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India central bank uncovers failures in oversight; discrepancies in IL&FS

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India central bank uncovers failures in oversight; discrepancies in IL&FS

A Reserve Bank of India report on debt-laden Infrastructure Leasing & Financial Services Ltd. found failures in oversight and discrepancies in the company's reported figures.

The central bank's report found that IL&FS had not declared bad loans in the four years to March 31, 2018, and there were wide divergences observed between the reported and assessed position of assets classification and provisions.

According to the report, the company's board failed to exercise proper oversight and did not monitor the affairs of the downstream entities in which investments were made. "The unscrupulous, negligent and dormant management decisions involving the huge public money indicated complete incompetence of the board," the central bank said in its March 22 report, which was included in the company's regulatory filings on Aug. 14.

The report noted that the company's investment review committee had not met since Oct. 5, 2015, and the risk management committee did not meet for three years.

In addition, the central bank found wide divergences between the company's reported adjusted net worth of 66.76 billion rupees as of March 31, 2018, and its assessed adjusted net loss of 16.32 billion rupees.

The report also noted serious deficiencies in the company's credit appraisal. Loans were sanctioned overlooking the creditworthiness of the borrowers. In some cases, the RBI noted, the loans were used for ever greening, or using the loans to repay earlier loans.

IL&FS was taken over by the government in October 2018 to avoid causing systemic pressure on the financial market after the group defaulted on a number of loan obligations. Former directors at unit IL&FS Financial Services Ltd. were accused of facilitating money laundering and generating losses for the company.

As of Aug. 14, US$1 was equivalent to 71.53 Indian rupees.