Infrastructure Leasing & Financial Services (IL&FS) is a non-banking financial company (NBFC), or 'shadow bank'. Established over 30 years ago, the conglomerate funds infrastructure projects across India. Some of the projects it has helped develop are 9-km Chenani-Nashri tunnel (India’s longest road tunnel), Delhi-Noida Toll Bridge, Ranchi-Patratu Dam Road, Baleshwar-Kharagpur Expressway, Tripura Power Project, and Gujarat International Finance Tech-City (GIFT).
Among IL&FS shareholders are LIC, SBI, Japan's Orix Corporation, HDFC and CBI. The subsidiaries of IL&FS include transportation network subsidiary IL&FS Transportation Networks Ltd (ITNL), engineering and procurement company IL&FS Engineering and Construction Co Ltd and financier IL&FS Financial Services Ltd.
IL&FS crisis: What went wrong for the shadow banker
IL&FS Financial Services fell short of cash
and defaulted on several of its obligations. Even as new infrastructure projects dried up, IL&FS' running construction projects faced cost overruns amid delays in land acquisition and approvals. It defaulted on repayment
of bank loans (including interest), term and short-term deposits and also failed to meet commercial paper redemption obligations. It reported that it had received notices for delays and defaults in servicing some of the inter-corporate deposits accepted by it. Following the defaults, rating agency ICRA downgraded the ratings
of its short-term and long-term borrowing programmes. The defaults also jeopardised hundreds of investors, banks and mutual funds associated with IL&FS, and sparked panic among equity investors, even as several non-banking financial companies faced turmoil amid a default scare.
The IL&FS group operates over a hundred subsidiaries and is sitting on a debt of Rs 94,000 crore.
IL&FS's new board
In October 2018, the government constituted a new board
as the old one was deemed to have failed to discharge its duties. Kotak Mahindra Bank Executive Vice-Chairman and Managing Director Uday Kotak, Tech Mahindra Vice-Chairman, Managing Director and CEO Vineet Nayyar, former Sebi chief G N Bajpai, former ICICI Bank chairman G C Chaturvedi, former IAS officers Malini Shankar and Nand Kishore were made members of the board. In the first few weeks of taking over, the board appointed its nominees on key subsidiaries, initiated austerity measures
, began a full audit of standalone and consolidated accounts, formed a core operating committee
under Nayyar and started to work towards a resolution plan.
The board, thereafter, appointed Arpwood Capital and J M Financial
as financial as transaction advisors. It also roped in Alvarez & Marsal to maintain strict liquidity controls, manage stakeholders and help develop a resolution plan.
Investigation in the IL&FS case
On April 2, 2019, former vice-chairman of IL&FS, Hari Sankaran, was arrested
by SFIO in Mumbai for granting loans to entities that were not creditworthy and thereby causing loss to the company and its creditors.
The initial SFIO probe also revealed that there were major lapses in Deloitte's audit of the IL&FS. SFIO investigation found it guilty of painting a rosy picture of IFIN despite being aware of the poor financial health of the company, triggering the ministry to seek a ban on the auditors.
On August 16, 2019, the Enforcement Directorate (ED) filed its first chargesheet in the so-called IL&FS money laundering case.
The prosecution complaint was filed in a special court of the Prevention of Money Laundering Act (PMLA), charging former senior management personnel of IL&FS — Ravi Parthasarathy, Ramesh Bawa, Hari Sankaran, Arun Saha, and Ramchand Karunakaran — along with Aircel founder C Sivasankaran.
The ED also made provisional attachment of bank accounts and immovable property to the tune of Rs 570 crore held by these people. The chargesheet pointed out that the senior management had falsified the accounts and indulged in circuitous transactions
. This was done ostensibly to maintain the credentials of IFIN, in order to continue receiving high remuneration and to artificially boost the balance sheet of IL&FS group. However, these activities led to further losses.
MNS chief Raj Thackeray questioned by ED
Maharashtra Navnirman Sena (MNS) chief Raj Thackeray was questioned by ED
in connection with the IL&FS crisis on August 22, 2019. Kohinoor CTNL was probed
because it received loan and equity investments adding up to Rs 860 crore from IL&FS. It was set up by Unmesh Joshi, son of former Maharashtra chief minister Manohar Joshi, Thackeray and builder Ranjan Shirodkar in 2005. ED sources said Kohinoor CTNL allegedly acquired a loan without adequate security and also defaulted on repayments.