IL&FS crisis: Risk panel review was not needed, says former director

The risk panel committee provides guidance on strengthening risk management practices

Responding to the criticism on why the ousted board of Infrastructure Leasing & Financial Services Ltd (IL&FS) did not hold a single meeting of the key risk management committee in the last two years leading to the meltdown, a former senior director said it was not necessary.

He said this because all the issues relating to the risks faced by the company and its impending financial problems were the key agenda whenever the full board met during the last two years.

“What is the point of having a meeting of the risk management committee which only had four members, when all issues in the purview of this committee were being discussed in the 15-member board meeting where all the directors were present,” said the former director, who was part of the committee.

The risk management committee, which was reconstituted in August 2017, was chaired by Hemant Bhargava, with RC Bhargava, Michael Pinto and Arun Saha being its members.   The risk management committee was entrusted with the task of reviewing the adequacy of the risk management framework and operational procedures for new business.

It also had to provide guidance on strengthening risk management practices to respond to emerging challenges and most crucially approve the limits for the management of credit, liquidity and market risks.

It was tasked with the review of the asset-liability management reports and ways to improve the management of funds. It was to also review capital adequacy requirements of the company and the status of any investigation.  

The former director points out that the key risk for the company was that it could not take up any more loans and had to raise further capital. Otherwise, it would have problems paying back interest payments.

“We were aware of the problem facing the company, and that is why we were looking at various options like asset sale, IPO and strategic sale of the company. We also decided not to bid for build, operate and transfer projects any more and stick to some engineering, procurement and construction contracts. It was these long-gestation projects that had got us into trouble,” he added.

Experts, however, have pulled up the previous board for its poor record in even conducting the risk management committee meetings for as long as two years. They said that had the company done so, the crisis could have been controlled and even resolved much earlier.

The experts also believe that the company management, especially the independent directors, failed in their basic duties of being part of the board.