India seizes control of indebted IL&FS

The government stands fully committed to ensure that needed liquidity is arranged for the IL&FS from the financial system Indian finance ministry

mumbai — India’s government will immediately seize control of a shadow lender whose defaults have caused widespread upheaval at mutual funds, a rebuke that’s only happened to one other firm.

Government officials were granted approval to oust Infrastructure Leasing & Financial Services Ltd’s board and a new six-member board will meet before October 8, the National Company Law Tribunal said on Monday. India’s richest banker Uday Kotak and ICICI Bank chairman G.C. Chaturvedi will be part of the proposed board, which will elect a chairperson themselves. The nation’s corporate affairs ministry has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer Services Ltd in 2009.

The dramatic move, which unfolded within the span of a hectic day in Mumbai, underscores the government’s concern about IL&FS’s defaults spreading to other lenders in the world’s fastest-growing major economy. Considered systemically important, the group has total debt of $12.6 billion, 61 per cent in the form of loans from financial institutions. The ripple effects of its defaults have already seen mutual funds post mark-tomarket losses, a slump in corporate bond issuance and a brief but sharp sell-off in equities.

“The government stands fully committed to ensure that needed liquidity is arranged for the IL&FS from the financial system so that no more defaults take place and the infrastructure projects are implemented smoothly,” the finance ministry said in a statement. “Restoration of confidence” across markets and the financial system in IL&FS group “is of utmost importance for the financial stability of capital and financial markets.”

The newly-constituted IL&FS board must devise a plan for the group and file a response to the National Company Law Tribunal by October 15. The tribunal will next hear the matter on October 31. The other board members named on Monday include former head of the Securities and Exchange Board of India GN Bajpai and retired bureaucrat Vineet Nayyar.