IL&FS: How to steady a sinking ship

The Modi government is not taking any chances with IL&FS. In a dramatic turn of events, the Ministry of Corporate Affairs superseded the companys board, saying that the failed infrastructure financier is a sinking ship.

The government has now installed a six-member board, headed by veteran banker Uday Kotak, to pull IL&FS out of the mess. Justifying the decision to supersede the board, the government told the NCLT that the developments at IL&FS, if not checked, can have a cascading effect on the economy.

The company affairs ministry asserted that the former management team, headed by Ravi Parthasarathy, has lost all credibility, even as it instituted a probe by the Serious Fraud Office into the companys affairs.

Ironically, the decision to supersede the companys management comes just two day after two of the biggest shareholders of IL&FS — LIC and Japans Orix Corporation — agreed to subscribe to the Rs 4,500-crore rights issue in a bid to shore up the financials of the company. The board has also approved plans to sell off specific assets to reduce the overall debt burden by Rs 30,000 crore.

IL&FS has an aggregate debt pile of Rs 91,000 crore which has been downgraded by ratings agencies to junk following repeated defaults. Of this, dues to banks alone add up to Rs 57,000 crore.

On ET NOWs India Development Debate, former regulators and bankers discussed the IL&FS mess and the governments corrective measures. Here are the key takeaways:



It is certainly too late. This board has no answer to all the problems. This will provide leadership change in which people may see the possibility of correcting course. For that, you need a board rightly composed. Satyam had some phenomenal persons. I dont see any equivalent of that. Who are the people to get into micro detailsRs They need to bring few more people on board. Get people willing to get into details.


This is a story of monumental failures at all levels. Its unfortunate we have such repeated failures. We need to reflect without blaming each other. NCLT has permitted to appoint 10 directors, let the beginning be made. Inclusion of expert members is possible. Both the IAS officers have integrity. Ultimately, it is the government which is taking the risk. The issue is which the projects are, what the valuation is and what the loss is.


fit for the role? I dont think this composition gives much reason to address systemic risks. IL&FS is completely different from Satyam. If the pain is borne only be shareholders, mutual fund or corporate debts, there is no reason to bailout. It is a fact these are subject to market risks. The central issue is: Does IL&FS pose a risk to financial stability of the systemRs Each of the board members come with a track record but are they


Its not action that is too late. There is interest in some of the assets. The focus has to be assets. More important than who is not there in the board is the mandate and what is the access they have. Uday is helpful, given his banking background. Nobody is saying it is because of fraud. They were stressed for last couple of years. Because it was rank AAA, the risk is very deep. Government absolutely has to support this.

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