Centre was quick; could it have been faster still?

The government has been more than honest with the NCLT about there being problems at IL&FS and the group needing a fix.

This, indeed, calls for applause.

For seldom does a government go before a tribunal with a candid submission that things have gone out of hand, and that supersession of the board of a private company (IL&FS is a private company although state-owned entities LIC, SBI and Central Bank of India together control about 40 per cent) is the right medicine.

The moot question from economy watchers is whether the government — which anyway knew about the growing mess at IL&FS — was late in stepping in. The answer is an emphatic no, say many experts, although some did lay the blame at the door of the bankers for poor due diligence.

Most of the bankers who sanctioned funds for projects of different IL&FS subsidiaries, it seems, never sought the group’s consolidated financial statements to get the big picture. Nor did they bother about the existence of high leverage at the group level.

The complexity of asset-liability mismatch in IL&FS is huge given that the group has 169 companies in its fold.

Ashok Haldia, former MD & CEO at PTC India Financial Services, told BusinessLine that IL&FS was professionally managed with public institutions like LIC and SBI as key shareholders, and these were, as reports suggest, exploring solutions.

“The RBI was also fully seized of the problem. The government acted sooner as it realised that a resolution was not in the offing from the key stakeholders and that there would be increasing ramifications of the crisis is not handled deftly,” he said when asked if the government had stepped in too late in the day.

Amarjit Chopra, former NACAS Chairman, concurred. The government must have known about IL&FS’ defaults only in the last few months, he said.

Chopra, however, noted that it would now be interesting to see how the government proceeds against all the directors including the nominees of institutions and regulators, if any. “Also, will banks proceed against their officials for poor appraisal of the projects, particularly in cases of substantial cost overruns? It is essential to ascertain how the leveraging on a consolidated basis could be allowed to be so huge,” he said. How the government and regulators proceed against rating agencies will also be keenly watched.

Now that the NCLT has held that IL&FS was run in a manner prejudicial to public interest, it would be interesting to see if the CA Institute and other agencies proceed against the company’s auditors. So far there is nothing in public domain to show the auditors had red-flagged issues at IL&FS.

New board choice

While the government may have moved swiftly in seeking NCLT intervention for board supersession, what has raised eyebrows is the choice of the new board, which is largely populated with retired bureaucrats.

Some critics even feel a few of the new directors have been given sinecure rehabilitative postings. How they rescue the company and take it forward will alone address the criticism.

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