20 June 2019: The Serious Fraud Investigation Office’s (SFIO) probe into the affairs of IL&FS shows that its financial arm, IL&FS Financial Services (IFIN) incurred losses for at least five financial years from FY14 to FY18.
However, the company avoided provisioning for stressed assets by advancing loans to defaulting borrowers via related parties to pay-off existing dues, which resulted in spruced-up financial statements for the mentioned period. The probe also found that IFIN’s financials concealed the fact that the interest on the repaid loans were paid through new, fraudulently approved loans.
As is known, the ministry of corporate affairs (MCA) has filed a criminal complaint in a Mumbai court based on the SFIO report against 30 parties, which includes former CEO and managing director Ramesh Bawa, and former vice-president Hari Sankaran, in the IFIN fraud case. Bawa and Sankaran have been in judicial custody since April.
Between FY14 and FY18, the SFIO identified instances of evergreening of loans worth over Rs 6,650 crore, according to the estimates drawn up SFIO which was seen by FE. For its impact assessment, the SFIO identified instances of evergreening as “sub-standard assets” as per Reserve Bank of India’s directions on asset classification for non-banking finance companies.
The SFIO estimates, assuming a 10% provisioning of the outstanding amount for sub-standard assets, show that IFIN avoided showing provisions worth over Rs 665 crore in its books between FY14 and FY18.
In FY18, while IFIN showed a profit before tax of Rs 201.92 crore, SFIO estimated that the company incurred losses of over Rs 150 crore. According to SFIO’s calculations, the company avoided provisioning for bad loans worth Rs 93.64 crore, while over Rs 250 crore of interest income on bad loans were serviced through evergreening of loans during this period.
Similarly, for FY17, SFIO estimates showed the company posted a loss of over Rs 160 crore, while IFIN’s financial statement show a profit before tax of Rs 322.68 crore.