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IL&FS default: Role of LIC officials under SFIO lens

The agency is seeking information about the funding of ITNL by IFIN since LIC was one of the lenders to IL&FS.

Updated: May 10, 2019, 07.47 AM IST
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The probe by the investigative arm of the corporate affairs ministry further revealed that loans were sanctioned without clear purpose or against specific projects.
MUMBAI: The Serious Fraud Investigation Office (SFIO) is examining the role of Life Insurance Corp officials as part of its investigation into the Infrastructure Leasing & Financial Services (IL&FS) default in September last year.

The shock default led to a liquidity squeeze, the effects of which are still reverberating through the financial markets. LIC is the largest shareholder in IL&FS with a 25% stake and had its representatives on the board.

The SFIO recently questioned a former LIC director, said an official familiar with the development. The agency is seeking information about the funding of IL&FS Transportation Networks Ltd (ITNL) by IL&FS Financial Services Ltd (IFIN) since LIC was one of the lenders to IL&FS, the person said.

“The SFIO wants to know if lenders were kept in the loop when IFIN took the decision to fund ITNL. This is one of the major issues on which the former LIC director was questioned,” the person said. “Currently the probe is focusing on irregularities in the affairs of IFIN (an IL&FS subsidiary).”

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Once the interim report on IFIN is submitted, the focus will shift to IL&FS and other LIC officials are likely to be called in for questioning by the SFIO, said the person. LIC didn’t respond to queries.

SFIO is also probing the role played by other IL&FS shareholders. It recently questioned Central Bank of India executives over the short-term loans that the state-run lender gave to IL&FS. Central Bank of India holds 7.76% of IL&FS.

“Their (Central Bank of India executives) statements have been recorded and will be part of the final report prepared by SFIO,” the official added. Central Bank of India had declined to comment on ET’s queries in this regard earlier.

“The infusion of funds in ITNL was also mentioned in the interim report submitted by Grant Thornton India. The directors and the shareholders will also be questioned on the said findings,” said the person cited above.

SFIO’s interim investigation revealed that IFIN allegedly advanced loans to ITNL violating prudential norms for exposure to group companies framed by the Reserve Bank of India (RBI). In order to bypass the RBI norms, the loans ultimately advanced to ITNL were layered through eight group companies of IL&FS.

The probe by the investigative arm of the corporate affairs ministry further revealed that loans were sanctioned without clear purpose or against specific projects. “Funding of high-value loans should be given for a specific purpose or for specific project in hand on the basis of some project feasibility reports,” the SFIO said in its interim report to the corporate affairs ministry in November last year. “However, the purpose mentioned for these loans is very generic and, prima facie, should not have been sanctioned in the normal course of business.”

The agency said loans were advanced to these companies despite them having a negative net worth. It also said that the committee of directors of IFIN that approved loans to ITNL held the same position in the latter company.

“The public money was extended to the group companies by IFIN without required security and performing due diligence,” the agency said in its report.

IFIN is a non-banking finance company and subsidiary of IL&FS. It provided debt syndication services to all IL&FS group companies for funding from banks. IFIN had advanced a total of about Rs 16,000 crore toward this.

The government replaced the IL&FS board in October last year with a new one headed by Kotak Mahindra Bank managing director Uday Kotak to rebuild investor confidence following the firm’s defaults.

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