IL&FS fiasco: India is missing the wake-up call from its shadow-bank bust

When the IL&FS show did stop, risk management was nowhere to be found; fiduciary responsibilities were similarly absent

India’s finance industry is letting a good crisis go to waste by not learning from it.

The sudden $12.8 billion bankruptcy of infrastructure lender IL&FS Group, currently sequestered under a government-blessed, out-of-court process, underscores India’s lack of preparedness to handle a big shift in lending in recent years — away from banks.

Before I illustrate that challenge with a little story about a banking tycoon’s fundraising, a little background:

Over the last several years, the state-run Indian banks’ capital constraints have seen them cede market share to nonbanks. Nothing wrong there except that shadow lenders are the riskiest of trapeze artists: They have