The IL&FS building in Mumbai. (Photograph: IL&FS Annual Report)

Grant Thornton Finds Irregularities In Deals Worth Rs 13,000 Crore At IL&FS

Grant Thornton’s special audit of debt-ridden IL&FS Group has identified various financial irregularities in deals with financial implications of over Rs 13,000 crore.

IL&FS Group, which operates at least 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies, is sitting on debt of Rs 94,000 crore.

Also read: NCLAT Lifts Debt Moratorium On 22 Indian, 133 Foreign Subsidiaries Of IL&FS

Grant Thornton identified 29 instances where it appears that the loans disbursed to borrowers were in turn used by group companies to repay the existing debt obligations with IL&FS Financial Services Ltd.

These together have financial implications of Rs 2,502 crore, said the draft report prepared for all high-value transactions undertaken by IL&FS and few of its group companies from April 1, 2013 to Sept. 30, 2018.

The report found 18 instances where loans were approved to those borrowers who appeared to be in potential stress on the basis of media reports in the public domain. The loans over Rs 2,400 crore were given in spite of a negative assessment by the risk team, it said.

The report indicated 10 major anomalies, grouping together various types of potentially irregular transactions and the sums involved in each deal type. The aggregate sum of these comes to Rs 13,290 crore.

There were several instances where funds worth Rs 541 crore, borrowed for short-term purposes, appear to be potentially used for long-term needs.

“We reviewed the Asset Liability Management Committee minutes and noted the details of funding gaps (i.e. funds not available for estimated committed disbursement). Based on the details, it appears that since May 2013, IFIN was under stress to borrow funds in order to fulfill the commitment of loans already sanctioned,” the report said.

Further, it said, there was a steep increase in the funding gap during the month of July 2018. IL&FS’s erstwhile Chairman Ravi Parthasarathy resigned on July 21 last year.

Also read: SFIO Says Top Executives Led IL&FS To Its Ruin

The audit firm also identified 16 instances where, apparently, loans amounting to Rs 1,922 crore were sanctioned on a negative spread (average cost of borrowing rate minus lending rate) or limited spread for companies in financial distress. In seven of these cases, the loans provided have either been written off or are related parties of the companies for whom loans were written off.

The cash-starved company has been defaulting on bank loans and other debt repayments since the last week of August. One of the subsidiaries of IL&FS Group was unable to repay a short-term loan of Rs 1,000 crore taken from Small Industries Development Bank of India.

Also, certain group companies have defaulted in repayments of various short and long-term deposits, inter-corporate deposits, and commercial papers.

The Life Insurance Corporation of India is the single largest shareholder with over 25 percent stake and Japan's Orix Corp owns a little over 23 percent.

IL&FS Employees Welfare Trust holds 12 percent in the company. The Abu Dhabi Investment Authority, Housing Development Finance Corporation Ltd. and Central Bank of India hold 12.56 percent, 9.02 percent and 7.67 percent, respectively, in the cash-strapped company. State Bank of India has the lowest stake, at around 7 percent, in the company.