As the world marked the 10th anniversary of collapse of Lehman Brothers, which triggered the global crisis of 2008, India's leading infrastructure company defaulted on payments to its lenders.
Here is a brief sequence of events
- June 2018: IL&FS group subsidiary delays payment of Rs.450/- crores.
- August 2018: IL&FS group's financial arm IL&FS Financial Services defaults on payment of a few hundred crore Rupees of commercial paper.
- August end 2018: Credit rating agencies downgrade IL&FS to "default" or "junk" status.
- Early September 2018: IL&FS defaults RS.1000/- crores of term loan repayment. Its subsidiary defaults defaults Rs.500/- crores of payment.
- September 15, 2018: Former LIC Chairman SB Mathur takes over as Il&FS group Chairman.
- September 21, 2018: IL&FS default prompts DSP Mutual Fund to sell commercial paper of Dewan Housing Finance which leads to contagion (panic) effect in equity markets. Equity Market - BSE30 Sensex crashes by 1500 points.
- September 24, 2018: IL&FS defaults again and looses access to fund raising to borrowings through commercial paper market for upto six months. ( as per an existing rule by RBI.
- October 1, 2018: NCLT (National Company Law Tribunal (of India)) by it judgement allows the Government of India to assume control of IL&FS. Govt. appoints a new board under the Chairmanship of Mr. Uday Kotak.
Who Owns IL&FS
IL&FS has institutional shareholding: SBI, LIC, ORIX Corporation of Japan and Abu Dhabi Investment Authority are some of its largest shareholders.
What next
Since the collapse of IL&FS there has been shakeup in NBFCs. This is because of the highlighting of "Asset Liabillity Mismatch" i.e. simply put the monies were being raised by NBFCs from lenders for short time period - sometimes for as low as there months and these monies were being lent to borrowers for longer time period sometimes for as long as five years.
Since this problem has come to be highlighted banks ( which were the main source of monies for NBFCs) have stopped lending to NBFCs. As a result NBFCs do not have the monies to lend further i.e. the system has come to a near halt. Though many regulatory relaxations has been given by the RBI - yet the problem is not yet fully solved. This may take a while to solve - as fear has gripped the system which is the main cause for stopping of loans by banks to NBFCs.
IL&FS new board on the other hand has setup many committees to get the group out of the crisis and reassure the markets by repaying all the defaulting loans. It can repay as it has lent monies to many infrastructure projects ( e.g. toll roads etc) which generate cash and hence are in a position of pay to IL&FS which can further repay its lenders.
One thing is clear this is not India's Lehman yet and with time this problem can be solved. All we need is patience and an efficient functioning by the IL&FS board.
Author : Abhiroop Rishi
