Following repeated debt defaults by its subsidiaries, Infrastructure Leasing & Financial Services (IL&FS) has plunged into a financial crisis. It is now officially broke. Too much debt and governmental pressure on bad loans have rattled IL&FS. The company has left a ripple effect in the market, leaving stakeholders and investors worried. Its assets include roads, tunnels, water treatment plants and power stations.
Earlier this month, the Reserve Bank of India had carried out a special audit. According to various media reports, “IL&FS had defaulted on the repayment of about Rs250 crore worth of inter-corporate deposits to Small Industries Development Bank of India (SIDBI).” The company had also defaulted on short-term borrowings (inter-corporate deposits).
According to the Business Standard report on September 18, “ICRA and Care Ratings cut their scores on several debt instruments of the firm to D, indicating actual or imminent default.”
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The IL&FS financial crisis is being compared to the 2008 Lehman Brothers bankruptcy. Lehman Brothers was a global financial services firm and fourth-largest investment bank in the United States; its bankruptcy was attributed to accelerated, the subprime mortgage crisis. The Print reported that “IL&FS Group and its associates are short of liquidity, with about $500 million in repayments coming due in the second half of its fiscal year through March and only about $27 million available.”
The Life Insurance Corporation of India (LICI) is IL&FS’s biggest shareholder. LiveMint reported that LIC owns 25.34% and HDFC, about 9.02% shares. Interestingly, in 2017, according to LiveMint, “HDFC’s nominee director had abruptly stepped down from IL&FS’s board.”
While the market is still trying to come to terms with 2018 as being the year of tycoon bad loans and financial scams, an IL&FS financial crisis is the icing on the cake.