The new Board of Directors of IL & FS, in difficulty, noted that one of the group's subsidiaries, outstanding loans and investments of IL & FS Financial Services (IFIN) from other entities of the group , was well above the qualifying regulatory limits for the three-year period ending in 2018. Part of the progress report and the way forward were submitted on Wednesday by the government-appointed board of trustees. Mumbai National Company Law Courts.
It is part of the standoff between the government and the central bank that refused to create a special cash window for NBFCs affected by the liquidity problem following the Infrastructure Leasing & Financial Services crisis (IL & FS). ). Governor Urjit Patel denied that the liquidity situation in the system was so severe and announced the creation of additional OMOs worth 40,000 crores of rupees during the month in order to meet the demand for cash flow from Diwali's request.
"A preliminary analysis of IFIN's financial statements and registers for the past three years has shown that the company has outstanding loans and investments with group companies worth 5,728 crore rupees, of 5,127 crore of Rs and 18, respectively, "said the committee led by Uday Kotak at the NCLT.
"At first glance, these seem to significantly exceed the allowed standards (RBI) during these three years," he added without quantifying the excess. IFIN is a wholly-owned subsidiary of the IL & FS Group, which, according to the Board of Directors, has a debt of more than 94,000 crore of receivables, including 53,000 crore of banks. The board also found that out of the 4,000 billion banks exposed to NBFC, 16% belonged to IL & FS, which is registered with RBI as a systemically important non-bank financial company, providing financing to infrastructure projects.
In its report on progress and the way forward, under which it sought to resolve the problem in two or three quarters, apart from certain irregularities in the financial transactions of the group and its subsidiaries. He indicated that a large part of the IL & FS group, in the past, functioned as a single company without borders of legal entities and separate directorates, which appeared to be a major gap in governance, resulting in a significant impact on the group's creditors. The Board added that if this excess exposure were applied to the calculation of capital adequacy, IFIN would have a significant capital shortfall for each of these three years.
The new council's findings come at a time when the RBI's governor informed the Financial Stability and Development Council (FSDC) that the liquidity problem in money transfer companies was not as serious as planned. PTI reported that Mr. Patel assured the government, however, that RBI would provide sufficient liquidity to the system. Patel reportedly informed the government that there was no liquidity crisis in the system, with the exception of some sectors and that the central bank was closely monitoring the financial sector.
The high-level FSDC, led by Finance Minister Arun Jaitley, met earlier this week to discuss liquidity issues facing NBFCs and MSMEs. In the report, the new board indicated that, according to available records, loans to a group company exceeding Rs 1,500 crore had been channeled through eight other entities of the group, reflecting the "adoption of complicated transactions to circumvent regulatory requirements ". He also found that IFIN had an exposure in excess of Rs. 900 crore to companies that are subsidiaries of joint ventures or joint ventures of IL & FS (such as HCPL) and IL & FS Employee Welfare. Trust.
The group has up to 347 subsidiaries, about 40% of which are abroad. "These are not consolidated in the accounts of IL & FS and at the same time have been treated by the previous management as" internal debts ", according to the conclusions The board stated that the previous management did not not followed the regular procedures and transparency in the pursuit of various activities of monetization of assets in the group.The Reserve Bank is in line with the government to "protect" its autonomy.
The crisis has reached such a level that the government has begun a discussion with the RBI to invoke Article 7 of the RBI Act of 1934, which has never been used. Article 7 authorizes the government to order the RBI to make certain decisions in the public interest. One of the points of contention between the two is the central bank's rapid corrective measures (PCA) framework affecting up to 11 public sector banks that collectively control a quarter of the system.
Under the PCA, these banks can not lend large amounts and can not branch out of many other restrictions either. The government believes that the framework has led to the current liquidity crisis of the system. He also wants a special derogation from the RBI to help NBFCs, faced with a liquidity crisis, following the failure of IL & FS and the companies in the group. In a recent speech, RBI deputy governor Viral Acharya said that governments that did not respect the independence of their central bank would sooner or later be exposed to the anger of the financial markets.
Earlier this week, after the media reported that the government was planning to invoke Section 7, the Ministry of Finance said it had "maintained and respected" the central bank's autonomy. and had extensive consultations on many issues.