MUMBAI/NEW DELHI (Reuters) – A third of the total outstanding loans by a unit of India’s Infrastructure Leasing & Financial Services (IL&FS) to borrowers were either unsecured or had inadequate collaterals, according to an interim report by audit firm Grant Thornton India.

Grant Thornton was appointed by IL&FS’ new board after the Indian government took control last October of the heavily indebted infrastructure financing and construction group, following a string of defaults on debt obligations. IL&FS is reeling under debts of 910 billion rupees ($12.85 billion).

“It appears unusual that for 14 percent of the loans outstanding to the external parties as on 30 September

2018, the collaterals are not secured,” the internal report, a copy of which was seen by Reuters, said.

It was also unusual for IL&FS Financial Services to not have adequate collateral for 21 percent of the loans outstanding to the external parties as of Sept. 30, it said.

IL&FS officials and the ministry of corporate affairs did not immediately respond to requests for comment.

The Grant Thornton report said auditors noticed 10 regulatory or risk assessment issues by IL&FS in lending 132.90 billion rupees.

It identified instances where funds which were lent to certain third parties were potentially used by them to provide funds to some companies of IL&FS, mainly IL&FS Transportation Networks Ltd (ITNL).

ITNL is the biggest subsidiary of IL&FS and manages some of the group’s most valuable assets such as road projects.

“Based on the unapproved minutes of the board meeting held on 11 September 2018, it appears that the Board of Directors – specifically members of the Board who are also a part of the Committee of Directors – were potentially aware that the loans provided to third parties were further forwarded/lent to IL&FS group companies,” the report said.

It said auditors also identified around 22.70 billion rupees of such loans, while loans worth 24 billion rupees were given to companies that were under stress despite a negative risk assessment.

The report also noted that loans worth about 940 million rupees appeared to have been used by the borrowing companies to pay its promoters and directors.

The promoter of one such company is also an existing director of an IL&FS group company – a potential conflict of interest, the report said.

($1 = 70.8320 Indian rupees)