Nailed RBI Turns Blasé on IL&FS Charge-sheet despite Court Acceptance
During his policy review last week, governor of the Reserve Bank of Indian (RBI), Shaktikanta Das denied having received any investigative report by the Serious Fraud Investigation Office (SFIO) on IL&FS (Infrastructure Leasing and Financial Services)—"We are not aware of the SFIO charge sheet, if any authority refers it to us, we will look at it." Almost around the same time (on Friday) the Mumbai Sessions Court accepted the charge-sheet filed by SFIO. A case of forefinger not knowing what thumb is doing. This charge-sheet has brought to light the inspection report by RBI for FY16-17 which has revealed a series of flaws in IL&FS management's conduct and the central bank's strange refusal to enforce failsafe measures highlighted by it.
 
The charge-sheet clearly articulates that IL&FS kept functioning, despite RBI's strictures and SFIO now maintains that the rot could have been prevented had the central bank acted with haste to cauterise the wound, knowing fully well the extent of the malaise.
 
Emergent documentation in the toxic IL&FS Financial Services (IFIN case) now shows the blasé attitude of the company's management as it refused to comply with even the regulator RBI's supervision diktats meant that towards the end the shadow bank had gone into complete rogue bank mode. 
 
In many ways, this tale of a secret society doing what it wanted is similar to ICICI's blatant disregard for all compliance measures. 
 
A confidential inspection report of 15 November 2016 viewed by IANS, shows that during its survey, RBI observed that though the leverage of IL&FS (CIC - Credit Information Company like CIBIL) stood within the prescribed limit of 2.5, the leverage of the Group stood much higher at 7.14, which is a matter of concern. "In view of this, you are advised to submit a time-bound action plan for reducing the Group leverage also," RBI said.
 
The inspection report listed serious supervisory concerns but, despite throwing them into stark relief, the then management chose to ignore them completely. Instead, as IANS has highlighted, SFIO and ministry of corporate affairs (MCA) have slammed  RBI for not following up thoroughly on its own inspection report. This has shown the central bank in very poor light as a regulator, for it could have moved with greater alacrity and prevented this huge monolith which has now imperiled the financial system from going belly up.
 
As on 31 March 2015, RBI said that IL&FS Financial Services' reported owned fund of Rs4,353.23 crore was assessed at Rs3,461.80 crore. The difference of Rs891 crore was due to reduction of premium of redeemable preference shares of Rs 400 crore from free reserves, identification of additional provision for investments of Rs 250 crore, and reversal of interest accrued on investments of Rs182.5 crore.
 
Preference shares that carried a premium were redeemable in 2021. The total premium collected by the company on the preference shares amounted to Rs400 crore, which was also outstanding as on 31 March 2015. RBI said that since the preference shares were redeemable, these were not considered to be part of the free reserves.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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VASANT KULKARNI
7 years ago
"SABAKA SAATH SABAKA VIKAS" TO SAY THE LEAST!
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