IL&FS Breakdown
On 1st October, National Company Law Tribunal (NCLT) directed the government to take charge of the Infrastructure Leasing and Finance group. Government superseded the IL & FS board under section 241(2) of Companies Act, 2013 and instituted the Board consisting of six persons. Mr. Uday Kotak, managing director of Kotak Mahindra Bank as the non-executive chairman; G.N. Bajpai, former chairman of the SEBI; G.C. Chaturvedi, chairman of ICICI Bank Ltd; IAS officers Vineet Nayyar; Malini Shankar and Nand Kishore.
Several instances of defaults in repayment were reported on the part of company. First incident was reported in the month of June were IL&FS Transportation Networks Ltd subsidiary of IL & FS group did not make the payment of Rs 450 crore. Another incident was reported in the month of August when IL & FS financial Services another associate failed to repay its commercial paper investors. The group itself defaults in repayment of Rs 1000 crore term loan granted to it by public sector banks.
Credit rating companies ICRA, CARE listed various long-term and short-term borrowing schemes under the category of junk and default. Total valuation of such schemes amounts to Rs12000 crore.
Fears of a debt market crisis due to IL & FS defaults lead to a contagion effect in equity markets and tank it at a great level around 1350 points. This incident reminds investors of the Satyam Scam unveiled in 2009 which lead to crashing of the stock market across India. It shook the financial market and corporate world a decade ago causing a loss of around Rs 14,750 crore to the economy.
IL & FS Ltd is under a staggering debt of Rs.91,000 crore ($12.5 billion). Of the total debt, about Rs.57000 crore is from the public sector bank. At the end of September, IL & FS Ltd approached National Company Law Tribunal to propose an arrangement to avert the crisis.
The first Board Meeting of the newly instituted Board was held on 4th, October to look into the cause of crisis and devise a programme to tackle and restructure ongoing threat. Board was not able to recognise the cause which led to meltdown of IL&FS Group. The board reported to media that the problem seems to be more complex than it appears as the group has more than 350 subsidiaries and various long-term and short-term borrowings schemes adopted by the group and the following subsidiaries. Another board meeting is proposed to take place in the subsequent week.
The matter has been posted by NCLT for further hearing on 31st October.
By
Shriyaansh Gupta
Student Reporter, INBA