The IL&FS saga: The cookie crumbles

• HDFC
• 28 Sep 2018
• Knowledge Centre

HDFC, Tester

The Infrastructure Leasing & Financial Services Ltd (IL&FS) imbroglio is expected to deal a blow to India’s shadow finance sector. Industry officials and experts are of the opinion that licenses of ~1,500 smaller non-banking finance could be canceled because of inadequate capital, according to a report in a daily.

 

In addition to this, it is also expected that it would be increasingly difficult for new applicants in this domain to get approval to operate. The troubled firm declared 7 new defaults of Rs 395 crores on 27th September 2018.

 

The company was unable to service its obligations regarding bank loans, term deposits, and short-term deposits, IL&FS Services said in a regulatory filing. These defaults were in respect of five bank loans (including interest) totaling Rs 239.50 crores, a term deposit obligation of Rs 103.53 crores and a short-term deposit worth Rs 52.43 crores.

 

The short-term deposit of Rs 52.43 crores was due on 27th September 2018, and the term deposit of Rs 103.53 crore on 25th September 2018.In bank loan repayments, the company defaulted on Rs 100.60 crores and Rs 50.30 crores obligations due to 24th September 2018, while a Rs 62.90 crores loan due on 26th Septtember 18 could not be serviced. It also defaulted on loan repayments of Rs 50.20 crores due on 16th September 2018 and Rs 20.50 crores due on 12th September 2018, the company said in the filing.

 

So far, IL&FS has been unable to service a total of 10 obligations. The spree of defaults has led to the resignation of ILFS Financial Services Managing Director and Chief Executive Ramesh Mr. C Bawa and some pivotal board members on 21st September 2018.

 

IL&FS has an aggregate debt pile of Rs 91,000 crores and been downgraded to junk status by rating agencies following the default. Of this, Rs 57,000 crores are bank loans alone, most of which are from state-run lenders. State-owned LIC is the largest shareholder with a fourth of the firm’s equity, while Orix Corporation of Japan owns 23.5%.

 

Other shareholders include Abu Dhabi Investment Authority with 12.5% stake, IL&FS Employees Welfare Trust with 12%, HDFC with 9.02%, Central Bank of India with 7.67% and State Bank of India (SBI) with 6.42% at March-end 2018.

 

LIC and SBI have stated that they will not let the financial conglomerate collapse and efforts are on to help the entity.