IL&FS gave loans without adequate collateral causing liquidity crisis, says new report

IL&FS has extended loans without ensuring required asset cover at the time of sanctioning, resulting in the asset-liability mismatch that caused liquidity crisis in the infrastructure and leasing firm, a report has found.

A Grant Thorton interim report has brought to light several instances where loans of up to ₹2,000 crore were extended by IL&FS to undeserving entities without any security cover or with an inadequate collateral.

Pointing out multiple anomalies in the functioning of the troubled IL&FS group, the report said that "it appears unusual" that for 14% of the loans outstanding to the external parties as on September 30, 2018, the collaterals were not secured.

Further, for 21% of the loans outstanding to the external parties as on September 30, 2018, the security charge on the collateral are not adequate.

The report noted that in certain cases where the security provided was in the form of listed shares, the security cover of the loan lent was not adequate.

Among the 14 companies with inadequate collateral are Adhunik Meghalaya Steels Pvt Ltd, Vandanaa Udhyog Ltd, Hema Sri Power Projects Ltd, Gujarat-Dwarka Portwest Ltd, SKIL Infrastructure Ltd, Shalivahana (MSW) Green Energy Ltd and Dev Rishab Real Estate Private Ltd.

The total loans outstanding against them stands at ₹1,819 crore.

Anomalies were found in the repayment of loans too, the report said. "Approximately a similar amount of funds were lent as well as received from the same group of the borrowers", it said.

"In order to identify unusual trend of loans sanctioned to the various borrowers of a single group, we reviewed the disbursement master and noted all the disbursement and repayment done by all the borrowers of the group".

The IL&FS Group, which has debts of over ₹91,000 crore, is facing a severe liquidity crisis. During the period July-September 2018, two subsidiaries of the group reported having trouble in paying back loans, as well as inter-corporate deposits to the lenders.

In July 2018, the road arm of IL&FS faced difficulty in making repayments due on its bonds.

Further, in early September 2018, one of the subsidiaries of IL&FS Group was unable to repay a short-term loan of ₹1,000 crore taken from Small Industries Development Bank of India.

Moreover, certain group companies have defaulted in repayments of various short and long-term deposits, inter-corporate deposits, and commercial papers.

Consequently, a new Board of Directors was reconstituted in October, with Uday Kotak as the chairman. The Board recently sent a show-cause notice charging the 14 former directors with facilitating money-laundering.