IL&FS crisis explained


hello everyone in this video we are
going to talk about IL & FS crisis now first thing first what is IL and FS it
is infrastructure leasing and financial services
it is a private limited company under the Government of India it started its
operation in 1987 the headquarter is in Mumbai in 1987 three financial
institutions namely Central Bank of India HDFC and UTI formed IL&FS to provide finance and loans for the major infrastructure projects it is
a shadow bank as it does not take deposits hedge funds and NBFC and
investment banks are the examples of shadow bank. Since they are shadow bank
they largely escape regulatory oversight now who are the Major stakeholders in IL
and FS. LIC is the biggest shareholder it holds 25% so the share. ORYX
corporation which is a Japanese company holds 23 persons here while Abu Dhabi
Investment Authority holds 12 percent of the sales HDFC holds 9%, Central Bank
of India holds 7 percent while the State Bank of India holds 6 percent of the
shares before talking about the payment default
issue of IL&FS let’s talk about the modus operandi of a infrastructure
investment company such companies normally sources funds by issuing a debt
instrument which is a paper or an electronic obligation that enables the
issuing party to raise funds commercial papers are widely used debt instruments
the il and FS Group defaulted on commercial papers
commercial papers are usually unsecured loans because they are not backed by any
form of collateral il NFS defaulted on payments to the lenders and this has
triggered a panic in the markets over the past one month il and FS has
defaulted on various debt obligations and its total liabilities are 91,000 crore rupees on September 15 the company reported that it had
received notice for delays and defaults subsequently the rating agency ICRA
has downgraded the ratings of its short-term and long-term borrowing
programs now what are the reasons behind this
crisis nearly 60,000 crore of the debt of IL and FS is at project
level including road power and water projects a major reason behind this is
the complications in the land acquisition another issue is that delay
in the environment clearances which subsequently delays the completion of
entire project since the project is delayed this leads to cost overrun apart
from that due to lack of clearances at the time there are various projects
which are incomplete another issue is poor regulatory
oversight since it is a shadow bank apart from that there is a asset liability
mismatch and the management board did not pay any heed to it since the public sector financial
institutions are involved and the crisis is of large scale it may have long-term
ramifications for the market many corporates mutual fund and insurance
companies have invested in the IL&FS group and there is a fear that in the
wake of default their funds could be locked in infs debt instruments leading to the
liquidity crunch apart from that the investors will shy away to invest into
other such institutions therefore that will increase the cost of their
borrowing now what is the way forward the NCLT
that means national company law tribunal has approved the takeover of il and fs
board by the government nominees saying mismanagement in the crisis-ridden
financier makes it a fit case for that, A new six member board led by mr. Uday
kotek will take charge of the company il and FS is a key player in the
infrastructure therefore it is very important to stabilize the company so
that the projects can run smoothly the restoration of confidence of money debt
and capital markets in the credibility of il&FS group should be the topmost
priority. thank you !! and that’s all for the day. SHARE

Author Since: Mar 11, 2019

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