Over the past few weeks, as the payment crisis at IL&FS mounted, the roles and responsibilities of the company’s management, shareholders, and even analysts, in anticipating and addressing the problems have come under the spotlight.

The first visible round of intervention by shareholders took place in July, when the IL&FS board unanimously appointed Hemant Bhargava, Managing Director, Life Insurance Corporation (LIC) of India, as the Non-Executive Chairman of IL&FS after Ravi Parthasarthy resigned. Later, another LIC veteran and former Chairman of the life insurer, SB Mathur, took over as the Non-Executive Chairman.

Sources said the decision by the government to supersede the IL&FS board came after a long discussion between the Finance Ministry, the RBI and two of the public sector shareholders — LIC and State Bank of India — where it was felt that this would be the best option to set things right at the ailing company.

LIC Chairman VK Sharma was the first of the shareholders to state that LIC would not let IL&FS collapse.

According to RBI data, LIC had investments worth ₹24,42,674 crore in 2017-18. But it is only in the case of IL&FS that it chose to take such a proactive stance, as it usually prefers to remain a silent partner — a case in point being the allegations at private sector lender ICICI Bank.

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“Often, the expectation is that things will get better with time and some more fund infusion,” noted a former LIC official who was the nominee director on the boards of several companies.

“Even if the shareholders knew of the troubles at the company, they would have had the responsibility of protecting the money they had already invested in IL&FS. They can’t just exit such an investment or ring alarm bells that would lead to more trouble.”

LIC is the largest shareholder in private sector and unlisted IL&FS, with a total stake of 25.3 per cent, followed by Orix Corporation of Japan, which holds a 23.5 per cent stake.

Curious structure

Experts say it is also the curious structure of IL&FS — where none of the shareholders have a majority stake — which led to lack of accountability and a Plan B for difficult times.

“If LIC, or even any of the other shareholders, had a majority stake in IL&FS, maybe there would have been more responsibility and accountability of the board as well as upfront efforts to ensure that such a problem does not arise,” noted an expert who did not wish to be named.

According to Tarun Bhatia, Head of South Asia and India, Kroll, there seems to have been a lot of comfort at IL&FS that refinancing would be available if difficulties arose.

“It is likely that the problems at IL&FS stem from an asset liability mismatch, which must have been on for many years given the nature of the business. The board and senior management should have anticipated these and discussed back-up solutions such as short-term liquidity infusion, cash flow management and emergency funding,” he said.

Too big to fail

Meanwhile, insurance regulator IRDAI is also understood to have frowned on further investments by LIC in troubled IL&FS, pointing out its investment norms and recalling the acquisition of a majority stake in debt-ridden IDBI Bank. “Safety of policyholder’s money is the prime concern of LIC. Just like IL&FS, LIC also is too big to fail,” noted an official.

Earlier, IRDAI Chairman Subhash Chandra Khuntia had also urged LIC to be prudent in its investments.

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