Ravi Parthasarathy, the man who built Infrastructure Leasing & Financial Services (IL&FS) into a gigantic hydra-headed conglomerate passed away today after suffering from cancer for several years.
He was one of the first employees and chief executive of IL&FS, which was promoted by Unit Trust of India, HDFC Ltd and Central Bank of India in 1989 and became its chairman in 2006 until he stepped down in July 2018.
An alumnus of IIM Ahmedabad, former Citibanker and co-founder of 20th Century Finance, Mr Parthasarathy was considered one of the sharpest minds in business and an ace deal-maker; but he was equally controversial for his ways of doing business.
Over 27 years, until he stepped down just before IL&FS began to default in July 2018, Mr Parthasarathy had built an uncontrolled, 347 entity conglomerate with a main holding company and several step-down holding companies. The group expanded rapidly and his model of gold-plated infrastructure projects drove the cost of infrastructure higher in India.
The rise and fall of Mr Parthasarathy, the former CEO of crisis-hit IL&FS, has been as dramatic as the saga of his storied firm. The company, a pioneer in public-private partnerships (PPP) in India, with expertise in planning and executing projects in the infrastructure space, came under scrutiny after it defaulted on loans, shaking up India’s non-banking financial company (NBFC) segment. Mr Parthasarathy, known to hold immense clout in political circles, was the company’s face for three decades.
IL&FS was often perceived as a government organisation because of the partnerships he set up with government entities in every state and inducted IAS officers as chairmen or board members along with building relationships with bankers. We believe that the Indian bureaucracy had a big role to play in allowing IL&FS to escape serious scrutiny and failing to rein it in even while its books were being fudged through circular transactions for several years.
The serious fraud investigating office (SFIO) had named Ravi Parthasarathy as the prime accused and mentioned him as the key decision-maker in the IL&FS group, who used the group as his fiefdom. Being chairman of IL&FS group and director of its various subsidiaries, it noted, the coterie led by Mr Parthasarathy abused its position and diverted funds of its group companies.
Some say IL&FS grew too big too fast, branching out into over 200 subsidiaries, funding long-term projects of over 10 years, but borrowing for a lesser duration, widening the asset-liability gap. In the process, it also amassed a debt of Rs91,000 crore. Fearing a collapse would lead to a larger disruption of the NBFC space, the government dragged the firm before the National Company Law Tribunal (NCLT), which allowed the government to replace its 15-member board.
He was arrested by the Chennai police in June 2021 by the court of the special judge under Tamil Nadu Protection of Interest of Depositors (in Financial Establishment) Act, 1997. The economic offences wing (EOW) had contended that the IL&FS group defaulted in payments to various creditors through a calculated fraud and the total default caused to the all the creditors is approximately a mind-boggling figure of Rs1 lakh crore.
A confidential report prepared by Grant Thornton in 2019 revealed that infrastructure firm IL&FS did a host of questionable activities to secure good credit ratings and mask its dismal financial situation—from buying homes and football match tickets in Madrid to donating money to charities linked to top management of credit rating agencies.
The report further alleged key employees of IL&FS tried to delay the process of rating surveillance or delay the publication of rating in public domain in case they became aware that ratings were not going to be favourable to the company.
It said, "We noted in certain instances that intentionally incorrect or incomplete information was being provided to the Credit Rating Agencies (CRA) to avoid rating downgrade."
Thornton's report noted instances when credit rating agencies did not downgrade the ratings even after they initially decided to do so. It said, "We noted instances wherein case if the then key employees of IL&FS did not receive the desired rating from the CRA they used to potentially pressurise rating agencies to either withdraw the credit ratings or credit rating request or approach other rating agencies who would provide the desired ratings."
The report also highlighted three instances where IL&FS bought a villa, football match tickets for a key personnel of a rating agency and donated Rs25 lakh to a charity where head of a rating agency was a managing trustee.
Thornton report also disclosed that IL&FS arranged a football match ticket where Spanish club Real Madrid played a game in 2015. The top official of this rating agency is thanking IL&FS in the email reviewed by Grant Thornton stating, "It was a great feeling to watch Real Madrid match live from one of the best stadiums in the world. IL&FS corporate box has a superb view and hospitality was fantastic."
The report identified an email as dated as February 2008 sent by a manager at IL&FS to former chairman Ravi Parthasarathy indicating donation of Rs25 lakh to be given to a trust where chairman of a rating agency was a managing trustee. Thus, it appears monetary benefits were given to the other entities of the key officials of the rating agency, Thornton's report said.
Mr Parthasarathy was battling various legal cases and investigations from EOW to the SFIO, filed against him when he passed away.