter card or aadhar card and is the one who needs the funds.
    This applies even to schemes of BJP.
    So all this is politics and election funding.

    IL&FS Mess: SFIO Investigation Throwing Up New Dirt on IL&FS Dealings
    The Serious Frauds Investigation Office (SFIO) is meticulously trying to unravel the dubious loans granted and round-tripped by Infrastructure Leasing and Financial Services Ltd (IL&FS) by seeking information from all borrowers on their links with the 346 entities in the failed infrastructure and finance conglomerate. 
     
    This exercise itself is throwing up several interesting revelations, including the role of scores of Indian Administrative Services (IAS) officers and their relatives who seem to be embedded in the group, including directors and chief executives (CEOs) of several subsidiaries of IL&FS. 
     
    The failure to supervise IL&FS is, probably for the first time, not so much a political scam as that which was sanctioned and buried by the bureaucracy. That is probably why the investigation into what happened at IL&FS is proceeding at a very slow pace. 
     
    Sources inside IL&FS point out that CS Rajan, who has been appointed the managing director (MD) on 3 April 2019, was extremely close to the IL&FS top management and helped cement their equation with the Rajasthan government when he was chief secretary there. 
     
    Hence, despite the arrest of Hari Sankaran, former vice-chairman and MD of IL&FS, there is a general sense that the government is not serious about investigating why this sprawling institution with the massive outstanding debt of almost Rs99,000 crore is not being investigated and resolved with the same seriousness as relatively smaller defaulters such as Vijay Mallya and Nirav Modi. 
     
    IL&FS is being investigated by three entities—the SFIO, the enforcement directorate (ED) and the forensic audit team of Grant Thornton, working on Project Icarus. Project Icarus first exposed the nature of round-tripping and suspicious deal by IL&FS Financial Services Ltd (IFIN) with other entities within the group, joint venture partners, borrowers and others and the suspicious nature of many loans. 
     
    The SFIO seems to be taking this forward by sending out a list of questions to all borrowers of IFIN seeking following information. 
     
    a) List of loans taken by you in all your entities. 
     
    b) Reason for taking the loan.
     
    c) Whether you approached IFIN for a loan or whether an official from IFIN approached you to offer a loan.
     
    d) Whether your books/accounts were utilised for lending to you and then asking you to lend the money further to any other entities in the IL&FS group. If so provide details. 
     
    e) Copy of bank statement evidencing loan disbursal and its utilisation (with copies of utilisation certificate).
     
    f) Whether you had any relationship, including financial relationship with any individual in IL&FS group entities. If so provide details.
     
    g) Whether you had sold/disposed off any assets including real estate property, through any of your group entities or even third parties to any officials of the IL&FS entities.
     
    h) Ledger accounts of all the loans taken/given by you from/to IFIN or any other IL&FS entities.
     
    i) Any other issues / document relevant to the said transactions.
     
    At least in one case reviewed by us, these questions have led to the disclosure of how the company has been defrauded by IL&FS. We are withholding its name to prevent a backlash against it.  
     
    The company has informed the SFIO about how IL&FS and entities related to it had allegedly defrauded the group and caused financial damage by delaying loan disbursements. 
     
    The borrower goes on the name a retired IAS officer who heads the lending entity, and remains a director on several joint ventures with the Tamil Nadu government. 
     
    Meanwhile, lakhs of investors are worried about the fate of their life savings invested through private pension funds and mutual funds.  All these investment institutions were fooled by the AAA credit rating enjoyed by the group until the very day that Moneylife reported the first default to SIDBI
     
    We have also discovered that the government had issued sovereign guarantees to this company run by a small self-serving cabal and has been quietly paying up on its behalf without a word of disclosure in the public domain. 
     
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    COMMENTS

    Ramesh Poapt

    5 months ago

    ML/SD were perhaps first to report much earlier.

    parinita seth

    5 months ago

    I had been in the audit team of the IL& FS group companies , during my CA training period and after , as u can guess I fought with my team and the management for proper scrutiny of evidence , my senior partner told me just do a random work and don't mess they are powerful people and wouldn't let u pass CA exams .
    But I thought I am a good student I would crack the CA final easily, so it just 10 years now every time I fail in finals with 3 -4 marks and now I know why they were doing this to me.
    If at that time proper scrutiny had been done this would have come out 10 years ago.

    REPLY

    terence lewis

    In Reply to parinita seth 4 months ago

    Bluffing

    Veeresh Malik

    In Reply to parinita seth 5 months ago

    Why not write a more definitive essay on this subject? And do your Law studies in paralel is what I would suggest.

    tanay

    5 months ago

    Why has Ravi Parthasarathy still not been arrested!

    SANJEEV

    5 months ago

    Please remember there are hundreds of individual investors in ILFS and IFIN preference shares and bonds. They don't have resources to fight this giant company backed by bureaucrats. Staring at loss of life savings made seeing LIC, SBI, HDFC as promoters and Triple AAA ratings. No one is helping us. Or even responding.

    SURAJIT SOM

    5 months ago

    This was -in all probability-a criminal organisation by the bureaucrats, of the bureaucrats and for the bureaucrats-ex or otherwise. Naturally many of them are IAS-retd or otherwise. It is not surprising that many of them were ( and are )part of our state-led "socialist "economy. They are, in many ways, comparable to commissars in formerly communist countries- in Russia -for example. This investigation will not go far. It is indeed amazing that is has come so far. Under UPA, it would not have been exposed.

    REPLY

    k vijaya bhaskar

    In Reply to SURAJIT SOM 5 months ago

    Look at how Adani group got 5 airports under PPP without Cabinet approval!

    k vijaya bhaskar

    In Reply to SURAJIT SOM 5 months ago

    default on repayment to SIDBI started the chain reaction. It would have happened anyway, under UPA or NDA. Corrupt bureaucracy is not specific to socialist economies -- it is very much there in highly industrialised, capitalist economies.

    S Balakrishnan

    In Reply to SURAJIT SOM 5 months ago

    There was no need to expose.
    It collapsed by itself

    SURAJIT SOM

    In Reply to S Balakrishnan 5 months ago

    Did it ? The old cabal led by Hon'ble Mr Ravi appointed Hari Sankaran as the new boss !!!! This HS even presided over an AGM !!! Thereafter Govt took over. This honourable person is now in jail. This means citizens-like me or you -are paying for his food, lodge,medical etc !!!

    IL&FS Scam: SFIO Arrests Ex-chairman Hari Sankaran
    The Serious Fraud Investigation Office (SFIO) has arrested Hari Sankaran, former chairman of Infrastructure Leasing & Financial Services (IL&FS), in connection with the ongoing investigations into the affairs of IL&FS and its group entities. This is the first arrest in the fraud-hit IL&FS scam. 
     
    Hari Sankaran has been arrested on the grounds of abusing his powers in IL&FS Financial Services Ltd (IFIN), through his fraudulent conduct and in granting loans to entities which were not creditworthy or have been declared non-performing assets and caused wrongful loss to the company and its creditors.
     
    It may be worth noting that IL&FS Financial Services had borrowings of more than Rs17,000 crore from debt instruments and bank loans. Provident funds, pension funds, gratuity funds, mutual funds, public and private sector banks, are among those who have invested in these debt instruments.
     
    After the arrest, he has been granted SFIO custody till 4 April 2019.
     
    Earlier in December 2018, the ministry of corporate affairs (MCA), in its submission before the National Company Law Tribunal (NCLT), had revealed details of its finding on several instances of misreporting of income, dubious transactions, conflict of interest, ever-greening of loans and rampant personal enrichment of key employees, including Ravi Parthasarathy, Hari Sankaran, and Arun Kumar Saha, besides others. 
     
    In the interim report, the SFIO had stated,"...it is evident that IL&FS procured funds from the market through short-term instruments and invested in its group companies by way of giving long-term loans and advances, which was prejudicial to the interest of IL&FS, in terms of financial solvency. During these distressed times, IL&FS and its key subsidiaries such as IFIN and IL&FS Transportation Network Ltd (ITNL) were contained to raise short-term market funding through commercial papers or inter corporate deposits based on its bogus and fictitious but good credit rating and these short-term loans were passed to its project special purpose vehicles (SPVs) or group companies, for helping them service their debt obligations, management fully aware, thereby hid and avoided possible defaults resulting into increasing indebtedness on a standalone basis."
     
    "This is virtually an act of fraud causing indebtness of IL&FS to over Rs91,000 crore. This indebtness is deliberate, wilful, fraudulent act of directors who were the mind controlling the affairs of IL&FS with intention to defraud creditors, who too had failed in their due diligence. An increasing level of indebtness of IL&FS, year after year, was sufficient red flat for the creditors to prevent further loans and advances. Such discriminator acts of lenders have provided long rope to the directors in control of affairs to put IL&FS in coma," the report added.
     
    Last year, the government superseded the management of the beleaguered company, which has around Rs91,000 crore in long-term debt, through a National Company Law Tribunal (NCLT) order and appointed a six-member board led by Uday Kotak, MD and CEO of Kotak Mahindra Bank, to restore its financial solvency.
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    COMMENTS

    Veeresh Malik

    5 months ago

    Does this help I getting the looted money back? In some cases that I know about, the eventual beneficiaries are sitting pretty, protected by their clubs and silos on Delhi built around their elected and more so selected representative categories.

    GLN Prasad

    5 months ago

    It is high time institutions learn a lesson, it is like Police coming just before closing of the movie show or dogs barking several years after the theft. On one hand, some innocent officials are fixed in some scandal and those scamsters that plan the conspiracy escape unhurt.

    P S Krishnan

    5 months ago

    When are they going to arrest and jail the chief crook Ravi Parthasarathy who is hiding in London and his sidekicks that were all involved in the loot?

    REPLY

    AAR

    In Reply to P S Krishnan 5 months ago

    Whats so special about London?

    Mohan Krishnan

    In Reply to AAR 5 months ago

    London is the World's refuge Capital for White Collar Criminals. London has many overseas Billionaires from Russia, India, China, Pakistan etc. Legal system is so convoluted and well designed to protect the loot and the looters.

    Mohan Krishnan

    5 months ago

    "Creditors also failed to do due diligence". Meaning : Managers of MFs, Provident Funds, Banks were drugged by bribe money .

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