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1. Group No : 3
Subject - 310 (CG) Corporate Governance
Case to be Discuss - IL&FS Financial Crisis
Name of teammates
1. Sanket Nagare
2. Shubham Sonawane
3. Harshal More
4. Ankit Darade
5. Shubham Mahajan

2. INTRODUCTION
Infrastructure Leasing and Financial Services
Date of Incorporation : 03/09/1987

3. Company Information
 IL&FS (Infrastructure leasing & Financial service ltd) is an Indian infrastructure development and financial company.
 It operates through more than 250 subsidiaries including IL&FS investment managers, IL&FS financial services and IL&FS
Transportation networks India Limited(ITNL).
 It was formed in 1987 as an “RBI registered core investment company” by 3 Financial Institutions to provide finance and
loans for major Infrastructure Projects.
 Central Bank of India (CBI)
 Housing Development Finance Corporation (HDFC)
 Life Insurance Corporation of India (LIC)
 The company claimed to have 23 direct subsidiaries, 141 indirect subsidiaries (including special purpose vehicles for
different projects), 6 joint ventures and 4 associate companies, each of them is further subdivided into additional legal
entities, with much cross ownership as well as ownership by investment vehicles of various governments.
 However in the recent interview Uday Kotak stated that the company has as many as 348 subsidiaries.

4. 25
%
25
%
13
%
7%
6.50
%
9%,
14%
,

5. Projects
1) Gujarat International Finance Tech city
(IL&FS), with an initial outlay of Rs 78,000 crores. The city is planned on 886 acres of land with 62 million sq.
ft. of built-up area with 67 per cent commercial (42 million sq. ft), 22 per cent residential (14 million sq. ft)
and 11 per cent social space (6 million sq. ft)
2) Ladakh To Kashmir tunnel
Zojila tunnel, with length 14.15 km, is the first-of-its-kind tunnel project in the Himalayas, given the
challenging geographical conditions. It will be the highest tunnel, built at an altitude of 11,578 ft (around
3,500 metres).
Ministry of Road Transport and Highways, the project construction cost was initially budgeted at Rs 6,575.85
crores. The overall project cost is estimated to be Rs 8,308 crores
3) Building Oil Terminal
IL&FS Engineering Services has succesfully completed a contract from IL&FS Prime Terminals FZC for
construction of Storage Tank Terminal at Fujairah, UAE.
The total project cost is Rs. 444.78 crores (AED 304 million). The project is on Engineering,
Procurement, and Construction (EPC) basis and consists of construction of 15 Nos. of Storage Tanks
having a total storage capacity of 0.85 million tons.
4) India’s Longest and safest road tunnel
Built at a cost of Rs 3,720 crore, the 9 km-long Nashri road tunnel, The state-of-the-art ITCS system,
which is hallmark of selective few countries in the world, will ensure automatic control of tunnel
lighting, ventilation, communication, fire control, vehicle monitoring et al. The tunnel will cut down
the distance by around 30 kilometers and will save the motorists travel time by two hours

6. Scam
 The key reason was the way IL&FS is structured. A debt of 91,000 crore against the equity capital of
9.83 crores.
 The parent would raise debt that would then be infused as equity in each subsidiary. The subsidiary
would then use that equity (which was debt on the parent IL&FS’s books) to raise more debt.
 This created a mismatch in the asset liability part.
 Another reason was the slow rate of approvals and government banks distancing themselves from
long term loans due to increase in NPA.
 This resulted in short term financing being used for long term projects. And IL&FS started facing cash
flow issues and losses due to various projects stuck at different levels. At the same time, short-term
debt and interest had to be paid when it comes due.

7. Sucheta Dalal
Business journalist

8. Early
Septemb
er
August
28,
2018
July
21,
2018

9. September,
13
Septembe
r, 12
August
end

10. September,
21
Septembe
r, 18
Septembe
r, 15

11. October,
01
Septembe
r, 29
Septembe
r, 24

12. July
15,
2019
May
08,
2019
Apri
l
24,
201
9

13. 7 times
defaulted
in
Payment
of
interest
Today’s
Debt Rs.
94,216
cr.
Secured
73,359
Cr
&
Unsecure
d
20,857 Cr
Defaulte
d short
term
loan of
Rs 1,000
Cr
Capital
infusion
of Rs
3000 Cr
Propose
d
Rights
Issued
of Rs
4500
Cr.

14. Unable
to repay
CP
obligation
s
To fulfill
long term
debt
company
started
taking
short
term
debt.
Debt-
Equity
Ratio
16
times
700 Cr
recovery
from
National
Highway
Authority
of India on
the basis
of
executed
projects.
Tamil
nadu
Power
company
filed
litigations
of Rs.
382 Cr
Auditors
in default
BSR
Associate
s &
Deloitte

15. What Company Did?
 IL&FS board did try and take corrective action. There were plans to start selling assets.
Term sheets were prepared, bankers engaged and proposals invited. However, the sales
couldn’t be completed in time to avert a default.
 In Sept, the company defaulted on 300 crore loan from SIDBI.
 Another plan was to raise ₹4500 crore rights issue as well as ₹3500 crore line of credit
for working capital requirements
 NCLT was approached under section 230 of the Companies Act to establish a structure to
the asset sales

16. Reason
 IL&FS hadn’t disclosed bad loans on its books for years despite a big part of its loan book
having soured.
 Poor fund management and controls :- IL&FS lent funds to insolvent entities and
troubled projects.
 “Deficient audit” by the auditors (Deloitte Haskins & Sell) and KPMG’s audit partner BSR
& Co. They failed to issue warnings.
 RBI or any other entity did not strictly regulated NBFCs. The IL&FS crisis has raised
concerns over the management of such entities

17. Steptaken by RBI
 RBI is constantly monitoring NBFC’s to prevent systemic shocks.
 The better-performing NBFCs are able to access funds from the market at pre IL&FS
rates.
 The cost of borrowing for good NBFCs is 50-60 basis points lower than the not so
good.
 RBI is monitoring top 50 NBFCs more closely. These 50 NBFCs represent 75% of the
sector

18. Committee formedby Government
The Government in Satyam Styled fashion have Superseded the Board.
The new members are
 Mr. Uday Kotak, MD and CEO of Kotak Mahindra Bank
 Mr. Ghyanendra Nath Bajpai, Former Chairman LIC, SEBI
 Ms. Malini Shankar, IAS
 Mr. Vineet Nayar, Executive Vice Chairman of Tech Mahindra
 Mr. Girish Chandra Chaturvedi, Non Executive Chairman of ICICI Bank
 Mr. Nand Kishore, Former Deputy Comptroller and Auditor General

19. Analysis & Conclusion
 Indubitably, the role played by the NBFCs is integral to the functioning of the economy and any damage to them
can cause irreparable damage to the service and banking sector.
 The NBFCs showed tremendous growth before the IL&FS crisis. According to the RBI data, the total assets of the
NBFCs grew at a compounded annual growth rate of 18.6 percent during the period between March 31, 2009
and March 31 2019 and as on March 31 2020 the asset size of the NBFCs stood at 51.47 lakh cr.,
 Further they were recorded as the largest net borrowers of funds from the financial system which includes
insurance companies, Asset Management Companies-Mutual Funds and the Scheduled Commercial Banks.
 With this size of borrowing from the financial sector the failure to discharge debt-obligation on the part of NBFCs
have the potential to bring the financial sector to its collapse.
 In Conclusion, the IL&FS crisis made some eye opening revelations about the functioning of the NBFCs and how
they have become an indispensable and significant part of the economy.
 This crisis changed the vision of the regulators which resulted in series of amendments and reforms and the
most significant and much awaited change was the inclusion of NBFCs to the IBC.
 NBFCs are a crucial part of the banking sector, the Indian economy needs them and it is quintessential that they
ought to be protected to in order to keep a vertically upward trajectory of the economy.
 However, it is too early to make any comment on this inclusion and only time could tell in the coming years if
they added to the collapse of the NBFCs or came as an escape to their miseries.

20. Self Governance should be removed
Restructuring Strategy
Liquidate the non performing subsidies
Resolve land acquisition issues with the help of
Govt
Similar type of company should monitor by RBI

21. Risk Assessment at regular Interval
Corporate Governance
Whistle Blowing strategy should
adopt RBI must have right to
appoint Auditors
Concurrent Audit’s must be done effectively &
efficiently