Corporate Scandals in India
IL&FS: When an Infrastructure Lender Collapsed
How IL&FS, a large infrastructure finance group with hundreds of subsidiaries, defaulted in 2018, triggering a crisis for NBFCs and mutual funds.
Infrastructure Leasing & Financial Services (IL&FS) was a major infrastructure financier.
The collapse
- In September 2018, IL&FS defaulted on payments.
- It had debts of around 90,000 crore rupees or more.
Complexity
- The group had around 300 subsidiaries and related companies.
- Its structure hid risks.
Asset-liability mismatch
It funded long-term infrastructure projects with short-term borrowing.
Contagion
- Mutual funds holding IL&FS debt suffered losses.
- NBFCs faced a funding freeze as lenders became cautious.
Government action
- The government took over the board in October 2018, appointing a new board led by Uday Kotak.
- The board sold assets to repay creditors.
Allegations
Investigations alleged governance failures and loans to related parties; auditors faced scrutiny.
Lesson
Complex structures and funding mismatches can create systemic risk.
The mutual fund loss
A debt mutual fund holding IL&FS bonds marked them down after the default, causing losses for ordinary investors.
Thinking infrastructure lenders are always safe
IL&FS's collapse triggered a wider NBFC crisis.
Key takeaways
- IL&FS defaulted in September 2018.
- It had debts of around 90,000 crore or more.
- It funded long-term projects with short-term borrowing.
- Its collapse froze NBFC funding.
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