Comments
While the Centre has stepped in to supersede the board of beleaguered Infrastructure Leasing and Finance Company (IL&FS), the industry heavyweights tasked with turning around the company themselves come with some legacy issues.
While all the six individuals are big names who have built reputations in their respective fields, shareholder advisory groups, corporate governance advocacy groups, and top former regulatory officials have raised some questions about their suitability for the job.
On the recommendation of the Ministry of Corporate Affairs, the NCLT’s Mumbai Bench on Monday approved the induction of six directors — Uday Kotak, MD & CEO, Kotak Mahindra Bank; Vineet Nayyar, IAS (Retd.) and former Vice-Chairman of Tech Mahindra; GN Bajpai, former Chairman of SEBI and Life Insurance Corporation of India; GC Chaturvedi, Non-Executive Chairperson, ICICI Bank; Malini Shankar, IAS; and Shri Nand Kishore, IA&AS (Retd) — on the reconstituted Board.
Why they’re not perfect
Uday Kotak of Kotak Mahindra Bank has himself run into trouble after the Reserve Bank of India rejected Kotak Bank’s method of diluting its promoter shareholding by allotting preferential shares. The RBI had mandated that the bank lower the promoter holding to less than 20 per cent by December, and 15 per cent by March 2020. There were questions raised on whether issuing preferential shares was the right way to do it.
Similarly, Bajpai has been on the boards of Kingfisher and Dhanlaxmi, both of which saw their financials slip from bad to worse.
“IL&FS is not a simple bailout candidate. It should be liquidated and its lenders should take a haircut similar to other public sector banks that are doing so for lending with closed eyes. For this, IL&FS board should have a few people with good background in the infra space to handle the crises and instil market confidence,” said Anil Singhvi, governance expert and IiAS founder.
Nayyar of Tech Mahindra is now close to 80 years old. In the past, various corporate governance experts have recommended retirement of people aged over 70 or 75 years. There have been instances where shareholder advisory groups have written to company boards to oust board members over 75 years.
“IL&FS needs some serious firefighting. Nayyar is over 80 years in age and Bajpai over 75. Reports from corporate governance experts have often recommended retirement of people aged over 70 or 75 years. Bajpai is still affiliated with nearly a dozen companies and IL&FS will require a full-time expert,” said a former regulatory official on condition of anonymity.
Lack of experience
There is a view that apart from knowledge on the working of NBFCs, the IL&FS crises cannot be handled by people without real experience in the infra space.
“IL&FS will require negotiating with regulators and it will be interesting to see how this board will handle this. GC Chaturvedi, who was recently appointed as Non-Executive Chairperson of ICICI Bank, already has enough on his plate on the Chanda Kochhar issue. In such a scenario, the new board will fall short in building market confidence,” said a Mumbai-based senior lawyer, who declined to be quoted.
IL&FS saw an increase in its debt levels in the past few months. The situation worsened in the last two months with both the parent company and its subsidiaries defaulting on a number of repayment obligations.
IL&FS has over ₹16,500 crore of standalone debt and ₹91,000 crore of consolidated debt, with banks and insurance companies having the largest exposure.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.