Il&Fs: Corporate Governance Nmims Bangalore

IL&FS
CORPORATE GOVERNANCE
NMIMS BANGALORE
Group 3
Shubham Parag
Monalisa Bai
Manisha Mudgal
Ankur Khare
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IL&FS vs All major scams combined
Nirav Modi Vijay Mallya Satyam Computers
Sahara Sarada Chit IL&FS
0
4000
99354
25000
14000
9000
11400
0
Sca m Sc a m
IL&FS
Industry: Non-banking financial company
(NBFC), or 'shadow bank. Provide finance to
major infrastructure projects
Introduction
Shareholding Pattern
History: Formed in 1987 by Central Bank of
India, HDFC and UTI
Central Bank of
India
7%
HDFC LIC
Group Companies: 348 group 9% 25%
companies including subsidiaries, joint
ventures and associate entities
State Bank of
India
Type: Public listed company 12%
Abu Dhabi
Investment ORIX
Authority
12%
Corporation
23%
IL&FS Employee
Welfare Trust
12%
What actually happened?
Amount under arbitration

High debt to equity ratio 6000 Cr. Due to overdelay, and
Investing short term Commercial increase in project cost
Papers in long term government paid substantially
infrastructure projects. Leading less money
to Asset Liability Mismatch
Passage of LARR
Land Acquisition Rehabilitation Unviability of Infra
and Resettlement Act 2013. projects
Right and fare compensation to
Overdependence on PPP From 2015-16 Banking sectors
owner.
reduced exposure to financing
Model and refinancing of infrastructure
Shift in the strategy Disputes, corruption, Delay in
projects
From financing the issuing new licenses. No
infrastructure projects IL&FS support in land acquisition.
started owing the projects
Real Estate
Firms in the dock for Auditing Flaws
IL&FS ITLN IFIN

2018-19 SRBC & Co. (EY) SRBC & Co. (EY) BSR (KPMG)
2017-18 SRBC & Co. (EY) SRBC & Co. (EY) Deloitte and BSR
(KPMG)
2016-17 Deloitte Haskin and Sells Deloitte and SRBC & Deloitte Haskin and
Co. (EY) Sells
Till 2015-16 Deloitte Haskin and Sells Deloitte Haskin and Deloitte Haskin and
Sells Sells
IL&FS Board of Directors Sacked by Government
Sunil Behari Mathur - Non-Executive Chairman, Chalasani Venkat Nageswar - Nominee Director,
IL&FS (Independent Director) State Bank Of India
Hari Sankaran - Vice Chairman & Managing Ravindra Chandra Bhargava - Independent Director
Director, IL&FS
Arun K Saha - Joint Managing Director & CEO, Michael Pinto - Independent Director
IL&FS
Praveen Kumar Molri - Nominee Director, Life Jaithirth Rao - Independent Director
Insurance Corporation Of India
Kiyoshi Fushitani - Nominee Director, Orix Rina Kamath - Independent Director
Corporation, Japan
Harukazu Yamaguchi - Nominee Director, Orix Kiyokazu Ishinabe - Alternate Director To K
Corporation, Japan Fushitani
Sanjeev Doshi - Nominee Director, Abu Dhabi Ikuo Nakamura - Alternate Director To H Yamaguchi
Investment Authority (AIDA)
Bijendra Kumar Singhal - Nominee Director,
Central Bank Of India
Mismanagement
Employment & Third Party Contracts
55 IL&FS retired employees hired back as
consultants costing the company Rs 16.5 crore
Mis annually
ma nage
men
t
Property lease by group companies
Group companies leased properties owned by
select employees (or their relatives) as guest
houses for the group companies. monthly lease
rent aggregated to Rs 15.1 lakh per month and a
deposit of Rs 2.26 crores
Asset transfer
Certain asset was transferred from one group
entity to another in June 2017 at Rs 30.8 crore,
but a year later a committee of directors
resolved to sell this to a third party at Rs 1 crore
Real Estate
How it unfolded
IL&FS Defaulted on The investors RBI and SBI Government New board
borrowed by the repayment and stock infused steps in for the
issuing to SIDBI and market took a liquidity company
short term was hit appointed
instruments downgraded
Your Text Here Your Text Here Your Text Here Your Text Here Your Text Here Your Text Here
IL&FS borrowed by Defaulted on the The investors and RBI and SBI infused Government steps in New board for the
issuing short term repayment to SIDBI stock market took a liquidity company appointed
instruments and was downgraded hit
2015 2016 2017 2018 2019 2019
Real Estate
How it unfolded
IL&FS borrowed by issuing short term instruments
Defaulted on the repayment to SIDBI and was downgraded
The investors and stock market took a hit
RBI and SBI infused liquidity
Government steps in
New board for the company appointed

Violations of Auditing Standards
Auditing firms gave clean audit reports and Deloitte partner was providing management and
"deliberately" failed to report fraudulent activities at accounting consultancy on a transaction. Breaches of
IL&FS. Colluded with a group of IFIN officials to company law rules in India that prohibit auditors from
conceal facts rendering certain other services
The auditors, despite being aware of this modus Number of subsidiaries at IL&FS (348) was much
operandi of fraudulently funding of principal and higher than the reported 169. Auditors had limited
interest to the defaulting borrowers, had not reported visibility on subsidiaries and joint ventures.
the same in the audit report
• Auditors not highlighting the asset-liability

Money raised through debentures: ₹5100 Cr mismatch on the company’s books,
Auditors made no reference how those funds were • Inappropriate valuation of assets
used • Poor recognition of non-performing assets (NPAs)
• Non-detection of circular rotation of funds between
IL&FS network had over 35 audit firms, which group entities
audited subsidiaries, joint ventures, and associate
firms. Principal auditors Deloitte Haskin & Sells and
BSR had to rely on reports of eight auditors
Real Estate
Infographic Style
Content Here
1% of all banking system loans
outstanding at the whole-country
level. Group’s aggregate borrowings
₹99,354 crore Content Here
In 2017-18, borrowings increase by
44% over the FY 2014-15 levels
Content Here
1% of all Corporate Debentures Content Here
Managed to corner over 2% of all
Commercial Paper
Real Estate
Credit Rating – Red flags ignored
1
Borrowings
Borrowing rose by 44% in 2017-18 compared to 2014-15
levels. Short term debt payable in 2017-18 was ₹13,600
Cr
2
Income statement ignored
Company losing money in three consecutive years.
Aggregate loss in FY 2017-18 was ₹2,100 Cr
3
Negative consolidated group net worth
Intangible assets, aggregating share capital, accumulated
reserves and cumulative redeemable debentures value at March
31, 2018 was negative ₹ 23,000 Cr
4
Defaulting Subsidiaries
IL&FS the parent company retained AAA rating even
though its biggest subsidiary ITNL had already defaulted
on its repayment/redemption obligations.
Real Estate
Road Ahead….
Amendment of Infrastructure
leasing
Stringent rules should be made for
Review the credit rating
infrastructure leasing and financing 01
in India
mechanism
The rating regime in India should be
reviewed as it was investment grade 02
despite the asset liability mismatch 63
5 48
while as soon as default started the 96
rating was changed. 5 2
Role of Independent Directors
The role of independent

directors will also need to be 03
specifically defined
PPP projects
Government need to draft the specific
rules to ensure the success of PPP 05
projects
Transparency in the Audit
system
Rules need to be formulated to
highlight the correct data 05
transparently such as
Asset/Liability ratio
Real Estate
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IL&FS

Amount under arbitration

IL&FS ITLN IFIN

2015 2016 2017 2018 2019 2019

Defaulted on the repayment to SIDBI and was downgraded

The investors and stock market took a hit

RBI and SBI infused liquidity

New board for the company appointed

• Auditors not highlighting the asset-liability

The role of independent

Contents Contents Contents

You can simply impress your audience and

You can simply impress your audience and add

You can simply impress your audience and add

Your Text Here

Your Text Here

Your Text Here

Place Your Picture Here

Your Text Here

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Text Here Text Here Content Here

Get a modern PowerPoint Get a modern PowerPoint

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Content Here Content Here Content Here Content Here

Content Here Content Here

Content Here premier credit rating

Simple PowerPoint Simple PowerPoint Simple PowerPoint Simple PowerPoint

LOREM IPSUM DOLOR

CONTENTS CONTENTS CONTENTS CONTENTS

Real Estate Infographic

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$234,090 Contents Title

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$234,090 Contents Title

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 You can simply impress your audience and

 You can simply impress your audience and

 You can simply impress your audience and

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PRESENTATION You can simply impress your audience and

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Modern Portfolio REAL ESTATE

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