Skip to main content

Crisis in IL&FS

IL&FS : Reasons and next road-map



Current update:-

1) The Enforcement Directorate (ED) has arrested the former Joint Managing Director of IL&FS financial services Arun K Saha and Managing Director of IL&FS transportation Network, its first arrest in the IL&FS case.
2)The investigation by the Serious Fraud Investigation Office (SFIO) into the affairs of IL&FS Financial Services (IFIN), which is the basis on which the ministry of corporate affairs has filed a chargesheet in a Mumbai court against the company management, found that BSR & Associates, an affiliate of KPMG, which was IFIN’s auditor, had on May 2018 raised queries about at least 17 of the company’s loan facilities being used for evergreening but ultimately never highlighted it in their report.
As is known, the MCA has also moved the Mumbai bench of the National Company Law Tribunal seeking a five-year ban on BSR & Associates and Deloitte Haskin & Sells for failing to do their statutory duty as auditors.
Company Overview:-Infrastructure Leasing & Financial Services (IL&FS)

IL&FS is an Indian infrastructure development and finance company operates through more than 250 subsidiaries including IL & FS Investment managers, IL & FS financial services and IL & FS Transportation networks India Limited (ITNL).  In April 2019, its newly constituted board informed investors that the company had 302 entities through which it currently operates, through a highly complex network of multiple business verticals.
IL&FS was formed in 1987 as an "RBI registered Core Investment Company" by three financial institutions, namely the Central Bank of India, Housing Development Finance Corporation (HDFC) and Unit Trust of India (UTI), to provide finance and loans for major infrastructure projects. Gradually, as the organization needed better financing, it additionally opened itself to two large international players, namely Mitsubishi (through Orix corporation Japan) and the Abu Dhabi Investment authority. Subsequently, Life Insurance Corporation India, Orix and ADIA became its largest shareholders, a pattern that continues to this day.
IL&FS has several projects in different sectors including Transportation, Area Development, e-Governance, Health Initiatives, Cluster Development, Finance, Power, Ports, Water and Waste Water, Urban Infrastructure, Environment, Education, and Tourism.

As of March 2018, the largest shareholders of IL & FS Investment services were as follows
  • LIC : 25%
  • ORIX Corporation, Japan (a part of Mitsubishi Keiritsu): 23%
  • IL & FS Employees welfare trust : 12
  • Abu Dhabi investment authority : 12%
  • HDFC Ltd : 9
  • Central bank of India : 7%
  • State Bank of India : 6%

Analysis:-

  • Auditors shows carelessness towards audit book.
  • NBFC financing those who not able to get loans from banks blindly
  • This crisis impacting on Infrastructure finance sector, Bank and Mutual Fund sector. 
  • RBI need to act strictly towards supervision of Bank and NBFC.
  • Weak Corporate governance
  • Share holders mostly are institutional players.
  • Debt to Equity ratio are big(18).
  • This huge debt not created in overnight.
  • Questions on Internal auditors, Inspectors and RBI.
  • Used post dated checks then that check was misplaced.
  • Need of separate regulator for NBFC's because of RBI have overburden handling multiple issues like Banks, monetary policy, NBFC.
  • Need to modify Checks and  balance system.
Conclusion:-
Landmark for future issues. Top position must have rotations in these organisations. Need to focus on strict regulatory framework. Uday Kotak committee should come with market determined bail-out package means no need to add money from government.  

Mayur Vasant Jagtap



Comments

Post a Comment

Popular posts from this blog

The Algorithmic Threat: How Social Media Endangers Democracy

  The Algorithmic Threat: How Social Media Endangers Democracy Social media platforms have become an undeniable force in our lives. They connect us with friends and family, inform us about current events, and entertain us. However, beneath the surface of connection lurks a potential threat to democracies: the algorithms that curate our online experience. These algorithms, designed to keep us engaged, can create echo chambers and filter bubbles. They prioritize content that confirms our existing beliefs, regardless of accuracy, and push us further away from opposing viewpoints. This can lead to increased political polarization, where people become entrenched in their own ideologies and distrustful of anything that challenges them. How what's app messages impact on opinion: Echo Chambers and Confirmation Bias:   People often connect with like-minded individuals on WhatsApp. Constant exposure to reinforcing messages can strengthen existing beliefs, making voters less receptive to...
Post a Comment
Read more

Understanding Option Trading: The Statistical and Probabilistic Game

Understanding Option Trading: The Statistical and Probabilistic Game "Trading is a game of probabilities. You don't have to be right every time. You just have to follow your rules."  In the vast arena of financial markets, option trading stands out as a unique and intriguing game—one deeply rooted in the realms of statistics and probability. Unlike traditional stock trading, where investors buy and sell shares of a company, option trading involves contracts granting the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time frame. However, what makes option trading particularly fascinating is its reliance on mathematical principles, where every move is a calculated risk based on statistical analysis and probability assessment. The Basics of Option Trading Before delving into the statistical intricacies, it's crucial to grasp the fundamentals of option trading. Options come in two primary forms: cal...
Post a Comment
Read more

Riding the Volatility Wave: Option Trading

 Riding the Volatility Wave: Option Trading Derivative products, particularly options, offer a unique way to leverage market movements, and volatility plays a key role in this game. By understanding how volatility affects option prices, traders can craft strategies to capitalize on anticipated price swings. Volatility Skew: A Window into Market Sentiment Traditionally, option pricing models assume symmetrical volatility – meaning the cost of calls (bullish options) and puts (bearish options) is similar for the same strike price and expiration. However, the real world rarely reflects this symmetry. This is where the concept of volatility skew comes in. Volatility skew refers to the difference in implied volatilities for calls and puts with the same strike price and expiry. It reveals valuable insights into market sentiment: Positive Skew: Higher call volatility compared to put volatility suggests a market bias towards potential price increases. Traders might use strategies like bul...
Post a Comment
Read more