ROAD TO RUIN
The government’s late reaction to the IL&FS crisis is likely to achieve little, but the larger question is whether the company deserves to be saved.
ON October 1, after dithering for weeks following a string of defaults that threatened Indian financial markets and institutions, the Union government announced that it was taking control of the beleaguered Infrastructure Leasing & Financial Services Ltd (IL&FS). Although the Finance Ministry termed the decision of the Ministry of Corporate Affairs to move the National Company Law Tribunal (NCLT), Mumbai, as “firm and decisive”, there is little evidence to suggest that a quick resolution to the crisis is in sight.
Much of this arises from the fact that little is known about the company. It is supposed to be a Systemically Important Non-deposit Accepting Core Investment Company registered with the Reserve Bank of India (RBI), but no one, not even the Finance Ministry, appears to know how many entities constitute this group. More importantly, since it transformed from a financial services company into one that is an active player in the infrastructure business long ago, it has a footprint in the infrastructure business like none other. Thus, its collapse not only has ramifications for financial markets but affects projects across the country. Given the completely opaque nature of the company’s functioning and the complex web of interrelated entities that constitute the group, the general consensus is that sorting out the mess in IL&FS is going to take time, but with the threat of further defaults looming, the question is whether the company has the time it needs. To complicate matters, the government has also asked the Serious Fraud Investigation Office (SFIO) to investigate the companies in the IL&FS group.
The Corporate Affairs Ministry announced that it was superseding the existing management and the NCLT approved its demand for a reconstituted board that included Uday Kotak, managing director (MD) and chief executive officer (CEO) of Kotak Mahindra Bank; Vineet Nayyar, former Indian Administrative Service (IAS) officer and currently executive vice chairman of Tech Mahindra; G.N. Bajpai, former Chairman of the Securities and Exchange Board of India (SEBI); G.C. Chaturvedi, ICICI Bank chairman; Malini Shankar, IAS officer; and Nand Kishore, a retired officer from the Indian Audit and Accounts Service. Vineet Nayyar was appointed vice chairman and MD at the first meeting of the board on October 4. Some of these appointments have already raised questions, especially grave ones about the potential conflict of interest. For instance, questions have been raised about whether the chairmen of the two private banks can steer the company, their competitor in several key areas of project finance, to safety. Proxy advisory firms have also questioned the appointment of Bajpai, alleging that he was being investigated
UDAY KOTAK, non-executive chairman of the new IL&FS board, with Vineet Nayyar, vice chairman, at a media briefing in Mumbai after the board meeting on October 4.