Lessons from IL&FS saga

Don't invest in companies that have complex balance sheets, despite government backing

The Infrastructure Leasing & Financial Services fiasco holds many lessons for investors, and policymakers as well. The non-banking financial company (NBFC) has always been treated as a quasi-government agency rather than a high-risk financial player with glaring asset-liability mismatches.  Most investors ignored the incredibly complicated balance sheet with its multitude of subsidiaries and special purpose vehicles. The implicit comfort was the apparent sovereign guarantee.  

When the liquidity problems surfaced, a bailout was assumed.  The defaults have resulted in nervousness in the bond market and there will be a cascading effect if the obligations cannot be met. 

The majority shareholders will probably need