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IL&FS was shoddily run despite several red flags. Here is proof

IL&FS was shoddily run despite several red flags. Here is proof

IL&FS was shoddily run despite several red flags. Here is proof
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By Jyotindra Dubey  Oct 3, 2018 6:25 AM IST (Updated)

On Tuesday, the National Company Law Tribunal (NCLT) allowed the government to take control of debt-ridden Infrastructure Leasing and Financial Services (IL&FS),  whose recent defaults shook the Indian market.

On Tuesday, the National Company Law Tribunal (NCLT) allowed the government to take control of debt-ridden Infrastructure Leasing and Financial Services (IL&FS),  whose recent defaults shook the Indian market.

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The NCLT dissolved the entire board of IL&FS and the finance ministry has ordered an investigation by the Serious Fraud Investigation Office (SFIO) into the affairs of IL&FS group and its subsidiaries after serious complaints on some of the companies. IL&FS group.
The high debt stress was clearly visible in the company and its main subsidiaries for several years, but was camouflaged by misrepresentation of facts, said the finance ministry.
Here are a few indicators which highlight operational mismanagement and corporate governance loopholes in IL&FS:
  • The rise in intangible assets
  • According to the finance ministry,  IL&FS  projected a picture through the highly exaggerated depiction of non-current assets in the form of intangible assets amounting to over Rs 20,000 crore.
    The intangible assets for IL&FS more than doubled from Rs 9,808 crore as on March 31, 2015, to Rs 20,004 crore as on  March 31, 2018.
    An intangible asset is an asset that lacks a physical substance, is difficult to evaluate and derives its value from intellectual or legal rights.
    The intangibles have to be written off against shareholders’ funds according to RBI norms.
    • Increase in bank deposits in lien
    • There has been a sharp increase in bank deposits held in the lien. The finance ministry highlighted that the bank deposits held under lien rose by Rs 1,682 crore during 2017-18. According to the annual reports of IL&FS, the balance of bank deposits under lien has increased by Rs 3,583 crore since 2014-15.
      • Risk management committee
      • As per the annual reports of IL&FS, the risk management committee (RMC), an extremely important committee in a non-bank finance company specialising in high-risk infrastructure finance and development, met only once in last four years.
        The RMC for IL&FS consists of RC Bhargava, Michael Pinto, Arun K Saha and Hemant Bhargava, managing director, LIC.
        • Remuneration of the top management
        • Despite rising debt and shrinking profits and an increase in the number of stalled projects, the remuneration of the senior management of IL&FS was consistently increasing. According to the annual report of IL&FS for 2017-18, the remuneration of Ravi Parthasarathy, chairman of IL&FS, more than doubled to Rs 20 crore during the year, 141 times of the median pay of IL&FS employees during the same year.
          Similarly, the remuneration of Hari Sankaran, vice-chairman and managing director and Arun Saha, joint chief executive officer and managing director increased by many folds during the same period.
          Though the remuneration of Parthasarathy for 2017-18 includes Rs 9 crore of retrial benefits. Even if we exclude those benefits, his basic pay also almost doubled from Rs 5.8 crore in 2014-15 to Rs 9.2 crore in 2017-18.
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