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.

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