IL&FS was a major infrastructure financing company in India that defaulted on several loans starting in 2018. It had taken on too much debt to fund projects while revenues from assets would come in over the long term, creating a major asset-liability mismatch. Key individuals like Ravi Parthasarathy and Ramchand Karunakaran are accused of fraudulently sanctioning loans and diverting funds. The defaults impacted investor confidence in the financial sector and caused stock market declines. Going forward, increased regulatory oversight is needed for large NBFCs along with stronger governance and auditing to prevent similar crises.

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IL&FS : Too Big to Fail?
Group 5
For the coursework of
Managerial Ethics
Group Members
Akshita Singh
Disha Jadye
Justin R George
Nihit Nigam
Prashant
Sakshi Agarwal
Shubhangi Agarwal
BJ22006
BJ22016
BJ22017
BJ22026
BJ22032
BJ22039
BJ22043

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Incorporation
of IL&FS
● Infrastructure Leasing & Financial Services (IL&FS), a NBFC, was founded in 1987 and
is considered to be the brainchild of late MJ Pherwani
● IL&FS was formed by three financial institutions, Central Bank of India, Housing
Development Finance Corporation (HDFC) and Unit Trust of India (UTI), to provide
loans for major infrastructure projects.
● After few years two big international institutions, namely Mitsubishi (through Orix
corporation Japan) and the Abu Dhabi Investment authority bought the shares of
IL&FS.
● Subsequently, Life Insurance Corporation India, Orix and ADIA became its largest
shareholders, a pattern that continues to this day.

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Incorporation
of IL&FS
● IL&FS has several projects in different sectors including Transportation, Area
Development, e-Governance, Health Initiatives, Cluster Development, Finance, Power,
Ports, Waters and Waste Water, Urban Infrastructure, Environment, Education and
Tourism.
● Some of the projects it has helped develop are 9-km Chennai-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)
● The subsidiaries of IL&FS include transportation network IL&FS Transportation
Networks Ltd (ITNL), engineering and procurement company IL&FS Engineering and
Construction Co Ltd and financier IL&FS Financial Services Ltd.

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Journey
till now
4
IL&FS is set up as an
"RBI registered core
company" backed by
three financial
intitutions, namely,
Central Bank of India,
HDFC and Unit Trust of
India with the aim of
providing finance and
loans for major
infrastructure projects
A Joint Venture with Sri
Shankaranarayana
Construction Company
and Trafalgar
House Construction UK
was entered into by IL&FS,
and this JV got awarded
the work of Muran Dam
and tunnel of UIHP, Orissa
The company obtained
a Letter of Intent to set
up a 330MW power
plant at Peddapuram,
East Godavari
District and a special
purpose vehicle,
Gautami Power
Limited,
was incorporated to
execute this project.
IL&FS enters into a
new Joint
Venture with IJM
Corporation,
Malaysia, to build
Mumbai-Pune
expressway and
Chennai Bypass.
1987
1994
1996
1998

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Journey
till now
5
IL&FS enters into a new
Joint Venture with Sri
Shankaranarayana
Construction company,
Bangalore, the projects
of Kalpong Hydro
Electric Power Plant,
Andaman & Nicobar
Islands, and Larji Hydro
Electric Power Plants
are awarded to this
Joint Venture
Awarded the upgradation
of the road project
from Kalmala Junction to
Sindhnur in a JV with NCC.
Awarded the contract for
civil and hydro-
mechanical works for
Head Race Tunnel and
associated works in
Himachal Pradesh and
entered into a joint
venture, HIMACHAL JV,
The Company entered
into a JV with NCC
which was awarded the
Singapore Class
Township at Pocharam
from CESMA,
Singapore. The
Company was awarded
an ISO 900 ISO 9001-
2000 certification and
received an award
for the Fastest Growing
Construction Company.
IL&FS has
investments in
it's own subsidaries,
as well as in the
equity market.
These investments
amounted to nearly
Rs. 10,000 Crores.
1999
2002
2003
2018

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Current
Shareholders
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25.30%
23%
12.50%
12%
9%
7.60%
6.40%
Staff

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All stalwarts in IL&FS Board
RC Bhargava
Arun Saha
Ramchand Karunakaran
Ravi Parthasarathy
Hari Sankaran
Ramesh Bawa
Former IAS officer,
Board of Director:
Maruti Suzuki, Grasim,
Independent director- IL&FS
CEO, IL&FS,
promoted to
Chairman in 2006
MD and CEO, IL&FS
Investsmart Limited
MD at IL&FS
Transportation
Networks Limited
JT MD & CEO
IL&FS Ltd
Managing
Director, IL&FS
Transportation
Networks Ltd

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Then something
happened..!

9. SLIDESMANIA.COM
Then something
happened..!

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How it unfolded?
10
28 August
2018
21 July
2018
Early
September
12-13 September
2018
Ravi Parthasarathy,
Founder and
Chairman stepped
down citing health
reasons. The MD of
LIC, a major
promoter of IL&FS,
stepped in as Non-
Executive Chairman
IL&FS Financial Services,
the financial arm,
defaulted on repayment of
a couple hundred crore to
it commercial-paper
investor. The repayment
occurred 2 days later.
IL&FS defaulted on a
term loan worth Rs.
1000 Crores. Also one
of it’s subsidiaries
defaulted on dues owed
to SIDBI worth Rs. 500
crores
August End
The conglomerate’s
many long- and short-
term borrowing
programs valued at Rs.
12,000 crores were
downgraded to ‘default’
and ‘junk’ grades by
ICRA, CARE and
Brickwork Ratings.
Again, short-term loan
defaults occurred valued at
Rs. 220.46 crores. IL&FS,
in a letter to employees
informed Rs. 16,00 crores
stuck in claims and
termination payments with
concession authorities.
They are configuring to
raise Rs. 45,000 crores
15 September
2018
S B Mathur, former Chairman of
LIC (promoter IL&FS) takes
over as Chairman & conveys the
plan to monetise assets to pare its
debt by up to Rs. 30,000 crores in
the span on next 18 months and
refers to 25 projects for this
18 September
2018
Market Regulator,
SEBI announced
that they will be
investigating the
matter regarding
ratings agencies and
the potential impact
on mutual funds.

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24 September
2018
21 September
2018
24 April
2019
Following NCLT
judgement, government
assumes control. A new
board formed under the
leadership of Uday
Kotak and 5 new board
members.
At AGM, IL&FS
announced they would
raise Rs. 4,500 crores
via a rights issue and
will increase the
borrowing limit to Rs.
35,000 crores from Rs.
25,000 crores
Other commercial banks
also asked to reveal the
outstanding’s and NPAs
of IL&1FS
8 May
2019
The decision of 24th
April 2019 is retracted
15 July
2019
Resignation of all Auditors
Fearing a debt market
crisis post IL&FS
defaults, DSP Mutual
Fund sold DHFL
commercial papers
causing a contagion
effect in equity
market, leading to
crash of 1,500 points.
Again IL&FS defaults
resulting in losses in
access to fund raising
via commercial paper
for 6 months from
repayment date to this
obligation.
27 September
2018
1 October
2018
How it unfolded?

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How did it
impact the
Economy?
● IL&FS was unable to repay its investors back their money with interest,
it started to default.
● It started facing trouble paying back loans and inter-corporate deposits
to banks and lenders. And this had a huge impact on the overall sector
and others NBFCs as well.
● The share market witnessed a huge fall, creating a sense of fear and
hopelessness amongst investors.
● The mutual funds tried to pull back the money they had invested in it.
● The cash liquidity crisis got transferred to the banks.
● Many pension funds(NPS) and EPF had exposure to the defaults
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How did it
impact the
Economy?
● 10 lakh crore of investors' wealth was eroded due to share market crash
● 60% fall in the share price of DHFL due to loss in confidence in NBFCs
● L&T and Bajaj Finance shares fell by 14% to 16%
● Trust of credit rating ecosystem (ICRA and CARE) eroded
● Mutual funds had an exposure of Rs 30,000 and investors started
liquidating their investments
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Protagonist Of
The Crime

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Ravi Parthasarathy
 Served as the president and CEO of IL&FS group since 1989
 Became the chairman of the board of directors of IL&FS group in
2004
 He has been controlling the arm and mind of the IL&FS group
 Mentioned as prime accused in the scam ,used IL&FS as his fiefdom
 Created "Employee Welfare Trust" to enrich himself and other
directors . The trust owned 12% of the IL&FS
 Modus Operandi : Indiscriminate sanctioning of loans, diverting of
funds, flouting of RBI norms, fraudulent transactions to certain
accounts, showing inflated numbers of subsidiaries, circuitous
transactions increasing debt burden across the IL&FS Group and
concentration of power in the hands of few indiscriminate.
 Camouflaged its financial statements by hiding severe mismatch
between its cash flows and payment obligations
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Ramchand Karunakaran
 Former Managing Director of IL&FS
 Prime accused in misappropriation of funds for Gurgaon rapid
metro project implemented by IL&FS Rail Ltd.
 Forged and bagged bogus contract orders
 Showed inflated expenses and lower profits in their books to siphon
off money.
 Made payments to several companies without actually doing any
work to get contract orders.
 Transferred money through shell companies to the contractors.
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Where did
we fail?
● There was a serious asset-
liability mismatch as the outfl
ow of liabilities became more t
han the inflow of assets.
● The company accumulated
too much debt to be paid
back in the short-term while
revenues from its assets are
forthcoming in the longer term
● IL&FS defaulted on a few pa
yments and failed to service it
s commercial papers (CP) on
the due date signalling that th
e company ran out of cash or
it was facing a liquidity crunch
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● The holdup of infrastructure
projects in the existing
market and the conflict
over contracts locking
about INR 90 billion of
payments due from the
Indian government further
aggravated conditions
● Even as new infrastructure
projects dried up, IL&FS'
running construction
projects faced cost
overruns amid delays in
land acquisition and
approvals
● 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
Debt Delays Fraud

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Unethical
Aspects
Lack of honesty and
integrity
Ø Round tripping of loan -
INR 2270 crores were rou
nd tripped from IL&FS to
certain companies
and back to IL&FS group
companies
Ø Tenure mismatch –
INR 541 crores
were given for short-
term but were used for
long term
Ø Lending at Loss –
INR 24000 crores were
lent at loss
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Meta Ethics Failure
 Deontology failure –
One's own benefits
were maximized at
the expense of
general wellbeing
 Utilitarianism failure
– Considering the
cascading effect on
the economy, this act
won't result in the net
happiness
of greatest number
Role of Biases
 Motivated Blindness
I. Auditing firm, Deloitte
never found any
fraudulent activities in
the group.
II. Loan to defaulters
 Outcome Bias - Round
tripping of loan

19. SLIDESMANIA.COM
Unethical
Aspects
19
Prevalence of Materialist Culture
I. Over invoicing of project and
difference being routed back to
related entities of some of members
of top management team
II. Overstatement of profits by non-
provisioning of loans, accounting of
fake expense
Tendency for Self Gratification
I. Diversion of borrowed funds to
related entities of some of members
of top management team
II. Imprudent lending to parties who
were not credit worth for ulterior
motives
Collapse of Virtue Ethics
 Prudence
I. As per R C Bhargava, former
independent director, said that all
marquee stakeholders “were all aware
of the situations”.
II. Little efforts were made to curb the
foreseen crisis.
 Justice
I. The unprecedented number of
subsidiaries and group companies,
(346) were used to route transactions
and weren’t disclosed as related parties
II. Non-disclosure of subsidiaries,
associates, joint ventures

20. SLIDESMANIA.COM
Road Ahead
● As it is rightly said
“A stitch in time
saves nine”. It is
important that
the government
takes corrective
action before it is
too late to handle
similar incidents.
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● Self governance
should be
removed. Risk
assessment at
regular intervals.
A whistle-
blower strategy
should be
adopted.
● RBI should take
the initiative
to constantly moni
tor such types
of companies. RBI
should have the
right to appoint
auditors and
auditing must be
done regularly and
efficiently.

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Road Ahead
● Board of directors
should be held
accountable for
such major
defaults and
should be brought
under regular
audit mechanism.
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● Simplifying the
complex
structure of
IL&FS such as
reducing the
number of
subsidiaries.
● The government
can look at the
disinvestment
of deteriorating
assets rather
than bailing
them out from
the taxpayers
money.

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An attempt
to
replicate
what
could
have
happened!
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Thank you!
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