Audit finds 107 cases of shady lending at IL&FS

New Delhi: In a latest twist to the financial frauds at IL&FS, an audit report has found about 107 instances of loan evergreening, loans given without adequate collateral and management links with borrower companies.

The report submitted by Grant Thornton last week to the new IL&FS board headed by Uday Kotak, its final forensic audit, unravelled several loan irregularities of the infrastructure giant. The audit report has come at a time when the investigating agencies, like the Serious Fraud Investigation Office (SFIO), are expected to finalise their reports. The Enforcement Directorate (ED) may now take the cognisance of the report for further action.

“The report found 107 instances of evergreening of loans worth Rs 10,264 crore. The names of several prominent companies like Essar, DB Realty, SKIL, Gayatri Group, Siva, SREI, Kohinoor, Parsvanath and HDIL have been mentioned with regards to the evergreening process,” claimed the Grant Thornton report.

The audit report said that former managing director of IL&FS Financial Services (IFIN) Ramesh Bawa did not disclose his investments in AAA Info-system and AAAB Infra-structure, though it was mandatory for all company directors to disclose their investments in other firms as per the Company’s Act.

Grant Thornton also found that there was some indirect links of Bawa with Silverglades Group and Ansal Group, which were provided loans to the tune of Rs 487 crore. The auditor found that Silverglades was given loans by the company’s former director without seeking any securities. Overall, loans worth Rs 3,768 crore were sanctioned without security. The SFIO had arrested Bawa in April over this.

As far as fraud instances are concerned, the audit report states that out of 107 cases, 73 instances of negative assessment were found, yet loans to these firms were approved by the company's directors.

Moreover, Grant Thornton found 20 instances where loans worth Rs 1,827 crore were given to companies without any security from borrowers. It also found 17 instances of loan disbursements worth Rs 1,941 crore, where securities fell short in comparison to the sanctioned amount.

Interestingly, most assessments to these companies were negative, yet they were extended loans after approval from the company’s director. Instances mentioned in the audit also stated that assessment of ABG International, Gayatri Group, SREI and Unitech were negative.

On November 1, 2017, the Reserve Bank of India had advised IFIN to reduce its exposure to group companies and not make any fresh lending.

However, IFIN was found to have violated the RBI norms post-the central bank intimation and provided loans to external parties, which in turn, transferred the loans to IL&FS group companies, primarily IL&FS Transportation Limited.