The 166-page report details 10 major anomalies, grouping together various types of potentially irregular transactions and the sums involved in each deal type.
In its interim report to the board, audit firm Grant Thornton India has raised concerns that transactions worth more than Rs 13,000 crore at Infrastructure Leasing & Financial Services (IL&FS) could be linked to irregularities such as conflicts of interest, inadequate risk assessment and deviation from banking norms, a report in ET online said.
The 166-page report details 10 major anomalies, grouping together various types of potentially irregular transactions and the sums involved in each deal type, the report said.
According to the audit firm’s report, more than Rs 6,000 crore is related to transactions at IL&FS Financial Service Ltd (IFIN) that violated banking governance norms. It said that about Rs 2,270 crore, which was loaned to borrowers of IFIN with the knowledge of the erstwhile board, was actually utilised by certain IL&FS group companies. Of this, Rs 1,150 crore was infused into IL&FS Transportation Network Ltd (ITNL).
Notably, the IL&FS crisis first came to light in July 2018 at the time its road arm was facing difficulty in making repayments due on its bonds.
ET quoted the audit firm’s report: “Funds lent to certain third parties (i.e. borrowers of IFIN) were potentially utilised by them to provide funds to certain group companies of IL&FS (majorly ITNL).” “We have identified multiple instances where the loan was disbursed to the third party and on the same date, it was transferred to IL&FS group companies,” the interim report said.
Grant Thornton has detailed 29 instances where loans disbursed to borrowers were apparently utilised by their group companies to repay existing debt obligations with IFIN.
“It appears to be unusual that advances/repayments of very similar amounts are received from/paid to the same group in the same financial year,” the audit firm’s report said.
The audit firm has observed Rs 94 crore of advances to entities linked to senior IL&FS executives or directors, citing six potentially conflict-of-interest cases, as regards the end utilisation of loans.
“It appears that the partial amount of loan was not utilised by the borrower for the purpose for which it was sanctioned,” the report said. “Additionally, it appears unusual, that a loan is being provided to a company in which the existing director of IL&FS group companies is the promoter. Further, it is also unusual that the partial amount of the loan was utilised to pay the said director. This appears to be a potential conflict of interest,” ET quoted the audit firm’s report.
“It appears in certain instances where funds borrowed for short duration were potentially utilised to provide loans for the long duration... Given the backdrop, it appears unusual that in spite of a continuous deterioration in the funding gap, adequate/appropriate measures seemed to not have been taken to mitigate the risks,” the report said.
It points out that the funding gaps were at their peak in July 2018. Notably, the former CMD, Ravi Parthasarathy, resigned on July 21, 2018.
The audit firm has 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. In five out of these 16 cases, loans were approved even after negative assessments by the infrastructure financiers risk team, the audit firm said.
The report also noted 14 instances where the quantum of charge created against the borrowings appeared to be rather inadequate to provide cover against the loans outstanding, ET reported.