IL&FS vice chairman Hari Sankaran arrested by SFIO for abusing powers, fraudulent conduct

The Serious Fraud Investigation Office (SFIO) on Monday arrested former vice chairman of crisis-hit IL&FS for fraudulent conduct and causing wrongful loss to the company and its creditors, official sources said.

This is the first arrest made by the probe agency in the IL&FS case. Sankaran was arrested in Mumbai in connection with the ongoing investigations into the affairs of IL&FS and its group entities, a PTI report said.

Sources said Sankaran has been arrested on the grounds of abusing his powers in IL&FS Financial Services Ltd through fraudulent conduct and in granting loans to entities that were not credit-worthy or were declared as non-performing accounts. Such actions caused wrongful loss to the company and its creditors, they added.

Representational image. Reuters.

The agency has been granted custody of Sankaran till 4 April.

IL&FS Financial Services had borrowings of more than Rs 17,000 crore through debt instruments and bank loans. Provident funds, pension funds, gratuity funds, mutual funds, public and private sector banks, are among those who have invested in these debt instruments, the sources said.

The alleged financial irregularities at the IL&FS came to light last year after some group entities defaulted on debt repayments. The government, which superseded the company's board, is working on a resolution plan.

A third of the total outstanding loans by a unit of IL&FS to borrowers were either unsecured or had inadequate collateral, a Grant Thornton India audit of the firm reported last month.

Bad loans at Indian banks reached a record $150 billion at the end of March, with state-run banks accounting for the lion’s share. The huge pile of bad debt has hurt the bottom lines of state-run banks and hindered their ability to issue new loans, a Reuters report said.

(With inputs from agencies)