IDEN­TI­FY­ING VUL­NER­A­BIL­I­TIES

Mint ST - - FRONT PAGE - Ex­am­in­ing down­graded liq­uid­ity crunch

MINT GRAPHITI

SFIO is if the meth­ods used by agen­cies to rate IL&FS gave in­vestors a false sense of se­cu­rity

The govt ex­pects the SFIO study to help iden­tify chinks in the fi­nan­cial sys­tem

The gov­ern­ment wants NBFCS to grow at a sus­tain­able pace

It was af­ter IL&FS de­faulted on pay­ments that CARE, Icra

their rat­ings for the firm and some of its units to “de­fault” or “junk”, says a cor­po­rate af­fairs min­istry plea in NCLAT

Some NBFCS en­gaged in hous­ing fi­nance are fac­ing a af­ter de­faults by IL&FS

While the like­li­hood of a sale of IL&FS as a group is lim­ited, that of its in­di­vid­ual ver­ti­cals or as­sets is prob­a­ble

In­dia, trig­ger­ing a rat­ings down­grade from Icra and CARE on ITNL’S debt pa­pers. IL&FS group and units sub­se­quently de­faulted on sev­eral other pay­ment obli­ga­tions.

In re­sponse to an emailed query, Icra said it would not be in a po­si­tion to share de­tails of its dis­cus­sion with any reg­u­la­tory au­thor­i­ties as the con­tents of the di­a­logue are con­fi­den­tial. “Be­ing a re­spon­si­ble or­gan­i­sa­tion, we are pro­vid­ing full sup­port to all gov­ern­ment agen­cies in this mat­ter,” the Icra state­ment said. An email sent to CARE Rat­ings re­mained unan­swered at the time of pub­lish­ing.

An ex­ec­u­tive from a rat­ing agency, who spoke on con­di­tion of anonymity, said the

man­date of rat­ing firms was lim­ited and that they could not go be­yond it to per­form the roles of au­di­tors or de­tec­tives.

Srini­vas said a sec­tion of non-bank­ing fi­nan­cial com­pa­nies (NBFCS) en­gaged in hous­ing fi­nance are fac­ing liq­uid­ity con­cerns in the af­ter­math of IL&FS de­faults. NBFCS are lend­ing in­sti­tu­tions that, un­like banks, do not ac­cept de­posits in most cases and are a vi­tal source of funds for many busi­nesses. Srini­vas said the sit­u­a­tion war­ranted short-term and medium-term re­sponses.

“It re­quires an over­all eas­ing (of liq­uid­ity) at the macro level, for which ad­e­quate steps are be­ing taken by the gov­ern­ment and the RBI (Re­serve Bank of In­dia),” he said. “I do not see any cri­sis. It should be duly ad­dressed in the short term. In the medium and long term, we need to look into how en­ti­ties (NBFCS) ex­pand and fi­nance (projects). All en­ti­ties have to fol­low a sus­tain­able busi­ness devel­op­ment model. One should not ex­pand at a pace that is not sus­tain­able.”

The sec­re­tary said the res­o­lu­tion plan for IL&FS would take into ac­count the best in­ter­ests of all stake­hold­ers. On the planned sale of its as­sets to raise funds for a re­vival scheme, Srini­vas said: “In the best-case sce­nario, it could be a sale of IL&FS group en­ter­prise as a go­ing con­cern. But there are se­ri­ous is­sues and the like­li­hood of such an out­come is lim­ited. There are al­ter­na­tive ap­proaches of dis­pos­ing of sep­a­rate ver­ti­cals. The last ap­proach is an as­setlevel sale. What seems more prob­a­ble is a com­bi­na­tion of some of these op­tions.”

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