Infrastructure Leasing & Financial Services (IL&FS)

The Infrastructure Leasing & Financial Services (IL&FS) scam is a significant financial scandal that unfolded in India. IL&FS was a major infrastructure development and finance company that played a pivotal role in financing and executing various infrastructure projects across the country. The scandal surrounding IL&FS became a focal point of financial irregularities and mismanagement in India’s financial sector. Here are the key details about the IL&FS scam:

  1. Background: IL&FS was established in 1987 with the goal of promoting infrastructure development in India. It was involved in a wide range of projects, including roads, ports, energy, and urban infrastructure.
  2. Diverse Shareholding: IL&FS had a complex corporate structure with multiple stakeholders, including various government entities, financial institutions, and private investors. Its diversified shareholding made it a quasi-government institution with a substantial role in India’s infrastructure development.
  3. Financial Mismanagement: Over the years, IL&FS accumulated significant debt due to its involvement in large-scale infrastructure projects. The company began to face financial difficulties, including a liquidity crisis, which raised concerns about its financial health.
  4. Credit Rating Downgrades: In 2018, IL&FS started experiencing credit rating downgrades, which further exacerbated its financial troubles. The downgrades triggered concerns among investors and lenders about the sustainability of the company’s debt obligations.
  5. Defaults and Crisis: IL&FS began defaulting on its debt obligations, including payments to bondholders, banks, and other creditors. These defaults sent shockwaves through the Indian financial system, as IL&FS had borrowed extensively from various financial institutions.
  6. Government Intervention: In September 2018, the Indian government took control of IL&FS and appointed a new board of directors to address the crisis. This marked one of the first instances of the Indian government’s intervention in the management of a private sector company due to financial distress.
  7. Investigation and Legal Proceedings: Various investigative agencies, including the Serious Fraud Investigation Office (SFIO), initiated inquiries into IL&FS’s operations and financial irregularities. Several individuals, including former executives of the company, were arrested in connection with the case.
  8. Resolution and Restructuring: Efforts were made to resolve the crisis, including selling assets and restructuring the company’s debt. The government sought to find a sustainable solution to ensure that infrastructure projects under IL&FS continued smoothly.

The IL&FS scam highlighted issues related to corporate governance, financial transparency, and the need for better oversight of India’s financial institutions and infrastructure development companies. It also underscored the interconnectedness of India’s financial system and the potential systemic risks posed by the default of a major financial institution. The case remains a significant milestone in India’s financial regulatory landscape and its efforts to address corporate mismanagement and financial irregularities.