The financial services arm of the beleaguered Infrastructure Leasing & Financial Services — IL&FS Financial Services (IFIN) — reported a staggering net loss of Rs 13,272 crore in 2018-19 (FY19), compared to a net profit of Rs 9.5 crore in the preceding financial year (2017-18, or FY18), revealed the annual report of IFIN for FY19.
The net revenue of the company also nosedived 87.22 per cent in FY19 to Rs 288.88 crore, from Rs 2261.93 crore in FY18. Furthermore, the company’s exposure to loans — marked non-performing — is to the tune of Rs12,429 crore.
As of March 2019, IFIN has a loan book of Rs 12,945 crore, of which 96 per cent of the loans are non-performing. The under-performing loans are Rs 35.12 crore, and standard loans are Rs 480.44 crore.
The company’s liabilities as of end-March 2019 are Rs 16,635.72 crore. IFIN has been classified ‘red’ by the board of IL&FS; it is not in a position to meet its debt obligations —secured or unsecured.
The company’s total borrowings as of March 2019 from various avenues, such as debt securities, bank loans, commercial papers, and intercorporate deposits, stood at Rs 14,916 crore.
Furthermore for FY19, the board of IFIN factored in losses vis-à-vis balance of loans, receivables, investments, and other financial assets aggregating to Rs 4,798 crore, Rs 79.8 crore, Rs 252.8 crore, and Rs 405.1 crore, respectively, and also recorded a net loss on fair value change of Rs 283.7 crore on financial assets.
The audit report by the statutory auditors of IFIN — Mukund M Chitale & Co. — said with huge losses and liabilities, along with consistent rating downgrades, the company’s ability to raise funds has been substantially impaired, with normal business operations being curtailed.
Also, the company has breached its conditions for holding a certificate of registration as a non-banking financial company (NBFC), issued by the Reserve Bank of India (RBI).
IFIN has breached the minimum capital ratio of Tier 1 and Tier 2 capital. The company’s capital adequacy ratio is -520.29 per cent. According to the RBI norms for NBFCs, the company is required to maintain regulated capital adequacy ratio of minimum 15 per cent, with minimum Tier 1 capital of 10 per cent. Tier 1 capital is also referred to as the ‘net-owned fund’ and IFIN has reported negative net-owned funds for FY19, although according to a RBI mandate, a company is required to have a net-owned fund of Rs 2 crore to hold an NBFC licence.
Hence, the statutory auditors were of the opinion that given the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern, they are unable to comment on whether the company will be able to continue as a ‘going concern’.
In FY19, the Serious Fraud Investigation Office (SFIO) conducted investigations on the affairs of the company and found that the erstwhile auditors of IFIN — Deloitte Haskins & Sells, BSR & Associates — were aware that IFIN was lending to defaulting borrowers through group companies, so that they could suppress their non-performing assets and not provide for bad debt. It alleged that the auditors failed to verify the end-use of bank finances and money raised through non-convertible debentures, despite it being a regulatory mandate.
The SFIO complaint also said that the auditors falsified books of accounts from 2013-14 to FY18 and did not report the negative net-owned fund, as well as its negative capital to risk (weighted) assets ratio. After the report, the National Company Law Tribunal permitted reopening of books of accounts and recasting of the financial statements of IFIN.