During his policy review last week, RBI Governor Shaktikanta Das denied having received any SFIO investigative report on IL&FS — “We are not aware of the SFIO charge sheet, if any authority refers it to us, we will look at it.”
Almost around the same time (on Friday) the Mumbai Sessions Court accepted the charge sheet filed by SFIO. A case of forefinger not knowing what thumb is doing. This charge sheet has brought to light the inspection report by RBI for FY 2016-17 which has revealed a series of flaws in IL&FS managements conduct and the central banks strange refusal to enforce fail safe measures highlighted by it.
The charge sheet clearly articulates that IL&FS kept functioning despite RBI’s strictures and SFIO now maintains that the rot could have been prevented had the central bank acted with haste to cauterise the wound, knowing fully well the extent of the malaise.
Emergent documentation in the toxic IL&FS Financial Services (IFIN case) now shows the blase attitude of the company’s management as it refused to comply with even regulator RBI supervision diktats meant that towards the end the shadow bank had gone into complete rogue bank mode.
In many ways, this tale of a secret society doing what it wanted is similar to ICICI’s blatant disregard for all compliance measures.
A confidential November 15, 2016 inspection report, viewed by IANS, shows that during its survey, RBI observed that though the leverage of IL&FS (CIC – Credit Information Company like CIBIL) stood within the prescribed limit of 2.5, the leverage of the Group stood much higher at 7.14, which is a matter of concern. In view of this, you are advised to submit a time-bound action plan for reducing the Group leverage also.
The Inspection Report listed out serious supervisory concerns but despite throwing them into stark relief, the then management chose to ignore them completely. Instead as IANS has highlighted SFIO and Ministry of Corporate Affairs has slammed the RBI for not following up thoroughly on its own inspection report. This has shown the central bank in very poor light as a regulator, for it could have moved with greater alacrity and prevented this huge monolith which has now imperiled the financial system from going belly up.
As on March 31, 2015, RBI said that IL&FS Financial Services’ reported owned fund of Rs 4,353.23 crore was assessed at Rs 3,461.80 crore. The difference of Rs 891 crore was due to reduction of premium of redeemable preference shares of Rs 400 crore from free reserves, identification of additional provision for investments of Rs 250 crore, and reversal of interest accrued on investments of Rs 182.5 crore.
Preference shares that carried a premium were redeemable in 2021. The total premium collected by the company on the preference shares amounted to Rs 400 crore, which was also outstanding as on March 31, 2015. The RBI said that since the preference shares were redeemable, the same was not considered to be part of the free reserves.