New Delhi, Nov 2: The new board of the troubled IL&FS has found that one of the group subsidiaries, IL&FS Financial Services’ (IFIN) outstanding loans and investments to other group entities are much higher than the permissible regulatory caps for the three years ending fiscal 2018.
This finding, a part of the progress report and way forward, was submitted to the Mumbai bench of the National Company Law Tribunal (NCLT) by the government-appointed board.
It comes amidst the ongoing tussle between the government and the Reserve Bank which has refused the former’s demand to open a special liquidity window for NBFCs which are hit by liquidity crunch following the crisis at Infrastructure Leasing & Financial Services (IL&FS).
Governor Urjit Patel has denied that the liquidity situation in the system is that grave and has announced additional OMOs worth Rs 400 bn in the month to meet the cash demand arising from Diwali demand.
“A preliminary analysis of the financial statements and records of IFIN for the last three financial years, has found that the company had outstanding loans and investments to group companies worth Rs 57.28 bn, Rs 51.27 bn, and Rs 54.90 bn in FY16, FY17 and FY18 respectively,” the Uday Kotak-led board informed the NCLT.
“Prima facie, these appear to be significantly in excess of (RBI) permissible norms, in all of these three years,” it added without quantifying the excess.
IFIN is a 100 per cent subsidiary of the debt-ridden IL&FS Group, which according to the board has over Rs 940 bn debt of which Rs 530 bn from banks.
The board has also found that of the banks’ over Rs 4 trillion of NBFC exposure, 16 per cent are to IL&FS, which is registered with RBI as a systemically important non-banking financial company, providing finance to infra projects.
In its report on the progress and way forward, under which it has sought two to three quarter to resolve it, apart from finding certain irregularities in the financial dealings of the group and its subsidiaries.
It said a large part of the IL&FS Group, in the past, operated as a single enterprise with no boundaries of legal entities and separate managements, which appeared to be a major governance shortcomings, leading to a large contagion impact on creditors of the group.
The board further said if this excess exposure is applied for calculation of capital adequacy, IFIN would have significant negative capital adequacy in each of these three years.
The finding of the new board comes at a time when the RBI governor is understood to have informed the Financial Stability and Development Council (FSDC) that the liquidity problem in NBFCs is not as severe as is being projected.