SFIO to probe IL&FS financial arm’s dealings with group entities

SFIO to probe IL&FS financial arm’s dealings with group entities

New Delhi, Nov 12: The Serious Fraud Investigation Office (SFIO) is probing if there was criminality involved in allowing IL&FS Financial Services (IFIN) to make massive investments in group companies or it was a mere violation of rules that RBI was supposed to implement.
Sources said that the government and the SFIO are looking at both the aspects in most of the probe related to beleaguered IL&FS, where the board was superseded and a new set of directors led by Uday Kotak are currently evaluating restructuring options. In its report to NCLT, the new board has found significant intra-group borrowings, indicating that the group functioned as a single entity with no boundaries of legal entities and separate management. IFIN, the wholly-owned subsidiary of the debt-ridden group, is under the supervision of the RBI.
While the company has a negative capital adequacy ratio at the moment, RBI regulations stipulate checks on intra-group lending beyond 10% — which allegedly IFIN failed to do. In 2017-18, IFIN’s exposure to group companies was estimated at close to Rs 5,500 crore, when it should have been less than Rs 673 crore.
Earlier this year, media reports had suggested that RBI had asked IFIN to reduce group exposure by next March after the regulator’s inspection found that the company was using a different parameter to calculate the exposure. But the regulator’s intervention is seen to have come too late in the day, raising questions over the oversight mechanism. Its role had also come under question at the time of the Nirav Modi fraud at Punjab National Bank but the RBI brass hit back, saying, it did not have sufficient powers to regulate public sector banks.
For the moment, the focus is on the probe where SFIO is looking at multiple approaches amid several instances of wrong-doing coming to its attention, sources said.
For instance, the new board has alleged that a loan in excess of Rs 1,500 crore was given to a group company after routing it through eight other entities. In a stock exchange filing, the board has suggested that this reflected “adoption of circuitous transactions to circumvent regulatory prescriptions”.