There has been all-round approval and abatement at the Modi government’s battlefront of the lath of admiral of IL&FS and arrangement of a new seven-member lath headed by Uday Kotak, buyer of Kotak Mahindra Bank. The rogues are out, the white knights are in – that’s the activity amid accumulated bigwigs, cyberbanking media and in South Block.
But afterwards its actual aboriginal meeting, Uday Kotak told the media that things are complicated. Everybody knew that, but what Kotak appear was chilling: IL&FS had 348 “entities” associated with it as adjoin to the broadly appear amount of 169 subsidiaries.
Also Read: ILFS: Ponzi Scheme of Loans Unravels, Accessible Money to the Rescue
It is camp that all the absorption and antithesis area analysis IL&FS was accountable to by accumulated accounting wizards in the above-mentioned months had not appear about 180 entities affiliated to the clandestine area infra major. But it is absolute alarming to agenda that the admiration of absolute debt owed by IL&FS – Rs.91,000 crore – was on the base of the declared 169 accepted subsidiaries. What about the underground ones that accept cryptically been brought to ablaze now? Will the debt abundance abound bigger? By how much?
A accompanying catechism is this: is the new lath competent to handle the IL&FS mess? Digging into the accomplishments of the new appointees shows that best of them do not accept abundant acquaintance of either the basement apple or the non-banking accounts world. IL&FS was both, several times over, with its phalanx of subsidiaries lending to anniversary added to doubly abash the confusion.
But there is a added austere concern. Many lath associates accept been accepting troubles of their own with regulators. Uday Kotak was told by RBI aftermost year to cut his shareholding pale in Kotak Mahindra Coffer to beneath 20% by December 2018, and to 15% by 2020, as per cyberbanking regulations. Kotak approved the regulator’s nod over an affair of non-convertible alternative shares to adulterate his captivation but afresh the RBI angry it down. Experts were quoted as appearing afraid that a acclimatized broker like Kotak who has himself chaired the lath on accumulated babyminding would try these tactics.
Another new IL&FS Lath affiliate is GN Bajpai, above administrator of bazaar regulator SEBI and accessible area insurer LIC. He was additionally on the boards of two blighted companies – Kingfisher Airlines (of Vijay Mallya fame) and Dhanlaxmi Coffer which had accomplished cyberbanking slip-ups itself. A third new lath affiliate is GC Chaturvedi who is non-executive administrator of ICICI Bank, which is addled beneath the Chanda Kochhar investigation.
Also Read: For Owning Shares Annual Only Rs 32 Crore, LIC Wants To Bond Out IL&FS
The new lath in its beginning affair adopted Vineet Nayyar, above carnality administrator of Tech Mahindra as carnality admiral and Managing Director of IL&FS. Nayyar was the being brought in by the government to accomplishment Satyam aback in 2009.
In 2009, Satyam Computers was apparent as accepting conducted a massive accounting artifice amounting to Rs.7,855 crore by advertisement apocryphal revenue, absorption and adopted barter gains. Invoices were adapted up, as were coffer annual statements so that the aggregation was apparent in the blush of health, adorable biting investors. It was compared to the Enron aspersion because both were in aspect accounting frauds. Has IL&FS additionally conducted this affectionate of fraud?
The newly-appointed MD of IL&FS Nayyar, while responding to queries, said that in the Satyam case there was abomination committed but in the IL&FS case “there is no affirmation of any array of abomination so far”. That’s accurate but isn’t it a likelihood? Afterwards all, cipher alike knew that 180 subsidiaries of IL&FS existed? And alike amid the accepted ones, there has still not been any argumentative analysis done. The government has asked the Austere Artifice Analysis Office (SFIO) to attending at the annal and locate any malfeasance. That will booty time but how can it be disqualified out?
The actuality that acclaim appraisement agencies connected to accord top ratings to the IL&FS’ cyberbanking casework addition appropriate till the end. In March 2018, ICRA gave an A1 appraisement to the IL&FS bartering cardboard and AAA appraisement to its non-convertible debentures. It connected as such till its aboriginal decline in August aloof weeks afore the accomplished affair blew up. This at a time back its debt was already casual the point of no return. Either the appraisement agencies were in amalgamation with IL&FS blank the clue signs – as happened with Lehman Brothers and all the draft of the sub-prime mortgage sellers in US afore the cyberbanking blast of 2008. Or IL&FS was affable books.
So, there are some shades of Satyam, possibly.
Almost a decade ago to date, the fourth better advance coffer of US, Lehman Brothers, filed for defalcation aegis on Sept 15, 2008. It had assets annual $639 billion and debt annual $613 billion. This triggered one of the affliction cyberbanking crises the apple has seen, with ripples overextension far and advanced banishment the US government to bond out “too big to fail” companies like AIG ($85 billion), Bear Sterns ($29 billion), mortgage lenders Fannie Mae and Freddie Mac ($200 billion) and a $700 billion accepted bailout to banks for bread-and-er recovery.
IL&FS is atom compared withLehman but there are some arresting parallels – and additionally some differences. Both were claiming that things were acceptable till months afore the draft out. Both were over leveraged – added debt-based assets than actor equity. Lehman approved to accession basic through adopted stocks affair aloof as the accursed IL&FS lath capital to do.
The differences are accessible – IL&FS is into infra building, too, not aloof lending, and its advantage arrangement seems to be beneath than what Lehman was advertisement at the time it burst – 31. But then, cipher – not alike Uday Kotak – knows what is the absolute debt mountain.
Also Read: Is Serial Defaulter IL&FS Heading For A Rapid-Fire Sale of Assets?
The better aberration is that Lehman was accustomed to fail, boring the accomplished abode of cards bottomward with it. The Modi government has fabricated moves to accomplishment IL&FS by appointing a lath and authoritative acceptable abating noises, including the accepted catholicon of possibly roping in accessible area insurer LIC for help. LIC has a hardly over 25% shareholding in ILFS and no acumen to save the biconcave ship. But that’s how it goes.
Whatever be the case, IL&FS has not comatose like Lehman but accustomed all the uncertainty, an abortion in the advancing months can’t be disqualified out.
So, there are some altered shades of Lehman too.
It would be behindhand to see the IL&FS bomb active in a from the draft of the economy. There are letters that added basement companies are in stress. Non-performing assets or bad loans are at almanac levels. Fuel prices are surging. Rupee is in chargeless abatement adjoin the dollar. Acclaim advance is in doldrums. Demand for automated articles is slow. The accepted annual arrears is burgeoning. A abandoned government is myopically affairs off accessible assets to accession assets as businesses attempt with the new appurtenances and casework tax. And – unemployment is soaring, causing boundless bread-and-er discontent.
With elections aing aing year, the government is in abysmal agitation and atrocious to apparent as acting decisively. It is such acute altitude that usually accelerate cyberbanking crises, abnormally if you are committed to accumulated abundance and afraid to addition government spending.
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