IL&FS Building
Case Study

IL&FS Crisis Explained: Case study

Spread the love

India’s monetary markets have been confronting heat and reeling under high selling pressure nowadays. Financial markets triggering worries about the hazard in the nation’s shadow banking sector, India’s biggest financial crisis IL&FS crisis. Within a week investors, $116.33 billion wealth wiped out.

About the IL&FS

The IL&FS is a 30 years old non-banking financial company that provides services similar to traditional commercial banks. The IL&FS site claims it has created and fund ventures worth 1.8 trillion rupees ($25 billion). The organization portrays itself as the pioneer of public-private partnerships, with a portfolio of around 13,100 kilometers of roads. The investors incorporate India’s biggest Insurer, Life Insurance Corp.; its biggest lender, State Bank of India; and Japan’s Orix Corp. It’s 169 subsidiaries, partners and joint ventures, make it too complex for any credit-rating firm.

What Happened?

To understand the IL&FS crisis first one needs to comprehend where the IL&FS Crisis got started.

  1. The organization has shown Rs 2,670 Crores losses for FY2018 which raised eyebrows of stock market experts.
  2. IL&FS has defaulted to several commercial papers and loans to mutual fund houses, corporates, and banks.
  3. IL&FS having Risk management team who supposed to do a risk assessment. However, IL&FS Risk Management team has not met over the most recent 4 years from 2015-2018 even once.
  4. IL&FS has defaulted non-convertible debenture (NCD) Bond payments.

The above is the old story. Now check out the current situation, how IL&FS went into Crisis mode in the last 4-5 months?

Here is the arrangement of events on how IL&FS went into Crisis.

  1. IL&FS was having an immense outstanding debt of Rs 91,000 Crores out of which Rs 57,000 Crores are to Public Sector Banks.
  2. In Jul-18, IL&FS Transport a subsidiary of IL&FS has deferred Rs 450 Crores of repayment to SIDBI. This is where the IL&FS Crisis began.
  3. ICRA and CARE downgraded the ratings because of these payment defaults.
  4. In the Jul-18 end, its organizer and Chairman Mr.Ravi Parthasarathy have stepped down referring to wellbeing reasons. Mr.Hemanth Bhargava, LIC MD joined as non-official administrator amid that time.
  5. In Aug-18, it has again defaulted 2 business papers to mutual fund AMCs and after that later paid in 2 days late.
  6. In September, IL&FS defaulted Rs 1,000 Crores loan repayment to SIDBI. It has defaulted many times during September for different loan payments.
  7. ICRA, CARE, and BWR has downgraded its evaluations to “default” or “junk“. This is the more awful of such evaluations. Due such a low rating RBI has started special audit about this organization.
  8. 15th September, Former LIC Chairman, Mr.SB Mathur has taken responsibility as a Chairman of IL&FS.
  9. SEBI has mediated so late in this matter. Two weeks back it said it would investigate this issue and assess the risk involved in various mutual fund schemes.
  10. In 21st September DSP Mutual Fund has sold DHFL Commercial Papers as it can’t sell Govt Bonds because of pressure from corporate customers.
  11. Last week of September, RBI has raised worries about IL&FS company administration and met with its top investors.
  12. On 1st October, NCLT has enabled Govt of India to take control of the organization and its issue. Govt of India has sacked its board. Its new board will have, Uday Kotak, previous IAS officer and Tech Mahindra supervisor Vineet Nayyar, previous Sebi head G N Bajpai, previous ICICI Bank director G C Chaturvedi, previous IAS officers Malini Shankar and Nanda Kishore.

What NEXT?

Moving over obligation won’t be simple. On Sept. 17, the Indian unit of Moody’s Investors Service cut the evaluations on several IL&FS obligation instruments to a level that implies actual or imminent default. The IL&FS is looking to raise more than $4.2 billion by selling assets, as indicated by Bloomberg. It’s moreover wanting to raise the group share capital. Certainly, many powerful players have a deep interest in preventing the group’s collapse, including those blue-chip and sovereign-backed shareholders.

Aamir Khan

Aamir Khan is the founder and CEO of iplanyourmoney.com! Aamir having a deep interest and almost 4 years of experience in the banking & finance sector. He is a blogger, web entrepreneur, and a professional in the corporate world.

Leave a Reply

Your email address will not be published. Required fields are marked *