Facing intense liquidity pressures, Infrastructure Leasing and Financial Services (IL&FS) has defaulted on a loan repayment to Small Industries Development Bank of India (SIDBI), according to sources.
They also said that the concerned SIDBI official in the risk management department was asked to go on leave on the issue of proper assessment of the risk on this exposure.
Calls and messages from Business Standard to top executives at both IL&FS and SIDBI did not elicit responses.
While the amount of default could not be ascertained, a Moneylife report said it was a short-term loan amounting to Rs 10 billion.
This is probably the first time that a large financial institution has defaulted on a loan repayment, said banking sources.
SIDBI does not have any security to invoke on its loan to IL&FS and the Insolvency and Bankruptcy Code (IBC) does not apply to non-banking financial companies (NBFCs), the Moneylife report further said.
Even a small default like this will have a negative impact on the credit rating of IL&FS group companies, and hence on their financing going forward.
In August, rating agency Icra had downgraded IL&FS’s long-term loans and debentures. The change in the rating factored in the elevated debt levels owing to the funding commitments towards group ventures. In a statement last month, IL&FS said the board took cognisance of the situation of overleverage. It had arisen as a significant percentage of the group’s liquidity, aggregating to over Rs 160 billion stuck in claims and termination payments.
IL&FS has been facing liquidity problems and has asked its promoters, led by Life Insurance Corporation, to infuse Rs 45 billion by a rights issue by the end of September. Besides, IL&FS has sought additional lines of credit worth Rs 35 billion from its promoters for immediate requirements.
IL&FS group plans to shed its debt by 37.5 per cent, or by Rs 300 billion, to Rs 500 billion by divesting 25 projects over 12-18 months.
As on March 31, 2018, the company had a reported gearing of 3.04 times (on a standalone basis) and regulatory gearing of 2.30 times.