The Indian financial sector was jolted in September this year when shadow bank IL&FS started defaulting to its debt worth Rs 910 billion. The serial defaults by IL&FS, rated the highest by rating agencies, till the default reverberated across the financial world as almost all banks and mutual funds had lent money to the infrastructure financier. The IL&FS default had a domino effect on the non-banking financial companies (NBFCs) sector as investors started selling shares of all NBFCs and anxious mutual funds dialled New Delhi for help.
Before the IL&FS default became public, its chairman, Ravi Parthasarathy quit in July and flew to London citing a “medical emergency” — leaving the sinking ship in the stewardship of its vice chairman, Hari Sankaran.
By September-end, it became clear that IL&FS would not be able to repay its debt as its shareholders, Life Insurance Corporation and State Bank of India, refused to bail it out. In October, the Indian government sacked the earlier board and appointed a new board led by banker Uday Kotak to set the IL&FS house right.
The new board was told that the group has 348 companies. The board has identified several assets of the companies for sale and started by selling 34 luxury cars of the top executives who were till recently running the group without any checks and balances and took home salary increases of 66 per cent — led by Parthasarathy who received a 144 per cent rise in salary in fiscal 2018. Expect regulatory action against erring executives in 2019 as various government agencies complete their probe.