SFIO probe ordered into IL&FS: Risk committee met only once in last four years; governance loopholes observed

An investigation has been ordered into the affairs of the debt-stricken Infrastructure Leasing and Financial Services (IL&FS) and its subsidiaries after "serious complaints" were received about the beleaguered company. This was announced by the government on Monday. The development came after the Centre superseded the management of the beleaguered company by appointing a six-member Board led by banker Uday Kotak to restore the financial solvency of the debt-stricken conglomerate.

According to CNBC TV18, there are several indicators which highlight the operational mismanagement and corporate governance loopholes in IL&FS.

The report said that there has been exponential rise in the intangible assets of the company. Citing the finance ministry, CNBC TV18 said that the intangible assets for IL&FS more than doubled from Rs 9,808 crore as on 31 March, 2015, to Rs 20,004 crore as on 31 March, 2018.

 SFIO probe ordered into IL&FS: Risk committee met only once in last four years; governance loopholes observed

Representational image. Firstpost

The report also pointed out that the risk management committee of the company met only once in the last four years. Chairman S Bandyopadhyay, and other members such as R C Bhargava; Michael Pinto and Arun K Saha were on the risk management committee. Bandyopadhyay resigned on 3 April, 2017, The Indian Express reported.

It was also observed that the remuneration of the senior management of IL&FS was continuously hiked even though the firm's debt kept rising.

"The decision to supersede the existing board was taken after careful consideration of a report received from the Regional Director, Mumbai under the Ministry of Corporate Affairs (MCA) which clearly brought out serious corporate-related deficiencies in the IL&FS holding company and its subsidiaries," the government said in a statement on Monday.

"Besides, a bulk of revenue was in the form of receivables, around 50 percent, which was locked up in litigation and arbitration," the statement said. "It has been noted that there is deep-rooted mismatch in the debt-equity ratio because of excessive leveraging, which has put a question mark in its ability to continue as a going concern if allowed to continue in the hands of the present management."

"The high debt stress was clearly visible in the company and its main subsidiaries for the last so many years, but was camouflaged by misrepresentation of facts."

As per some industry estimates, the company has an urgent liquidity requirement of around Rs 5,000 crore.

Key public sector lenders and undertakings such as Life Insurance Corporation of India (LIC) and the State Bank of India (SBI) have a 25.34 percent and 6.42 percent stake, respectively, in the firm which has around Rs 91,000 crore in long-term debt.

Besides, institutional investors, infrastructure projects, mutual funds and other lenders were at risk from the collapse of the company. The crisis has dented equity investors' confidence in the entire NBFC (Non Banking Financial Company) space.

--With inputs from IANS

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Updated Date: Oct 03, 2018 13:50:34 IST