Infrastructure Leasing & Financial Services (IL&FS) is an Indian infrastructure development and finance company established in 1987 by *RBI registered core investment companies i.e. Unit Trust of India (UTI), Housing Development Finance Corporation (HDFC) and Central Bank of India. The main purpose of establishing IL&FS was to provide finance and loans to major infrastructure projects. IL&FS is considered as a ‘Shadow Bank’ or a ‘Non-Banking Financial Company’ as this company provided services similar to that of traditional commercial banks.

IndustryInfrastructure Development and Finance Non-Banking Financial Company
Major ShareholdersLife Insurance Corporation of India Orix Corporation, Japan Abu Dhabi Investment Authority IL&FS Employees Welfare Trust Central Bank of India State Bank of India HDFC bank
Financial AssetsRs. 115,000 crore

IL&FS is associated with 256 companies in different forms which include subsidiaries, joint venture deals, associate entities, indirect subsidiaries etc. The company has completed diverse infrastructure projects, including the longest road tunnel in India (9-km Chennai tunnel), Delhi-Noida Toll Bridges, Ranchi-Patratu Road, Baleshwar-Kharagpur Expressway, Tripura Power Plant Project, and Gujarat International Finance Technology City.


The IL&FS crisis started when its business operation started piling up too much debt due to their increasing short term-obligation for operations. As an infrastructure financing company, IL&FS needed short-term needs for operation but returns from its holding asset and business operation were of longer maturity which led to a troubled situation of deferring paybacks to loans and inter-corporate lending. IL&FS financed its long-term projects using short-term borrowings which resulted in its asset-liability mismatch. IL&FS had the high debt to equity ratio of 18.4:1. Along with the repayment defaults, IL&FS had mismanagement issues, poor governance, high leverage, poor returns on investment, asset-liability mismatch which caused the downfall of 32 years old business.

 Two of the subsidiaries of IL&FS reported difficulties for paying off the debts. In overall, IL&FS group i.e. its 24 direct subsidiaries, 135 indirect subsidiaries, 6 joint ventures and 4 associate companies had a combined debt of Rs. 91,000 crore.


  • In March 2018, IL&FS intended to raise $350 million by issuing bonds but due to the demand for a higher yield from investors, IL&FS postponed it.
  • IL&FS group’s transport subsidiary i.e. IL&FS Transport Network (ITNL) delayed repayment of Rs. 450 crore of inter-corporate deposits from Small Industries Development Bank of India (SIBDI).
  • Mr. Ravi Parthasarathy stepped down from the founder and chairman position. Mr. Hemant Bhargava, MD of LIC took charge of IL&FS as non-executive Chairman.
  • IL&FS financial services had an obligation of $500 million as repayment of dues. The financial subsidiary had only$27 million for the repayment and skipped the repayment in August 2018.
  • ICRA and Brickwork, business rating agencies, categorized the both short and long term bonds worth Rs. 12,000 crore to ‘default’ or ‘junk’ grades from AA grades. Also, ICRA removed IL&FS from its watch list
  • Reserve Bank of India (RBI) initiated a special audit to assess the condition of IL&FS and to present remedial action on this matter. RBI also advised all the major shareholders to come forward for rescuing.
  • In September 2018, former LIC chairman Mr. S.B. Mathur took over the chairmanship and decided to liquidate the available assets to pay the debt. For this, Rs. 30,000 crore was expected to repay from 25 selected projects.
  • IL&FS defaulted the repayment and requested National Company Law Tribunal (NCLT) to assist and arrange with shareholders and Board of Directors.
  • IL&FS on 29th September 2018, conducted Annual General Meeting and decided to manage Rs. 4500 crore through right issues. In the AGM, the company decided to appoint Alvarez and Marsal to plan and execute a debt restructuring plan.
  •  In October, NCLT completed the assessment of IL&FS and suggested government to initiate and manage the issue. A new board was formed which comprised Uday Kotak, MD of Kotak Mahindra Bank; Vineet Nayyar, Tech Mahindra head; GN Bajpai, former SEBI Chief; GC Chaturvedi, former ICICI bank chairman; Malini Shankar and Nand Kishore, former IAS officers.


Rating Agencies

The rating agencies rated IL&FS as an AAA rating and this encouraged investment in the company. IL&FS was not reviewed often and suddenly the rating agencies when the crisis started rated and downgraded the instrument and investment as junk. This led to panic among the investors and stakeholders.


The institutional investors and shareholders were less concerned about the IL&FS situation before the crisis started. Such institutions failed to monitor the company and company’s operation completely.

Board of Directors

Most of the senior officers resigned from their roles and responsibilities over the time. A crisis situation arose among senior officers and members. Mismanagement and poor governance resulted in the exposure of an unaudited operation.

Reserve Bank of India

Reserve Bank of India is somewhere responsible for the crisis. Non-banking financial companies comprised an essential position in major economic activity. Downfall of NBFCs included poor governance of market situations and financial companies. RBI as the resort for all such companies, failed to anticipate the crisis before it unfolded.

Government of India

Non-banking financial companies have thin regulatory solidity. There is no certain regulatory institution that fully regulates NBFCs which led to the crisis situation. The Indian government (Finance Ministry) neglected NBFCs despite market exposure.


  • IL&FS were in regular need of finance therefore they borrowed from everywhere at a higher interest rate.
  • Most of the long-term project were financed using short-term funds i.e. IL&FS had the situation where it required the regular payment of short-term obligation with all the projects still in “Work in Progress”.  This led IL & FS to default the repayment as there was no return from their project investment.
  • It is considered that IL&FS lacked a clear standing and a transparent presentation of its operations and financial positions i.e. no clear distinction between public and private projects, asset and liability mis-match.


  • IL&FS had ethical issues in their management as well as in their operations. Many unviable projects were sanctioned, according to various analyses, to appease different vested parties.


IL&FS crisis made a strong point in the position of NBFCs in the financial system and pointed out the lacking from the regulatory bodies. IL&FS also created a distrust environment in the capital market and impacted the performance of all other listed NBFCs and listed shareholders of those NBFCs. IL&FS’s 91,000 crore default was ‘too big to fail’ crisis as this will lead a series of ripple effect in the Indian Financial system. Therefore, government did all it could do to bail-out IL&FS from this crisis situation.

The Government requested Life Insurance Corporation of India (LIC) and State Bank of India (SBI), an institution supported by the government, to provide necessary liquidity to the company to ensure that the company fulfils its utmost obligation and not collapse.

On 1st October, the government took approval from National Company Law Appellate Tribunal (NCLAT) to take over IL&FS operation. Government after taking over dissolved the then operating Board of directors and appointed a new BOD. A new board comprised Uday Kotak, MD of Kotak Mahindra Bank; Vineet Nayyar, Tech Mahindra head; GN Bajpai, former SEBI Chief; GC Chaturvedi, former ICICI bank chairman; Malini Shankar and Nand Kishore, former IAS officers. On 31st October 2018, the new members presented a Report on Progress and strategies how the board wants to move forward.


There has been no proper stand regarding the regulation of Non-Banking Financial Companies (NBFCs). NBFCs have been under and over regulation over the time. Minimum Net Owned Funds (NOF), a capital adequacy regulation, has been standing a major norm with NBFCs. Along with this, BASEL accord is another norm applicable for NBFCs and RBI is regularly managing the standards, requirements and framework as per the accord whenever it is required.

RBI has regulated 368 licenses in the first-half of 2018 reasoning the economic viability and failure of NBFCs to meet Rs. 2 crore NOF requirements. Also, RBI regularly managed the liquidity of the NBFCs to prevent the bail-out situation. Similarly, the single borrower limit for non-financing infrastructure has been increased from 10% to 15% of capital funds till 31st December 2018.

Along with all these regulatory frameworks, RBI has also focused on Asset Liability Management (ALM) framework for NBFCs after IL&FS crisis. For this, RBI has been addressing the liquidity issues faced by IL&FS by relaxing bank norms and providing liquidity support.


The IL & FS crisis led to a ripple impact on the operation of all the related and non-related financial operations. The first question raised by the IL&FS crisis was on the credibility of the rating agencies. An ‘AAA’ rated company was downgraded to junk status within a span of a year. Such ratings are questioned on the working module and practice adapted by the rating agencies. The credibility of rating agencies was objected to due to their inability or irresponsive operation.

The IL & FS crisis hit the capital market real hot. Most of the other NBFCs and their stock performance saw a downfall. As a result of the IL & FS crisis, the NIFTY witnessed a downfall by 600 points reflecting the co-dependency of NBFCs and Banking Institutions. People lost confidence in the operation and competencies of NBFCs, resulting in a similar trend observed across other NBFCs.

The IL & FS crisis impacted the investors and stakeholders as well as this crisis also hit hard on the investment done by the IL&FS groups. Most investors of IL&FS group were impacted due to the crisis and they had to face liquidity problems even in their operations. The risk of NPA raised for such institutional investors. Many banks, insurance companies and other multinational companies had stakes in the IL&FS group and when IL&FS was facing liquidity risk and was on the verge of bankruptcy, all the institutional investors were also bearing the risk altogether. The insurance regulatory body i.e. IRDA also made tougher regulation to safeguard its investment. Same was the reform by pension fund regulator i.e. PFRDA.

NBFCs hold around 17% of all the mutual fund debts i.e. business of 23,000 crore. When the IL & FS crisis hit the market, all these investments were at high risk. Reports suggest Mutual Funds considered 97% of NBFC commercial paper and 78% NCDs of the available schemes between March 2017 and October 2018. Due to the crisis, the ‘safe-to-be’ mutual funds were considered unsafe and the already active scheme provided negative returns. This led to a huge loss in the Mutual Funds business. The well doing funds were accepting mark-to-market losses and accepting what they are offered.


The new Board of Directors appointed after the interference from the government analysed the crisis situation and identified the short-comings in governance. The members identified all the projects that were viable but approved beyond admissible limits. Some decisions were taken to better the situation:

  •  The board cancelled hiring of 55 former employees (post their superannuation) as consultant for the company.
  • The benefits after the retirements to previous directors and senior management were withdrawn.
  •  Property leased to selected employees and their employees as guest houses were cancelled.

Along with this, there are some other changes in strategies that have been made to excel the operation. Some of such decisions are:

  • The new-board members reformed the BOD of other associated companies including some members from IL&FS group board.
  • A ‘Core Operating Committee’ was formed to smoothen the day-to-day operation.
  • A dedicated team was formed to look after the cash-flow of the company.
  •  Financial and transaction advisors were appointed to consider and control the financial activities.
  •  Non profitable and non-core businesses were sold-out and cash inflow was used to improve the company’s liquidity condition. Some of such business and projects include; IL&FS Settlement & Transaction Services, IL&FS Investment Managers, IL&FS Securities Services, Thermal Power Projects, Renewable Energy Assets, EPC & OEM business etc.


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