Autumn marks the changeover from summer to winter and the temperature drops considerably, making the Indian climate pleasant. Unfortunately the autumn of 2018 did not bring any pleasant moments in the life of Infrastructure Leasing and Financial Services (IL&FS), an Indian infrastructure development and finance company. And even after six months, the situation remains an unanswered paradox.
Autumn 2018 was a brainstorming time for money market experts in India. They sat together in boardrooms to decide the destiny of distressed financier IL&FS and the revival planning began. The challenge was as threatening as the Lehman Brothers crisis when the US Treasury stepped in to rescue America’s mortgage lending market in the autumn of 2008.
Although the government did not assure any bailout measure, it replaced the management of IL&FS with a new board in October 2018 and The Mumbai bench of National Company Law Tribunal (NCLT) upheld government’s decision to banish the existing board and to appoint the managing director of Kotak Mahindra Bank, Uday Kotak as the non-executive chairman of the troubled infrastructure development and finance company.
IL&FS has an aggregate debt pile of around 94,300 crore; out of which the company owes approximately 57,000 crore to banks only, most of which are public sector banks. On the other hand, out of the 18,800 crore loans advanced by IL&FS, 90% have become non-performing asset and the management was successful in recovering only 10% of the doubtful exposure. Now, even six months later, the IL&FS dispute remains an unresolved puzzle and due to an unhealthy match of assetliability, the consolidated debt-equity ratio has become 10:1. Notwithstanding IL&FS reporting a loss of 1,887 crore in FY18 from a profit of 142 crore in FY17, the salary of then chairman Ravi Parthasarathy was raised from 10.8 crore to 20.5 crore, boosting him to the 47th rank on Fortune India’s list of 50 highest paid executives. This highlights the deep incompetence of the previous management.
Dry days for banks
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