Time to get after the stakeholders who precipitated the fall of IL&FS
The Parliamentary Panel on the IL&FS fiasco has made some scathing remarks about the role of LIC in the IL&FS story as well as the role of the credit rating agencies. It is actually time to look at 5 key stakeholders who did not live up to expectations in the IL&FS episode.
Where were the auditors?
They should have been the first ones to flag off the governance conflicts in so many subsidiaries. But the auditors, surprisingly, found nothing amiss. That the auditors were caught napping when the company was descending into a massive crisis, is a clear sign that they have failed on the job. It may be too serious an issue to let the ICAI be the arbiter in this case. SEBI and the government must really haul up the auditors for this massive lapse.
Rating agencies napping?
This was not the first occasion, and may not be the last occasion when rating agencies were caught napping. The rating agencies continued to accord AAA status to IL&FS paper till the time these bonds came to the brink of default. That was bad enough. What was worse was the downgrade by several notches that actually exacerbated the crisis. Whether the initial inertia and the subsequent enthusiasm were natural or intended needs to be found out? The bottom line is that the auditors were either complicit or incompetent; both equally bad!
What about the investors?
Not just LIC but scores of blue-chip mutual funds were guzzling IL&FS paper due to the relatively higher yields. Both LIC and mutual funds are custodians of public money. In the absence of enough options in the debt market, debt funds are opting for quasi-debt funding; by putting unitholders at high risk. MFs and the LIC need to do some real soul searching about their current strategy. Of course, the government and SEBI also need to ask hard questions.
Banks are in a soup again
The problem with most banks is not just bad credit decisions but also extremely lax monitoring. How could an opaque structure like IL&FS run up bank debt to the tune of $12 billion? This is going to be another hit for the PSU banks that are already beleaguered.
Where is management?
Why is the government going so slow on the board? There is no way Ravi and his cohorts should be allowed to get away scot-free after creating such a big scam in the garb of infrastructure funding. It is surprising that the star-studded board is at large. If the NDA wants to show its seriousness about bringing corporate frauds to the book, then IL&FS is where it needs to start. Time for the sharp-shooting IL&FS cowboys to actually pay up!
