Evergreening loans: IFIN lent to stressed companies despite warnings
New Delhi, Policenama Online – The liquidity crisis in the lending major IL&FS and its group companies such as IFIN is something the erstwhile management itself created and should have been aware of the dire consequences of their blatant financial mismanagement.
A report prepared by Grant Thornton shows that IL&FS Financial Services (IFIN) on the behest of its Committee of Directors continued lending to companies which were under financial stress and not in a position to repay loans, despite warnings from an the company’s ASF (Asset and Structure Finance) team.
“We have indentified 73 instances amounting to Rs 9,193 crore where loans were sanctioned and approved by the CoD (Committee of Directors) even after the adverse remarks or recommendations by the ASF team. The outstanding amount as on September 30, 2018 of loans sanctioned to such entities amounts to Rs 6,230 crore,” said the report.
Further, out of the 73 instances, 46 instances amounting to Rs 5,544 crore were such, where either the loans sanctioned to such parties have become non-performing assets (NPA) or have been written off from the books of accounts of IFIN.
“Hence, it appears that loans were sanctioned by the CoD even when it was highlighted to them that the companies are under stress and doubts were raised about their ability to repay the loan.”
Citing the RBI inspection report for the financial year 2018, issued on March 22, 2019, Grant Thornton said that there were “serious deficiencies” in the credit appraisal process. Further the RBI report also noted that the loans were sanctioned overlooking the creditworthiness of the borrowers, it said.
“Also, evergreening of loans were noted by RBI,” it added.
The report cited the example of loan sanctioned to an Era group company named ‘Dev Rishabh Real Estate Private Ltd’. IFIN sanctioned a loan of Rs 175 crore to the company on March 28, 2017.
A review of the Credit Approval Memorandum (CAM) by Grant Thornton showed that the ASF team had adversely commented on borrower and said: “The Era group is facing overall liquidity issues and there have been issues in the repayments of loans to IFIN and other lenders.”
“Loans provided to two of the group companies of Era i.e. Adel Landmarks Ltd and Hi-Point Invesment and Finance Private Ltd had become NPA since July 30, 2016 and August 30, 2016 respectively,” it added among other comments.
The Grant Thornton’s report said that as on September 30, 2018, Rs 117 crore is outstanding against the loan provided to Dev Rishabh Real Estate Private Ltd and the total amount outstanding for Era group is Rs 294 crore.
All the loans to Era group have become NPA as on September 30, 2018, the report noted.