On Monday, 4th December, even as the Serious Frauds Investigation Office (SFIO) was asking for a freeze on the assets of top officials of IL&FS (Infrastructure Leasing & Financial Services), I received copies of a set of letters written by a whistleblower with explosive information. He had written to every person or entity who could have acted in time to reduce the damage caused by the finance group’s fraudulent dealings. But they did nothing.

• 2 May 2017: The whistleblower, who signs as Mahesh Inamdar, wrote a three-page letter to the board of directors of IL&FS with specific names of employees, problem accounts and amounts involved (details later). I understand that the board was persuaded not to discuss the letter because this was under a pseudonym. I further learn that one board member asked for the letter to be discussed a whole year later, at the July 2018 board meeting, when Ravi Parthasarathy, founder and former chairman, resigned on health grounds.

• 21 July 2017: The same person, Mahesh Inamdar, wrote to Urjit Patel, governor Reserve Bank of India (RBI) and all the major shareholders—chairman of State Bank of India (SBI), VK Sharma of Life Insurance Corporation, Deepak Parekh of HDFC, Sanjeev Doshi of Abu Dhabi Investment Authority (ADIA) and Orix. This letter was captioned: “IL&FS/IFIN: Rs1 lakh crore of PSU bank exposure at serious risk.” It makes the point that this is his third letter and it is largely a plea to the RBI governor to investigate “4 years of mismanagement, fatal financial engineering to declare dividend/show divestment & serious corruption by entire top management.”

It specifically names Ravi Parthasarathy, Hari Shankaran, Ramesh Bawa, Arun Saha and K Ramchand. He pleads with the directors to “initiate emergency repair work,” by providing specific amounts, names and deals where money was extended to dubious entities or was written off. Some of the entities/industrialists mentioned in the letter are well-known friends and cronies of the cabal that controlled IL&FS. Again, it points to the massive realty exposure undertaken by the group which has absolutely nothing to do with public infrastructure.

Nothing happened. Remember how RBI had claimed that its investigation report had flagged issues with IL&FS two years ago? Well, these letters allege corruption, and worse, with specific details. Will SFIO find out if the RBI governor had even forwarded these letters to the inspection and supervision departments?

• 21 July 2017: The whistleblower also wrote to independent directors of IL&FS Financial Services (IFIN). Specifically, the letters went to Surinder S Kohil (former chairman of Punjab National Bank), Subhalakshmi Panse (former chairman of Allahabad Bank) and Uday Ved, taxation head of KPMG LLP. Titled, “Serious corruption/corporate governance issues”, he wrote that the purpose of the letter was to draw their attention to the “extremely serious situation which threaten IFIN survival even over the next 12 months, mainly due to serious corruption at IFIN. RBI role is very critical as real stakeholders are banks (public money) with exposure at serious risk”.

Nothing happened. This letter mainly highlighted massive loans, of over Rs4,000 crore, extended to dubious or politically-connected realty companies. It named specific individuals, companies and amounts. This letter was also copied to the RBI governor and major institutional investors of IL&FS.

• 31 July 2017: This time, the whistleblower, calling himself Sanjay Gurukripa, writes to Sunil Mehta, managing director (MD) of Punjab National Bank (PNB) which is already reeling from the Nirav Modi scam. It is marked “Extremely Confidential and Urgent” and is all about Vadraj Cement Ltd (formerly ABG Cement) which figures prominently in all the letters.

It highlights “Serious fraud by promoters (abuse of Strategic Debt Restructuring scheme) on the consortium of banks including PNB as lead banker and other public sector banks (PSBs)—Dena Bank, Union Bank, Indian Overseas Bank, Central Bank of India, Bank of India, Oriental Bank of Commerce and Corporation Bank.” This letter deserves a separate column; it was marked to the chief vigilance commissioner, along with branch heads and MDs of the consortium of banks named above.

• 12 May 2018: Despite the lack of action and response to this huge effort to get the attention of every authority responsible for regulation and supervision of the financial system, the whistleblower writes one more letter (as Sanjay Gurukripa), with more details, to Urjit Patel, RBI governor.

This was before Ravi Parthasarathy stepped down as chairman and is marked “Extremely confidential and urgent”. It not only provides an update of affairs at IL&FS, calling it a serious scam; but has this warning underlined: “At (the) present speed of deterioration, IL&FS would collapse in next 12-18 months.” This letter highlights how credit ratings are manipulated; how the top five members of Mr Parthasarathy’s cabal “who are running their own fiefdoms (absolutely corrupt/massively incompetent)…” had all got their tenures extended, although they were over 65 years old. Interestingly, this letter is copied to the heads of CARE Rating, India Ratings and Research, Deloitte and Orix.

These letters have brought out the following facts. First, a cabal of five people (founder Ravi Parthasarathy and his cronies Hari Shankaran –vice chairman, Ramesh Bawa, K Ramchand and Arun Saha) were running this giant finance and infrastructure conglomerate like a personal fief, along with four or five other persons in their inner circle.

It points to how rating agencies had ignored specific bad loans and massive exposure to realty, as well as huge ever-greening of loans to the following: ABG Shipyard/SIMEC (this is serious because these companies were into defence deals), SKIL Infrastructure (Rs1,000 crore each), Sivasankaran group (new exposure, despite previous losses to the group), Unitech, Parsvanath Developers, Era Housing, HDIL Ltd of the Wadhwan group, the politically-connected Kohinoor group, Ind Bharat Energy, Varun Shipping and KVK Infrastructure.

Most of these are under bankruptcy proceedings. The whistleblower alleges that manipulation of ratings was the key to ensure ever-greening of loans to these entities and to give them fresh funding.

Another scary revelation is that “nobody is aware of the extent of contingent liabilities of IL&FS through comfort letters and DSRA (debt service reserve account) support issued for borrowings by group companies which will soon convert to actual liability."

He also alleges that “foreign offices of the group are a big question mark and (are) being used for moving illegal money overseas.” All this and more is beginning to spill out into the public domain. Other letters have details of many specific loans, adjustments and accounts that need to be handled separately after some verification. Some of it is already in the SFIO report, which is also in the public domain.

I have asked three former independent directors of IL&FS, the holding company, for their response. They were RC Bhargava, Jairthirth Rao and Reena Kamat. Only Mr Bhargava responded, I have reproduced his response at the end of this column.

Earlier, on 2 October 2015, Umesh Baveja, the founder of RAHI Aviation, who has victimised by IL&FS had written a detailed letter to the Dr Raghuram Rajan exposing the group’s incestuous dealings to collect multiple fees and charges (all of which are now part of the SFIO report). He too did not bother to act on the letter, although Mr Baveja was his former batchmate. So RBI’s failure to act predates Dr Urjit Patel’s tenure.

This shocking saga shows that not one of the checks and balances, instituted in the form of endless red tape and check-box disclosures meant for directors, actually works in real life. These routine compliances are only a way to help regulators cover their own tracks and evade responsibility.

The letters expose the regulator, bankers, investors and rating agencies as being complicit in the scam by refusing to heed warnings and take cognisance of very specific facts and details provided by the whistleblower.

Unless SFIO’s investigation also questions, as Sherlock Holmes would say, ‘the dog that didn’t bark’, we, as a country, will only lurch from one financial scandal to another, with the losses being paid by the people, through the exchequer.

The standing committee of parliament, which comprises our elected representatives, is apparently looking into the IL&FS scandal. So far, parliamentarians have shown no inclination to go beyond the bureaucratic process of seeking in-camera depositions of those who are either directly responsible for the scandal or have failed to act. This has never yielded any result in the past few decades.

The series of financial scandals under the United Progressive Alliance, and the recent ones under the National Democratic Alliance, not to mention the embarrassing dirt spewing out of the Central Bureau of Investigation, shows that we, as a people, need to demand better accountability and a better way of dealing with financial scams and corruption. The buck must stop at the regulators who fail to act and the investigations must begin by questioning them, rather than allowing them to turn investigators!

Moneylife requested Mr Bhargava and other independent directors for feedback on whether the board ever took cognisance of the whistleblower’s letter and why no action was ever initiated. The conversation below tells its own story.