IL&FS Trust appt as regulator for NSDC 'conflict of interest'

Official auditor CAG today questioned the appointment process of IL&FS Trust Company Ltd as the monitor and micro-prudential regulator for NSDC, terming it a case of "conflict of interest".
In a report submitted to Parliament, CAG said the conflict of interest arose as IL&FS Trust Company was part of IL&FS group and another company of this group had got sanction for funding of Rs 159 crore from NSDC in 2010-11.
CAG also highlighted that the appointment process was irregular with restrictive pre-qualification criteria and infirmities in the bid evaluation process.
The auditor's report brought out weaknesses and issues in the functioning of NSDC, observing that though it was to work towards the goal of skill development and taxpayers' money was also planned to be utilised for the purpose, "NSDC was kept out of the Parliamentary oversight over its functioning".

CAG also noted that although 99.78 per cent funding of NSDC was from taxpayers' money, Government of India held 49 per cent equity shares of NSDC and had a minority representation on the NSDC Board.
Till March 2015, a total of Rs 2,363 crore had been released to NSDC from taxpayers' money.

NSDF was given the role of monitoring and supervision of NSDC. The report stated that "NSDF was ineffective in its supervisory role. There were several instances when NSDC also effectively denied the supervisory role of NSDF".
In this scenario, CAG said, where the monitoring over NSDC's activities was already weak, NSDC was converted from a public limited company to a private limited company. This further weakened the governance mechanism of NSDC as corporate governance norms are not applicable on private limited firms.

Surprisingly, no evidence of taking Cabinet approval for this change was available, the auditor pointed out.
NSDC was engaged in giving soft loans to various organisations for carrying out skill development activities and was covered under the NBFC regulation ambit of RBI.
CAG highlighted that "DEA persuaded RBI to exempt NSDC from its regulation on the premise that this work was performed by NSDF".
The report highlighted that NSDC provided financial assistance to partners for meeting their agreed training targets. However, 57 per cent to 83 per cent of the funded partners did not achieve their during 2010-11 to 2013-14.

Additionally, majority of them could not achieve their placement targets as well. "These issues were very serious as they defeated the very purpose of creation of NSDC," CAG said.
The situation was more serious in case of four partners which even defaulted in repayment of soft loans received from NSDC. "There were instances of lack of proper due diligence in considering the proposals for financial assistance," it said.
Need for a strong monitoring and control system was very important in NSDC as "many of these centres were reported to be established in far-flung areas across India," CAG said.
The report has criticised these systems at NSDC and it states that these were very weak at NSDC. It highlighted that very few site visits were carried out to verify the centres were reported as opened and functional.