Resolution Plan

1. The NCLAT directed the government appointed board to conclude

resolution of all the entities of IL&FS within 3 months.
2. But, the resolution of IL&FS has been dragging on for about fifteen
months and is likely to stagger further under the leadership of the
Government appointed board chaired by Uday Kotak. Particulary
because the resolution process has been slow, patchy and selective
and there is a problem in distribution of assets.

3. In its latest affidavit filed with National Company Law Appellate

Tribunal (NCLAT), the Ministry of Corporate Affairs (MCA) has
requested for an additional moratorium of 270 days for completing
the resolution of 105 subsidiaries of IL&FS.
4. On October 15, 2018, the NCLAT granted moratorium to all IL&FS
group companies on the request of the new board. Uday Kotak
claimed that the new management will be able to recover only 50%
of the outstanding dues of the IL&FS.

1. The group has proposed the creation of an infrastructure

Investment Trust (InvIT) to house the group’s road assets and
compensate lenders by offering units at zero cost.
2. It has submitted the proposal to the Securities and Exchange
Board of India (SEBI) but experts say approval could take some
time as there are no rules governing the creation of the kind of
InvIT proposed by IL&FS.
3. The InvIT will be created under the company’s subsidiary IL&FS
Transportation Networks, which will own 15% of the units as
sponsor to comply with Sebi rules.
 4. The proposal, if approved, is expected to pare the debt of IL&FS
group by around ₹10,750 crore.

Gravity of the crisis

1. Majority of borrowings from FIs was around 61%. So a crash in the
market because of such a mammoth company will affect the
financial investors adversely.
2. Being a triple A bond rated company, if it is not able to fulfill its debt
obligations, then what would the companies, for example a single A
or double B rating company do.
3. High repayment obligation of around 500 million dollars. The
company borrowed short term debt instruments but invested in
long term projects. So they cannot pay as returns have not yet
come. This was the asset liability mismatch.
4. The projects in progress will be adversely affected as now they have
no funds to carry these on and no one will lend to them.
5. Because of all this, interest rate is continuously rising.

Why is there so much panic? That the Government, RBI, Law tribunal
board all are coming to rescue. This is because many mutual funds have
invested in IL&FS and we have invested in mutual funds, so indirectly our
money is at risk. So people are selling mutual funds to safeguard their
money, and hence their value is going down. Moreover, banks have also
given loans. If this crisis rises there will be a loss to public also. There will
be a fear factor among them due to the liquidity crisis.
Way Forward
First is short term, rest are long term
1. Selling assets (good move) but it will take 18 months to convert into
cash, how to convince investors.
2. Role of CEOs, directors, particularly independent directors have to
be monitored.
3. False credit rating, they should be regulated more strictly.
4. Providing stringent measures to punish all economic offenders.
5. Various experts have criticized that govt. of india uses lic as a
scapegoat to subscribe and invest in the market when there is no
buyer in the market. Like lic has been asked to invest in idbi bank
which majority experts feel is a bad decision. Collects from public in
form insurance premium and invest. What if it goes into
bankruptcy? This point has to be taken into account.

So, in the end, the il & fs episode has spooked the market. The mutual
funds and other financial companies now think twice before lending. This
scam has led to the fall of the entire financial sector. But now the
government and the newly appointed board are trying to take this
company out of this crisis, and this incident has taught a lesson to many
individuals and organizations.