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Loans to arm ITNL violated RBI norms

DNMUM427568 | 12/7/2018 | Author : Ateeq Shaikh | WC :577

Mumbai: IL&FS Financial Services Ltd (IFIN) violated Reserve Bank of India’s prudential norms on exposure to the group companies by advancing Rs 1,630.05 crore to IL&FS Transportation Networks Ltd, revealed an interim report by the SFIO.
“Investigations revealed that IFIN had advanced Rs 1,630.05 crore to ITNL violating the prudential norms (credit concentration) for exposure to group companies framed by the RBI. In order to bypass the above-mentioned norms, the loans ultimately advanced to ITNL were layered through the eight group companies of IL&FS Ltd,” reads the SFIO report.
This was done to keep ITNL healthy so that it could keep servicing debts and other requisite payments.
In order to fund IL&FS Transportation, IFIN co
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However, the purpose mentioned for these loans is very generic and prima facie, should not have been sanctioned in the normal course of business. Loans were advanced to these companies, despite all the companies suffering negative net worth,” mentions the investigation report.
These companies were sustaining continued losses and were incorporated for specific projects. Despite the losses, these companies were used as vehicles to layer or camouflage routing the funds from IFIN to ITNL.
Moreover, these loans to ITNL were approved by the committee of directors (CoD) of IFIN or the lending entity, whose members were also on the CoD of the borrowing entity ITNL and public money was extended to the group companies by IFIN without required security and performing due diligence.
According to the interim report, “The modus operandi of IL&FS Group during the financial years (FY) 2015-2018, prima facie, which emerged from the above was to keep the holding company (IL&FS Ltd) and its immediate subsidiaries financial viable and healthy, through an unsustainable, pyramidal funding, routing short-term funds borrowed at the holding company or the subsidiary company level to its various step-down/project subsidiaries, as the holding companies’ contributions or to avoid default on these companies borrowings.”
“The holding company (IL&FS Ltd, IFIN, ITNL or other borrowing entitites as the case may be) lent the borrowed amount at an interest rate higher than the average cost of borrowing to the step-down subsidiaries. Many times, this lending to the step-down subsidiaries, joint ventures and project SPVs (special purpose vehicles) was routed through other group companies in order to circumvent the RBI regulations with regard to investment of funds by NBFCs,” the reports adds.

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