IL&FS Shocker: Govt Quietly Paying Up on Sovereign Guarantees to ADB and KfW for Failed Group’s $ 50.4 Million Loan
In a shocking revelation of new information, it turns out that the government of India, in 2009, had issued a sovereign guarantee on behalf of Infrastructure Leasing & Financial Services (IL&FS), which is at the centre of what is fast turning out to be one the biggest financial scandals in India. IL&FS is a shadowy private company, which has been run by a cabal headed by founder, Ravi Parthasarathy, for almost 25 years. 
 
These guarantees have been issued on behalf of Asian Development Bank (ADB) and KfW (Kreditanstalt für Wiederaufbau of Germany). Since IL&FS is unable to pay, the government has quietly ponied up the money after discussions with the finance ministry. It is interesting that the issue of these payments has not been brought before the NCLAT (National Company Law Appellate Tribunal) which is hearing the bankruptcy proceedings of the group.  
 
Sovereign guarantees are only issued for government projects or, occasionally, for public sector companies. The ADB report suggests that guarantees have been issued to several infrastructure projects as well, especially in the power sector. In 1992, when Enron first proposed a sovereign guarantee for the Dabhol Power Company’s gold-plated project, it was hugely controversial. Clearly, no lessons have been learnt, since infrastructure projects of IL&FS and many others have turned out to be just as inflated.  
 
The government guarantees, once again, expose how closely the Parthasarathy-led cabal worked with a network of compromised officers of the Indian Administrative Service (IAS), to run an organisation that had the best of both worlds—the power of a government organisation and the money of private sector—allowing IL&FS officials to draw high salaries and perks even as the ship sank.
 
However, the government, which is now found to be making payments on behalf of this massive failed conglomerate, has been treating the ousted management of IL&FS with extremely soft gloves. 
 
Sources in the know say that two payments have been made to the two multilateral institutions in the past couple of months. Reliable sources have confirmed at least one payment of $2 million in the past two months to ADB, for instalments that fell due, and about €600,000 to €700,000 have been paid to KfW. 
 
A search on ADB’s website reveals that a $100-million loan was originally sanctioned to IL&FS around 2001 but half of it was cancelled sometime in 2007 due to “the lack of a subproject pipeline” as part of a revised loan agreement. Finally, a loan of $50.4 million was disbursed.
 
The document further says, “Since 2002, the borrowings (of IL&FS) from bilateral and multilateral agencies have included the ADB loan under PSIF II and €30.55 million from KfW.”
 
And that the “(Indian) Government guaranteed the loan, which was made from ADB’s London interbank offered rate-based lending facility with a maturity of 20 years, including a grace period of 5 years.” 
 
Here are the details, in a nutshell, as reported on ADB’s website. 
 
 
The loan was further distributed to three sub-projects: The Ahmedabad Mehsana Toll Road Project, the New Tirupur Area Development Corporation and Western Gujarat Expressway Project. It was divided into senior and subordinate debt, with tenures of 15 years and 20 years, respectively. This would mean that the last instalments were due when IL&FS got into serious financial trouble. 
 
 
Of the three projects, New Tirupur is mired in litigation, has gone through restructuring and continues to make losses. The Ahmedabad Mehsana Toll Road Project also made losses in the initial years and also saw its debt restructured. However, IL&FS had been regular in servicing the debt, probably until it collapsed in July last year. 
 
Based on information available on the ADB website, one assumes that a part of the loan would be nearing maturity. Moneylife has written to ADB and KfW seeking a response and this article will be updated to include these, when we receive them. We have also connected with IL&FS’s communication head to ask how much of the loans to ADB and KfW are still outstanding. This, too, will be updated when we hear from them. 
 
Details of the sub-loan are available as follows:
 
 
When the ADB financing was being considered, there was talk about KfW of Germany partnering in the project. However, it is not clear if it did, eventually, participate in this project. The ADB document of 2001 says, “KfW representatives joined the ADB Pre-appraisal and Appraisal Missions. KfW has, in-principle, agreed to co-finance the PSIF II up to EUR162 million (about $147 million) comprising concessional funds of EUR25.5 million (about $23 million).” This was subject to government approval; but subsequent documents do not mention any partnership or government guarantee. 
 
In June 2018, just before the group’s financial problems snowballed, media reports show that IL&FS Transportation Networks Ltd (ITNL), raised €23.4 million (Rs186.11 crore) in debt financing from KfW IPEX-Bank. This was a 13-year loan for the Rapid Metro South Extension Project in Gurugram. 
 
At that time, Luis-Miguel Gutierrez, chief representative of KfW IPEX-Bank in India had said, this was the “first ECA financing ever done to support an Indian metro project” and, in doing so, it had “introduced a completely new financing model in the Indian market.”
 
The fact that the government extended a sovereign guarantee to IL&FS shows how deep was the nexus between IL&FS officials and finance ministry which, instead of monitoring its spending, was happy to guarantee its reckless expansion spree. 
 
The projects follow the familiar IL&FS template where multiple group entities get a share of the project pie by undertaking various responsibilities such as preparing the project report, implementing it, undertaking environmental impact assessment and also monitoring it. 
 
ADB says, in a published document, that it looks for “state guarantees” in order to “meet non-commercial risks and allow disaggregation of risks and proper risk allocation in the Indian environment.”
 
The document points out that sovereign guarantees have been issued to large fast track infrastructure projects in India. It reveals that a commitment regarding government guarantees or sovereign guarantees were secured in 2001; a BJP-led government was in power then. 
 
However, under the Fiscal Responsibility Bill introduced in that period, there is a commitment that the government “will also not extend guarantees to projects beyond 0.5% of GDP in any given financial year.” The government also earns a guarantee fee. As regards guarantees issued by state governments these are capped by the Reserve Bank of India (RBI).
 
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    COMMENTS

    Prakash Bhate

    4 months ago

    The resources and efforts spent by Pakistan sponsored terrorists in destabilizing India are but peanuts when compared to the unrelenting and systematic destabilization caused by in-house financial terrorists in the garb of netas, babus, auditors, bankers and industrialists. The former at least are open about their intentions and put their lives on the line for which they and their masters command a grudging acknowledgment. They are hunted down and destroyed as they should be. The latter have been plundering and will continue to plunder with impunity. They are looked up to, lionized and treated with deference. Hunting them down and destroying them is impossible. Ostracizing them, their family and friends is the only option.

    SuchindranathAiyerS

    4 months ago

    Corruption is now pervasive among "democracies" indicating the self indulgence of wide spread non accountability. Accountancy joins law as a disease rather than a profession: Corruption (and greed) is the most corrosive anti Human disease in the World. India shows the way in this.

    https://www.taxresearch.org.uk/Blog/2019/04/09/accountancy-in-crisis-fundamental-reform-is-needed/

    S KINGSLEY MARTIN

    5 months ago

    Why Ravi Parthasarathy is not being pursued / arrested? For being at the helm for so many years, he should have been the first one to be arrested.

    REPLY

    Ramesh Bajaj

    In Reply to S KINGSLEY MARTIN 4 months ago

    If he has left the country, then he should be put in the same category as Nirav Modi and others. They say the arm of the law is long
    .. what needs to be done should be done.

    Liju Philip

    5 months ago

    Please dont disturb. The chowkidar is busy with electioneering for the past 5 years. Let his cronies and funders keep plundering the economy.

    REPLY

    Aditya Singh

    In Reply to Liju Philip 5 months ago

    Hello covert devotee. First read the article, then get some financial education.

    "In a shocking revelation of new information, it turns out that the government of India, in 2009"

    Don't worry NSE Co-Location, ILFS and thousands of other scams from the Congress regime will face the light of the day. Shit stinks, can't be hidden long.

    And to you my dear friend, Devotee of a man born to a virgin woman, Your Pappu and Librand fauj won't get a second chance at scamfest.

    Zebulin

    In Reply to Aditya Singh 5 months ago

    Would you be offended if someone calls you a pen#s worshipper ? Bharat Mata ki Jai!!

    K V RAO

    In Reply to Aditya Singh 5 months ago

    In a democracy anybody can say anything. But language used should not hurt anyone, even your enemies.

    K V RAO

    In Reply to K V RAO 5 months ago

    Ref is to Liju and not to Singh

    Vivek Naik

    In Reply to K V RAO 5 months ago

    Are you sure?

    K V RAO

    In Reply to Vivek Naik 5 months ago

    Yes

    K V RAO

    In Reply to Aditya Singh 5 months ago

    Good articulation Singh Sir.

    Sunil shenava

    5 months ago

    lack of diligence on part of all the parties involved..

    Sridhar Reddy

    5 months ago

    Please get the crook Ravi Parthasarathy back into India and put him behind bars. He and his coterie ran the institution as their personal property with zero professionalism. Ravi is a bigger swine than Vijay Mallya as in this case, so many PF funds have put their money in IL&FS bonds exposing to risk the hard earned money of millions of employees. Also question the credit rating agencies - are they blind and ignorant, which they will say yes !!!

    Bharat Galgali

    5 months ago

    What is root cause of scandle its in principle approval, rest follows the formality.

    REPLY

    K V RAO

    In Reply to Bharat Galgali 5 months ago

    Rest is not a formality but a substance. In principle approval pertains to clearance from funds and discretionary angles.

    RAMACHANDRAN THARKABHUSHANAM

    5 months ago

    It is surprising that UPA's blunder is covered up by NDa. STRANGE BED FELLOWS

    REPLY

    Aditya Singh

    In Reply to RAMACHANDRAN THARKABHUSHANAM 5 months ago

    Sometimes a mess is discovered only once it's a mess. The NSE Co-location shitshow feat. Karti is another one of these. God alone knows what landmines from the UPA era haven't blown up yet. I remember in the 1st year of post UPA Govt. mentioned that UPA has laid several landmines in the economy. I'm sure if someone digs out Govt. bonds issued during UPA for deferring payments to oil companies and calculates the debt created thanks to the interests; they'd be shell shocked.

    Vivek Naik

    In Reply to Aditya Singh 5 months ago

    IlFS is also involved in Gujarat Gift city project.

    Both Bjp and Congress are have helped this corrupt company.

    Vivek Naik

    In Reply to Aditya Singh 5 months ago

    IlFS is also involved in Gujarat Gift city project.

    Both Bjp and Congress are have helped this corrupt company.

    Krishna Kumar B

    In Reply to RAMACHANDRAN THARKABHUSHANAM 5 months ago

    It is vice versa

    Krishnamurthy Nagarajan

    5 months ago

    SD probably feigns ignorance about the difference between in principle approval and sanction. Even if a loan is sanctioned, there has to be a review before the loan is released. This is the norm for the bankers (as the assumptions made at the time of sanction may not be valid at the time of release.) Many bankers are charged on this principle. Why not the Govt in power in 2009?.

    REPLY

    Sucheta Dalal

    In Reply to Krishnamurthy Nagarajan 5 months ago

    Feign ignorance? How do you jump to that conclusion. I am only clarifying to readers that we should not jump to make this a political issue -- all are complicit. So let's not pretend it it is a UPA scam. The principle here is that private sector projects had no business being given a sovereign guarantee without a proper public discussion. If we want to charge the govt of 1999 -- to suit your political inclinations -- why not that of 2001 which approved in principle??

    K V RAO

    In Reply to Sucheta Dalal 5 months ago

    You are again taking up in principle approval. Those who are familiar with bank loan operations vouch for " zero value" for in principle approval. As I had mentioned earlier "in principle approval" at best implies administrative clearance from funds and exposure angles.

    Ramesh Bajaj

    In Reply to Sucheta Dalal 5 months ago

    What is the way forward now? I think your judgement is correct...all are complicit.

    jaideep suri

    In Reply to Sucheta Dalal 5 months ago

    Yes SD is right all are involved in this especially the IAS which participated in creation of a myth that it is a government entity.

    Harish

    5 months ago

    Great Investigative Journalism!

    CHATHANTARA GOPALAN PRADEEP KUMAR

    5 months ago

    Sovereign guarantees once issued have to be honoured when they are invoked. Otherwise the credibility of Indian Govt and the credit rating of India would be impaired.

    The above fact should not in any manner sidetrack the investigations to bring all the rent-seekers in the ILFS scandal to book. Parthasarathy and his cabal knew well how to work the system. By rewarding many civil servants with board positions and perks he appears to have insulated himself from all harm and built ILFS to a position where it is probably too big to fail !!

    The largest share of the blame must however be firmly placed at the doors of credit rating agencies and auditors who have simply abdicated their responsibilities.

    Hopefully when the perpetrators of the massive scandals at ILFS are brought to book, the key credit rating personnel and auditors should also be subject to exemplary punishment.

    Moneylife must be complimented for its unremitting reportage on ILFS which appears to be sadly receding
    from the business press in India.

    A story is now overdue about the key personnel who credit rated and audited the ILFS (besides the ILFS Board members).

    Meenal Mamdani

    5 months ago

    Why is the current BJP govt not making this problem public? This looting was done by the previous govt Congress led UPA II. Why is Modi going soft on the Gandhis when this could be great news to assure election victory? Is it I will shield you if you will shield me? Do Indians have any honest bankers, administrators and politicians left?

    REPLY

    Suketu Shah

    In Reply to Meenal Mamdani 5 months ago

    well said but 99% of the battle between congress and bjp can be termed as a 'friendly match" just to fool the public.In vain though.

    Vivek Naik

    In Reply to Suketu Shah 5 months ago

    :-)

    jaideep suri

    In Reply to Meenal Mamdani 5 months ago

    some where the roots also touch the earlier BJP government and hence keeping quiet makes political sense.I reiterate once again IAS lobby is the one which created this so called company which is neither here nor there--Pvt/Govt.

    sundar

    In Reply to Meenal Mamdani 5 months ago

    Powerful beuracracy is involved in this. That's why even Modi is afraid of touching them. In coal scam, just two years imprisonment was given to former secretary. For that the IAS association has written a protest letter to government.

    AAR

    5 months ago

    There are several companies which the public do not know whether it is Private or Government entity. Maybe we can add letter "G" at the end of the name of all Government owned entities.

    K V RAO

    5 months ago

    Sovereign guarantee was issued in 2009 during UPA-II period. Does the writer means to say that the present Government should have dishonored the claim under the guarantee? Is it possible? Accountability should be traced to 2009 and not now. Why the writer has not commented on this issue and straight away jumped to irrational conclusion finding fault with the current dispensation? Please, please do not mislead us.

    REPLY

    Sucheta Dalal

    In Reply to K V RAO 5 months ago

    Please read carefully before jumping to defend this government. And ADB document says that the in-principle approval for a sovereign guarantee was given as far back as 2001. Only sanctioned in 2009. So please think about who was in power at that time. Maybe it explains the secrecy and silence!!

    I had actually put in a line that this was a legacy issue until I saw that ADB document. It is in the link. Some readers who have so many questions can take trouble to read.

    And, like S Balakrishnan says -- I am surprised that so many people seem to think a sovereign guarantee can be dishonoured.

    That it was given in the first place for a private company project has to be questioned!!

    If there are many such HIDDEN guarantees for projects of Ambani (anil and mukesh), Adani, Videocon and others, we would be in serious trouble -- even if they were routed through cover institutions such as ILFS, IDBI, EXIM Bank or any other.

    We the people dont seem to be waking up to ask questions even after so many provident funds and mutual funds, which involves the retirement savings of many readers are affected!!!!

    Manojkumar Das

    In Reply to Sucheta Dalal 5 months ago

    True

    K V RAO

    In Reply to Sucheta Dalal 5 months ago

    I am happy when you admit that 2001 Government gave in-principle approval but it was actually sanctioned in 2009. In principle approval is not the real sanction. In principle approval is referred to as administrative approval in banking circles. It just refers to jurisdiction issues and sanctioning powers. The sanction coming in second stage is done after detailed appraisal. So there have been holes in the appraisal memo. Further the appraisal note has only projections and assumptions. The sanctioning authority should arrange for ongoing verification of performance vis-a-vis projections and assumptions. One such good and quality assessment reveals shortfalls and the authority should initiate checks and balances. It should also be careful about its future commitments and exposures. All these aspects have gone unnoticed in ILFS case and accountability is totally missing. The writer Sucheta,known for sharp writings, has missed out these issues.

    Krishna Kumar B

    In Reply to K V RAO 5 months ago

    In principle approval is not just a piece of paper sovereign govt. issue to anyone it comes across. Such approval is arrived at afterassessment. Subsequent govt. have to adhere to it, if conditions in the approval are met.
    Why eager to exonerate those who issued 'in principle sanction'?

    Ramesh Bajaj

    5 months ago

    If a guarantee has been given, the government has no choice but to pay. But why handle the persons responsible with soft gloves?

    Why the Delay in Action When GT Report Pins Responsibility on Cabal of Four at IL&FS
    Although couched in politically correct accounting-speak, accounting and consulting major, Grant Thornton (GT), has systematically exposed what is clearly a massive fraud, mismanagement of funds, capricious actions and total disregard for regulators and regulation by the previous top management of Infrastructure Leasing & Financial Services (IL&FS). And, yet, this is just an interim report on the financial irregularities inside just one company—IL&FS Financial Services Ltd (IFIN) – out of the 348 companies of this complex infrastructure and finance conglomerate.
     
    Significantly, GT has clearly narrowed down the responsibility or culpability for the scam to just four people—the committee of directors (CoD) comprising—founder and former chairman Ravi Parthasarathy, former vice-chairman Hari Shankaran, director Arun Saha and IFIN’s former managing director, Ramesh C Bawa.
     
    With this report in hand, one wonders why multiple agencies are conducting raids and investigations, instead of making a cohesive effort to zero in on the perpetrators. Also, there has to be some speed and urgency in selling the more viable projects set up in partnership with various states. 
     
    Things are moving too slowly for comfort. Nearly six months after the IL&FS holding company’s board was sacked, we don't even have the contours of a resolution plan. All we have, so far, is that 60 companies have been classified into categories of red (38), green (22) and amber (10) based on the extent of impairment of assets and chances of revival. Another 100 are being assessed for viability, leaving 175-odd companies in limbo. Investors and creditors (including pensions funds, mutual funds and banks), who have lent over Rs94,000 crore to the group, are turning very anxious in the absence of a clear direction, or will, by the finance ministry in handling this mess at multiple levels. 
     
    The new IL&FS board, headed by Uday Kotak, has now issued show-cause notices to 14 directors of IFIN, based on the GT investigation. The board comprised former nationalised bank chairpersons Surinder Singh Kohli, Ms Subbalakshmi Panse and others including Manu Kochhar, Neeru Saggi, Renu Challu, Uday Ved, Shazad Dalal, Milind Patel, Vibhav Kapoor and Rajesh Kotian, other than the four CoD members. Many of these were key former employees and persons deeply involved in decisions. But when the buck clearly stops at the four in the CoD, shouldn’t there be a greater focus on them?
     
    What is worrying investors is that general elections are bound to be announced in the next few days when the Code of Conduct will become operational and the entire government usually goes into a limbo. Unfortunately, we seem to have learnt nothing since the 1992 securities scam, and all others in between, about handling complex financial scandals by separating resolution from criminal investigation and action. 
     
    Coming back to the GT report, it has aptly named its investigation ‘Project Icarus’. Icarus and hubris are words that are often used in the context of large hedge funds and trading operations that blow up by ‘flying too close to the sun’ with wings of wax (as the Greek character Icarus did). IL&FS was, indeed, founded and led by one man, Ravi Parthasarathy along with his chosen cabal, for 30 years. But he and his company was allowed to grow unchecked into a massive 348 entity empire masquerading as the favourite partner of state and Central governments because regulators, marquee shareholders (banks and institutions) and the board of directors failed in their fiduciary obligation to regulate and supervise his actions. Is it any wonder that hubris set in and it flew too close to the sun? 
     
    The 166-page interim report of Project Icarus exposes 10 different kinds of fraud, which are succinctly tabulated with names, numbers and detailed proof, provided in the annexures. But this is just the tip of the iceberg. We need the serious frauds investigation office (SFIO) and the enforcement directorate (ED)—as a team—to go into details of each case of favoured treatment or egregious violation to ask some simple questions: What was the pressure, illegal gratification or quid pro quo that prompted the CoD of four to ignore rules and internal red flags and lend? Or was IL&FS just a large ponzi scheme that carried on for decades because of the support of bureaucrats and multiple state governments?
     
    According to GT, the 10 types of possible fraud identified by it in IFIN alone involves a massive Rs13,299 crore. The report also points out that IL&FS had adopted a ‘unified approval framework’ to facilitate intra-group synergy and to provide IL&FS group visibility for all transactions. This further pinpoints responsibility, primarily, on the CoD of four persons.
     
    Here is what the report says. 
     
    1. Tenure Mis-match: Over Rs541 crore borrowed for short-term purposes were used for long-term needs by eight entities—Indus Equicap Consultancy, Nysa Marine Services, Essar Shipping Ltd, Ascent Hotels, Gujarat Integrated Maritime Complex, SKIL Infrastructure, Gujarat-Dwarka Port west, Sabarmati Capital One. Amount involved: Rs541 crore. 
     
    2. Round-tripping of Loans: Money lent to certain companies by IFIN was to be round-tripped back to IL&FS group companies, mainly ITNL (IL&FS Transportation Networks Limited), the large listed entity. Amount involved was Rs2,270 crore. GT says that minutes of the board meeting on 11 September 2018 indicate that the management cabal or CoD was aware of this. In many cases, the loans were disbursed to third parties who transferred them back to IL&FS group companies on the very same day. 
     
    Investigation agencies need to examine and tell us what was the incentive/ quid pro quo to the third parties for being part of this round-tripping operation. The loans were received by the following IL&FS group entities: ITNL (Rs1,150 crore), Srinagar Sonmargh Tunnelway (Rs390crore), Gujarat Integrated Maritime Complex (Rs250 crore), Fagne Songard Expressway (Rs200 crore), Chenani-Nashri Tunnelway (Rs150 crore), Sea Land Ports (Rs100 crore), Sikar Bikaner Highway (Rs30 crore).
     
     
    3. Fudging Credit Approval Memorandum (CAM): In five cases, amounting to Rs411 crore, GT found that a system-based CAM, the base document for sanctioning loans, was different from the details mentioned in the manual CAM. What is worse, personal guarantees were accepted as collateral to fudge facts, without ascertaining whether they had the net worth to provide such a guarantee or obtaining any documents to back the guarantee. 
     
     
    4. Lending at a Loss: GT has identified 18 instances, adding up to a massive Rs2,400 crore, where the management cabal approved loans to specific companies, at very low spreads of 2% to 3%  (average cost of borrowing minus lending rate) or a negative spread – which means a loss to IL&FS. As opposed to this, the average spread for IFIN loans was 7% to 9%. Many of the companies that got this largesse were already defaulters and, in seven cases, the loans were written off, or extended to companies connected to such defaulters. 
     
    5. Loans to Defaulters: GT found that in 16 cases, amounting to Rs1,922 crore, the management cabal approved loans even after their internal risk assessment team had raised red flags about such loans. It may be recalled that a whistleblower had desperately written to the Reserve Bank of India (RBI) and the IL&FS board drawing attention to such dubious lending, but was ignored. The names in this list scream for a detailed investigation into why the IL&FS’s top management wanted to oblige these borrowers at the cost of its own finances.
     
     
    6. No Charge against Collateral: In 15 cases, totalling Rs1,186 crore, IFIN hadn’t bothered to create a valid charge on the assets that were taken as a collateral against loans provided. Such negligence is not possible unless the top management instructed officials not to bother with creating a charge. Again, investigation agencies have to fix responsibility. 
     
     
    7. Insufficient Collateral: In 14 instances, totalling Rs1,819 crore, the amount of charge created against the borrowings is not adequate to cover outstanding loans as on 30 September 2018.
     
     
     
    8. Ever-greening Defaulter Accounts: In eight cases, loans totalling Rs145 crore were used to repay previous loans, probably to avoid classifying them as defaulters and making provisions. In most cases, the payments were received on the same day that the loans were given. 
     
     
    9. Round-tripping for IFIN: In 29 cases, adding up to Rs2,502 crore, some corporate groups obtained loans and repaid approximately the same amount in the very same year to IFIN – except that the loan was taken from one company and the repayment made by another in the same group. 
     
     
    10. Funding Promoters/Directors: This is a serious one – in six cases, totalling Rs94 crore, a part of the loans disbursed to companies was transferred to specific directors. In one case, the promoter was a director in an IL&FS company. One of these loans was to Bay Capital, whose promoter, Siddharth Dinesh Mehta, is a director of IL&FS Energy Development Company Limited and stinks of conflict of interest, in addition to being irregular.
     
     
    Finally, let us not forget that Deloitte Haskins & Sells LLP was appointed in 2008 and remained the auditor until it completed 10 years in 2018. The audit report had absolutely no adverse findings even in 2017-18. The Institute of Chartered Accountants of India is investigating the role of statutory auditors in multiple IL&FS group entities. But, if such large-scale fudging has been found by GT in a quick, limited audit, then this is a fit case where at least one audit firms needs to be given the same treatment that the US gave to Arthur Anderson, the auditor of Enron Plc which flamed out after large-scale fudging of books. 
     
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    COMMENTS

    Harish

    6 months ago

    Keep up the good work!

    Ashok S

    6 months ago

    If these financial irregularities were being committed what is the role of bankers with 35-years of experience on the board .It is time to check the loans that have gone bad
    in their respective banks they were heading.Please check the their investment portfolio
    in different industries

    CHATHANTARA GOPALAN PRADEEP KUMAR

    6 months ago

    It is eminently clear that frauds on such a massive scale would not have happened without the active collusion of ILFS's auditors. Credit rating agencies and auditors ought to be imposed with exemplary punishment including but not limited to cancellation of their licenses as their lackadaisical approach to their key functions have placed the savings of millions in jeopardy. MoneyLife appears to be the only publication in the country that is persistent in its coverage of the scandal. The story appears to have lost its steam in most of the financial and mainstream media. A scandal so massive may soon recede from public memory and the key perpetrators would go scot free if such blatant inaction for corporate misdemeanours continue.

    Keep up the good work, Sucheta.

    rajee

    6 months ago

    Thanks madam for forcing regulators to wake up

    Rajendra Ganatra

    6 months ago

    Though extremely shocking, it doesn't surprise since we are now used to IL&FS's extraordinary criminality. This article raises a deadly point, of meandering probe with the result that the criminals are just chilling! Is the IAS lobby bent upon adopting tokenism and let the criminals slip away? The criminals must be put behind bar immediately.

    Meenal Mamdani

    6 months ago

    This is stunning news. These 4 individuals are primarily responsible but the others too are responsible in various degrees.
    Why are the 4 not in prison? The govt is quick, almost indecently hasty, to label ordinary citizens as "Maoist", "Danger to security of the country", etc. Are these massive financial scams not a danger to India? These scammers will be horrified if they are treated as ordinary prisoners, no VIP treatment. Let them sit in prison until the financial cases are adjudicated.
    The main reason they are not in prison is because they are indecently wealthy and as all such people, have contacts in high places in political ranks and as well as bureaucracy.
    Modi has famously said "Na Khaoonga, Na khane doonga". This is the test of his credibility; empty catchy slogan or real resolve.

    IL&FS Scam: PF, Pension Funds Staring at Huge Losses; FinMin Says No Govt Guarantee
    Even as provident fund (PF) and pension fund trusts, which have invested in the bonds issued by debt-ridden Infrastructure Leasing and Financial Services Ltd (IL&FS), are fearing big losses, the finance ministry had said that such superannuated bonds do not carry any government guarantee and are exposed to market risks.
     
    Thousands of crores of rupees of over 1.5 million employees of both public and private sector companies are exposed to IL&FS bonds through more than 50 funds. These include PF trusts of state electricity boards, public sector units (PSUs) and banks.
     
    Responding to queries from IANS, the finance ministry says, "Since these are investments in bonds, the government does not ensure any guarantee on them as such and if these are invested in stock markets, they carry the market risks as applicable. It is between the bond issuer and bond holders..."
     
    As many as 1.5 million salaried employees across different sectors are caught in this ticking time bomb and the number is only likely to go up as the true extent of the malaise is known and understood. 
     
    Till September last year, Indian rating agencies, not realising that IL&FS was set to implode, were giving Triple A rating to the bonds. With elections around the corner, this new exposé will further polarise the debate. After all, it is salaried employees who are now staking claim to their hard-earned monies.
     
    Since these are tradeable instruments, the exact quantum is not known, but investment bankers estimate it to be in thousands of crores since the infrastructure company's bonds—which were 'AAA' rated - were preferred by retirement funds that have a low-risk appetite but still have to get assured returns even when interest rates are low.
     
    The provident and pension fund trusts have filed intervening applications in the National Company Law Appellate Tribunal (NCLAT) stating that they stand to lose all the money since the bonds are under unsecured debt.
     
    The worries of pension and provident fund trusts come from the classification of IL&FS profiling its companies about which can meet the dues obligations. Many important trust managing funds of PSUs like Metals and Minerals Trading Corp of India (MMTC), Indian Oil Corp Ltd (IOC), Housing and Urban Development Corp Ltd (HUDCO), State Bank of India (SBI) and IDBI are among those filing petitions. From private sector, Hindustan Unilever Ltd (HUL) and Asian Paints Ltd are among the petitioners.
     
    IL&FS is currently under resolution process at the National Company Law Tribunal (NCLT). The process will decide under Section 53 of the Insolvency and Bankruptcy Code (IBC) the order of priority for distribution of proceeds of the process.
     
    IL&FS has informed the NCLT that of the 302 entities in the group, 169 are Indian companies, out of which only 22 are emerging as those which can meet all obligations (green), while 10 firms can pay to only secured creditors (Amber). 
     
    There are 38 companies of IL&FS (red) which cannot meet any obligations of payment, and 120 entities are still being assessed.
     
    These PF and provident funds trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues while unsecured bond-holders will not get any payments.
     
    The employee provident funds (EPFs) of various companies and other entities had invested in IL&FS bonds that are unsecured and bondholders may or may not get paid in the ongoing crisis at IL&FS. 
     
    In any case, they are seen pretty much last on the priority list. Over 75 companies and their PFs have filed an intervening petition before the appellate court to seek directions and instructions on repayment to unsecured creditors. 
     
    IL&FS bonds attracted investments by PF trusts SBI and Life Insurance Corp of India (LIC), had stake in the group, which gave its bonds the comfort factor.
     
    Last week, a parliamentary committee recommended an inquiry into the role played by LIC and credit rating agencies (CRAs) in landing IL&FS into a debt trap. An investigation into the role played by LIC in the IL&FS mess becomes imminent as it is the largest shareholder in the conglomerate. The role of CRAs has come under the scanner as they failed to adequately vet IL&FS financials that led them to over-rate IL&FS entities just before signs of stress started appearing.
     
    Calling for urgent measures to revive IL&FS while noting that it is the "only major institution funding the infrastructure projects in the country", the Parliamentary Standing Committee on Finance said the governance failures and indecision on the part of the IL&FS's board should also be thoroughly probed.
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    COMMENTS

    I P J ALBUQUERQUE

    6 months ago

    95% plus of politicians in India are scum, except a very few only 2 names of the current lot come to mind readily MANMOHAN SINGH and A K ANTONY most others have some skeletons in their cupboard mostly corruption inordinate greed for money and power is the driving force and allmost all industrial groups have questionable ethics and immense greed for money . The latter finance the former and naturally will try to extract quidproquo along with usurious rates of interest . The result is there to see for all ,NIRAV MODI, MEHUL CHOKSHI, IIFL any number of their ilk no action or faulty action at a snails pace. Totally disgusting

    balakrishnan

    6 months ago

    people as voters need to apply common sense; never be carried away by these political parties when they vote in 2019 elections; many lost heavily their pension and pf funds.

    VASANT KULKARNI

    6 months ago

    IS ANY OTHER FIELD IS LEFT FOR DWINDLING?

    REPLY

    SURAJIT SOM

    In Reply to VASANT KULKARNI 6 months ago

    Lets call a conference of top babus , PSU bank honchos ( Retd or otherwise). They will give a lot of ideas about stealing money. NETAS, of course, loot brazenly.

    AAR

    6 months ago

    1. I heard the ILFS top guy is hiding in USA now. Why not extradite him?
    2. Rating agencies India or abroad are clowns. They have never given even a small clue to identify "bubble" companies. They just use the data provided by the management to arrive at the rating. After the company collapses they do downgrade it. Whats the use of these Rating agencies? Why not eliminate them totally?

    REPLY

    S Balakrishnan

    In Reply to AAR 6 months ago

    There was a look out. How did he go?

    Jibu Marks

    6 months ago

    Alarming!! Especially as these investments were classified by the Rating Agencies as of highest quality continuously. We can't blame the investors alone. Now few question remains.

    Aren't these agencies also responsible?

    Who will take action on the Rating Agencies?

    How do trust them going forward?

    As Mr Surjit Som mentioned in his comment; all the directors of IL&FS along with the Rating Agencies needs to be prosecuted.

    SURAJIT SOM

    6 months ago

    PF, Pension Funds are staring at huge losses. The headline says it all. These are not private entities. This scam happened while some of our senior most IAS' officers(Retd or otherwise), PSU Bank honchos were sitting on the Boards of IL&FS. It will be difficult for the government to let these criminals go scot-free. PE, Pension Funds are involved !!!!!

    Bipin Kochar

    6 months ago

    Private EPFs are required to pay at minimum the interest declared by EPFO - any shortfall is to be made good by the company. Employees thus should hence not lose their hard earned savings.

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