PMO to Secy Garg: We red-flagged IL&FS, probe directors’ role

The Prime Minister’s Office had been in communication with the Finance Ministry conveying to it from “time to time” concerns regarding the developments in IL&FS. Less than three weeks after the first default by IL&FS became public, Nripendra Misra, Principal Secretary to Prime Minister, wrote to Economic Affairs Secretary S C Garg, asking him to evaluate the internal reports of the nominee directors of LIC, SBI and Central Bank on the IL&FS board.

“You are well aware of the concerns conveyed from time to time by this Office regarding the developments in IL&FS,” wrote Misra in a letter to Garg on September 26. “It is disturbing that the major shareholders in IL&FS — LIC, SBI and Central Bank, did not foresee the developing dark clouds. You may like to formally ascertain the responsibility discharged by the concerned Directors in the last 12 months and evaluate their internal reports,” the letter said.

According to sources, Garg asked his office to convene a meeting with the chairpersons of SBI, LIC and Central Bank soon after. While LIC owns 25.34 per cent in IL&FS, Central Bank of India and SBI hold 7.67 per cent and 6.42 per cent, respectively. Praveen Kumar Molri, then Executive Director (Investment Operations) at LIC, Bijendra Kumar Singal, then General Manager, Central Bank and C Venkat Nageswar, Deputy Managing Director (Global Markets), SBI, were the nominees of the three institutions on IL&FS board in September.

Within a week of Misra’s letter to Garg, the IL&FS board was superseded by the government and Uday Kotak appointed as the Chairman on October 1. Garg was not reachable, and he did not respond to a text message.
“It is also unclear that the Board, after having decided to add more capital, deviated from the path leading to a situation of panic. Consequently, IL&FS bonds got poor rating and many institutions faced redemption pressure,” Misra wrote. He asked the ministry to analyse the developments for “prompt correction.”