Road projects: CAG faults IIFCL for deficiencies in lending

Our Bureau New Delhi | Updated on February 09, 2021 Published on February 09, 2021

Adopting best practices in lending, the state-owned infra lender has ‘a long way to go’

The Comptroller and Auditor General of India (CAG) has come down heavily on India Infrastructure Finance Company Ltd (IIFCL) for its deficiencies in lending to road projects.

The state-owned IIFCL still has a long way to go in achievement of its mission of adopting best practices and developing core competences for facilitating infrastructure development, the CAG said in a report tabled in Parliament on Tuesday.

Several deficiencies, including not giving due cognisance to the major risk of Right of Way availability to projects, led to loan of ₹1,895.50 crore to nine projects, out of 32 projects examined in audit, becoming a NPA, the report highlighted.

In seven out of the nine NPA cases, non-availability of the required Right of Way was the leading factor for non-completion of projects and turning the loans into NPA.

In one NPA case, unrealistic traffic projection affected the project’s commercial viability, the CAG report said.

The loans were disbursed, in many cases, without ensuring the compliance to the Common Loan Agreement (CLA) conditions relating to environment/ forest/ tree cutting clearances, infusion of required equity through escrow account and funding of cost overrun/ IDC by promoters. This led to delay in work progress, risk of misuse of fund by promoters and avoidable additional loan to badly managed projects.

Weak project monitoring

Monitoring of project progress was weak due to inadequacies in internal control systems established by the lenders, particularly the incomplete/ deficient information contained in Lender’s Independent Engineer (LIE) reports and CA certificates relating to the RoW availability, the equity infusion by promoters, the changes in shareholding pattern, the physical work progress vis a vis funds available with the project and the advances released/ unadjusted/ unrecovered, release of advances to EPC contractor without any security and misutilisation of such advances. The deficiency in monitoring led to the promoter taking undue benefits out of project fund, at the cost of project work progress.

In the road sector, the projects do not have physical assets to provide as security against loan. Viability of the project is the only comfort for securing the quality of loan asset. As such, due diligence on the project before signing of CLA, ensuring compliance to the conditions set in the CLAs before disbursement of loan and monitoring of progress of project for timely corrective action are vital activities to be undertaken by lenders for financing the road projects.

Terminated projects

The CAG has also highlighted that IIFCL sanctioned and disbursed two loans under Takeout Finance Scheme without ensuring compliance with critical requirement of obtaining ‘No Objection Certificate’ from concessioning authorities, and without ensuring required debt servicing capacity of the borrowers. Resultantly, IIFCL ended up lending ₹26.20 crore to already terminated projects, the CAG report said.

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Published on February 09, 2021
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