MUMBAI: The financial services subsidiary of Infrastructure Leasing & Financial Services (IL&FS) took loans by keeping lenders in the dark about adverse regulatory findings on its ability to meet liabilities and using forged financial statements, the Serious Fraud Investigation Office (SFIO) has alleged.Lenders had told the SFIO that they had given loans to IL&FS Financial Services (IFIN) on the basis of its credit ratings and financial statements, which according to them had met the guidelines to lend to non-banking financial companies.While the investigative wing of the Ministry of Corporate Affairs is still looking into how credit ratings firms gave high ratings of IFIN, it last week filed a charge sheet in a Mumbai court on its probe into the developments that led to the debt crisis at IFIN. It said IFIN failed to share the negative net owned funds and credit adequacy ratios as assessed by the Reserve Bank of India with the lenders.The charge sheet, which ET has seen, among others names Siva Group chairman C Sivasankaran, while detailing what it described as fraudulent transactions between his companies and IFIN. The SFIO attached statements of the company’s lenders with the charge sheet. Bank of India, which had extended a Rs 1,500 crore term loan, told the agency that as per its last review, IFIN had complied with both RBI and bank’s lending policies to NBFCs. The company was rated triple-A by CARE, it added.According to a note from State Bank of India, the company had a negative net worth based on RBI guidelines, but its capital adequacy ratio was 21.08% as of March 31, 2017. This, the bank said, was due to the difference in the treatment of group companies by the company’s policy and as per RBI guidelines, and that the company had been following the same practice of accounting since 2007.“From the above statements of the bankers it is evident that the banks were relying on the information disclosed in the financial statements with respect to capital adequacy ratio, profitability, asset quality, NPA and provisioning thereof,” the SFIO said its over 800-page charge sheet.The agency added: “The financial statement doesn't show the true and fair view of the state of affairs of the company as the company was funding the defaulting borrowers and over a period of time to avoid recognition of these stressed defaulting borrowers as NPA and consequent provisioning. This modus operandi ensured in depicting artificially that the profitability and asset quality as positive always.”The company had not disclosed the fact that the RBI had assessed NOF and CRAR negative for successive financial years from 2014-15 to banks at the time of availing of loans, it said, adding: “This information is very critical and material for the banks to take decision on lending to IFIN. The management of the company concealed the material information from banks while availing of loans.”Chartered accountant AP Shah of AP Shah &Associates, who had provided end use certification to IFIN from 2009-10, told the investigative agency that he had given the certificates based on the documents provided by the company. “Since the company was a reputed company and they had reputed auditors … we had no question of doubting the integrity of documents and so the certification was given on good faith…” a statement from him attached with the charge sheet read.The charge sheet accused Sivasankaran of floating a domestic shell company to route funds which was used by his group companies to pay liabilities to IFIN.Accordingto the charge sheet, the problem started with loans of Rs 310 crore sanctioned to Siva Industries & Holdings and Siva Ventures by IFIN in December 2011which the companies were unable to pay. In 2012, IFIN loaned money to two other Siva group companies, which were then routed through a web of firms including the shell company back to Siva Industries & Holdings to pay its obligations, the SFIO alleged.The agency suggested that its report be shared with the government-appointed board of the IL&FS group so that it could recover losses suffered by IFIN from the accused directors.
from Economic Times http://bit.ly/2wK8iDb
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