CAG audit finds half of IFCI loans in violation of norms

Government auditor CAG today made a strong case for strengthening credit appraisal mechanism by state-owned IFCI, observing that over 50 per cent loans audited by it were not as per the general lending policy.
Citing specific examples, the Comptroller and Auditor General of India (CAG) in a report tabled in Parliament said large amount of loans were sanctioned to several companies in violation of laws.
Referring a loan case of Bhushan Steel, the CAG said the amount was sanctioned in violation of the extant general lending policy.
"In view of substantial increase in its debt burden as well as huge losses during 2014-15 and 2015-16, the chances of recovery of Rs 402.54 crore are doubtful," the report said.

In case of Rs 500 crore loan sanctioned by IFCI to Reliance Infrastructure, the CAG said: "Due diligence was not exercised in accepting an unenforceable security resulting in non-creation of mortgage till date."
The report also mentions certain loans of IFCI to Monnet Ispat and Energy, Pipavav Defence and Offshore Engineering Company, and Pipavav Marine and Offshore.

The general lending policy (GLP) of the company, the report said, specifically prohibits the sanction of loan to the borrower whose promoter or whole-time directors are appearing in the 'wilful defaulters' list of Credit Information Bureau of India Limited (CIBIL).
"However, it was noticed that in three cases (two per cent of the sample cases), the company had sanctioned the loans to the borrowers whose promoters/directors were appearing in the wilful defaulters list," it said.

The report said CAG reviewed 128 sanctioned loans and observed that in respect of 69 cases (54 per cent), the loans were sanctioned in deviation from the eligibility criteria stipulated in the GLP.
The auditor has suggested that the credit appraisal mechanism at the IFCI requires to be strengthened.
Further, "the company should strictly comply with the RBI guidelines applicable to Systemically Important Non-Deposit taking Non-Banking Financial Companies" the report said.
IFCI (formerly known as Industrial Finance Corporation of India) is a Systemically Important Non-Deposit taking Non- Banking Financial Company (NBFC-ND-SI).
The CAG had taken up the Performance Audit on Credit Risk Management in IFCI up primarily due to its predominantly higher Non-Performing Assets (NPA) ratio of 13.05 per cent as compared to the industry's NPA ratio of 3 per cent and also in view of increase in unrealised interest to the tune of Rs 40638.98 crore from 2012-13 to 2015-16.

Audit covered a period of four years from 2012-13 to 2015-16 in respect of loans sanctioned and disbursed.