IL&FS may not have disclosed bad loans for years- central bank report

IL&FS Transportation Networks

14/08/2019 16:28

* IL&FS failed to declare bad loans - RBI report
    * NPA 70% of loans and advances by March 31, 2018 - report
    * Gaps in IL&FS's reported, assessed financial position
-report 
    * Many IL&FS' borrowers were unrated or had poor ratings
-report

    By Nupur Anand and Abhirup Roy
    MUMBAI, Aug 14 (Reuters) - Indian shadow bank Infrastructure
Leasing & Financial Services (IL&FS), which collapsed late last
year, may not have disclosed bad loans on its books for years
despite a big part of its loan book having soured, a report from
India's central bank said.
    The Indian government took control of IL&FS late last year
after it defaulted on some of its debt, triggering wider
concerns about risk in the rest of the country's financial
system.  urn:newsml:reuters.com:*:nL4N1XN4VG The government also appointed a new board.
    The central bank's report, included in regulatory filings by
IL&FS on Wednesday, found that IL&FS, one of India's biggest
non-banking finance companies, or shadow banks, had not declared
bad loans in the four years to March 31, 2018.
    Reserve Bank of India's (RBI) report, dated March 22, 2019,
found that non-performing assets on IL&FS's books were as high
as 70% of its total loans and advances by March 31, 2018. 
    The central bank said that "wide divergences were observed"
between the reported and the assessed position of asset
classifications and provisions at the company.
    IL&FS declined to comment on the findings within the report.
RBI also declined to comment.
    The discrepancies highlight how IL&FS failed to disclose
problems at the company and that these issues first surfaced
only when it started to delay repayments in June 2018.
 urn:newsml:reuters.com:*:nL3N1W74QC
    "Unscrupulous, negligent and dormant management decisions,"
involving huge sums of public money indicate that the (former)
board was completely incompetent, the RBI said in its inspection
report.
    The RBI report, included in IL&FS's 737-page regulatory
filing, sheds more light on what caused the IL&FS meltdown in
late 2018.
    The collapse of IL&FS led to contagion fears that hit many
other Indian shadow banks and dented credit growth, sparking a
broader economic slowdown that has severely stung the domestic
auto and real estate sectors.  urn:newsml:reuters.com:*:nL4N2511HZ
    The crisis at IL&FS prompted a series of federal
investigations into its operations.
    The RBI report also showed how IL&FS lacked rigorous risk
management rules. A significant number of IL&FS' borrowers were
either unrated or had poor credit ratings, the RBI report said.
In certain cases, IL&FS lent funds to insolvent entities and to
troubled projects, the report also said.
    

 (Reporting by Nupur Anand and Abhirup Roy;
Editing by Euan Rocha and Jane Merriman)
 ((Nupur.Anand@thomsonreuters.com; +919766938791;))