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BQ Exclusive: RBI Initiates Special Audit Of IL&FS After Delay In Repaying Inter-Corporate Deposits

RBI has initiated a special audit into IL&FS after a default on an inter-corporate deposit of SIDBI.

Image courtesy: IL&FS Annual Report
Image courtesy: IL&FS Annual Report

The Reserve Bank of India has initiated a special audit on Infrastructure Leasing & Financial Services (IL&FS) Ltd, after the company defaulted on repaying about Rs 250 crore worth of inter-corporate deposits to Small Industries Development Bank of India (SIDBI), said a person directly familiar with the matter.

The company defaulted on the first tranche of the repayment worth Rs 100 crore on August 27, following which, it has defaulted on more such tranches, with the amount adding up to Rs 250 crore, the person quoted above said. An additional Rs 100 crore worth of repayment is due on Monday.

The defaults forced SIDBI to approach the Reserve Bank of India (RBI) to intervene in the matter. The regulator has already initiated a special audit against the infrastructure leasing company, said the person quoted above. As a core investment company (CIC), IL&FS falls under the regulatory purview of the RBI.

An email sent to the RBI on Friday evening went unanswered. A spokesperson for the IL&FS group did not respond to an email sent on Friday and phone calls.

SIDBI has inter corporate deposits worth Rs 500 crore with IL&FS and an additional deposit worth Rs 500 crore parked with its non-banking finance company (NBFC) arm, IL&FS Financial Services Ltd. The deposits parked with IL&FS Financial services are due in November. An inter-corporate deposit is essentially an unsecured borrowing between corporates.

According to the person quoted above, IL&FS is working on a resolution plan, wherein it will tell SIDBI how it intends to repay the default amount. A major part of the resolution plan revolves around a Rs 3,000 crore loans that IL&FS is hoping to secure from Life Insurance Company (LIC) of India and State Bank of India (SBI). Approvals for these loans were to be sought during the IL&FS board meeting on Friday. BloombergQuint could not ascertain the final outcome of the board meet.

LIC, with a 25.34 percent stake in IL&FS, is the largest shareholder in the company. Orix Corporate, Japan with a 23.54 percent stake is the second largest shareholder. SBI holds 6.42 percent stake.

In August, ICRA downgraded the long-term rating on Rs 4,475 crore worth of IL&FS debt securities from AAA to AA+. “The rating revision takes into account the company’s elevated debt levels owing to the funding commitments towards Group ventures,” ICRA had said in its statement. The standalone ‘gearing’ (or long-term debt to equity ratio) has risen to 3.08 times as of March 2018, compared to 2.60 times in March 2017, ICRA said.

While the IL&FS group has been trying to monetise a number of businesses and projects under its umbrella, progress has been slow, leading to an increase in leverage. Following the downgrade, it reiterated a plan to monetise assets to bring down debt.

On Saturday evening, ICRA downgraded IL&FS again, this time by several notches to junk grade. It cited liquidity pressures building up within the organisation.

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This story has been updated to reflect another rating cut announced by ICRA on Saturday evening.