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The newly constituted six-member board of the debt-laden IL&FS is likely to closely examine how UTI and IDBI, both erstwhile All India Financial Institutions, and IFCI, a public sector NBFC, were restructured in order to put the beleaguered institution back on the rails.
Restructuring IL&FS, which is a ‘Systemically Important Non-Deposit Accepting Core Investment Company’, could prove a Herculean task for the new board, as it has a complex web of 24 direct and 135 indirect subsidiaries, six joint ventures and four associate companies.
According to market experts, of the IL&FS Group’s total borrowings (liabilities) of about ₹91,000 crore, short-term borrowings of about ₹13,560 crore will need to be converted into long-term borrowings to prevent defaults on repayments even as its planned monetisation plan gets under way.
The UTI example
“The new board of IL&FS needs to work out long-term solutions,” said S Ravi, a banking expert and practising chartered accountant. “Many institutions were turned around by various methods — such as liability restructuring in the case of IFCI and creation of SUUTI in the case of UTI. There could be various options like monetisation of assets and special purpose vehicles.”
In 2003, the Specified Undertaking of the Unit Trust of India (SUUTI) took over the assets and liabilities of US64 and other assured return schemes of the erstwhile UTI. The wholly-owned undertaking of the government was formed by the restructuring of the erstwhile UTI into UTI Trustee Company Pvt Ltd (acting through SEBI-registered UTI Mutual Fund and UTI AMC Ltd) and SUUTI.
Fund for IDBI
In 2005, the government created the Stressed Assets Stabilsation Fund (SASF) with a corpus of about ₹9,000 crore to address IDBI’s stressed assets problem. IDBI transferred its stressed assets aggregating to ₹9,000 crore to the fund.
The transaction was cash neutral, with the corpus being invested in 20-year bonds carrying no return. It enabled IDBI to start banking operations with zero net NPAs. The SASF pays the amount realised or recovered from the stressed assets of IDBI to the government each year. The government pays IDBI an equivalent amount to redeem the bonds issued.
The IFCI package
Under IFCI’s restructuring package, the Centre took over its government-guaranteed SLR (statutory liquidity ratio) bonds and retail borrowings of investors below ₹1 lakh. IFCI also monetised non-core assets such as Tourism Finance Corporation of India.
The crisis at IL&FS reflects the failure of key promoters in exercising oversight over its operations and management, say industry watchers.
“The crisis at IL&FS clearly shows that when public sector financial institutions hold stakes in other entities such as stock exchanges, mutual funds and NBFC, the oversight exercised by their nominee directors over the affairs of the investee companies and their entrenched managements is slack. This needs to change,” said a former public sector bank chief.
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