Vastavam web: The Indian government said it was forced to take control of ailing shadow banking firm Infrastructure Leasing & Financial Services (IL&FS) as it feared its collapse would cause “catastrophic” damage to the financial markets and the economy, a court filing shows. In the largest intervention of its kind, India this week replaced the board at IL&FS, a construction and infrastructure firm that had defaulted on a series of repayments to creditors as it struggled under a debt pile of more than $12 billion.
In a 36-page petition filed by India’s Corporate Affairs Ministry at the company law tribunal, the government does not pull its punches, referring to IL&FS as a “titanic ship” and accusing its board of mismanagement. Saving IL&FS was critical as nearly two-thirds of the firm’s accumulated debt of 910 billion rupees ($12.36 billion) was from public sector banks. Moreover, IL&FS accounts for 16 percent of the total exposure of banks to India’s non-banking financial companies (NBFCs), the government said in the petition.
“Any impairment in its ability to finance and support the infrastructure projects would be quite damaging to the overall infrastructure sector, financial markets and the economy,” the government added.