Letter to BS: Public money not for boosting ill-managed financial giants

This refers to “IL&FS: A perfect storm” (September 19). This is the second default of Infrastructure Leasing & Financial Services (IL&FS) and there is one more inter-corporate deposit coming up for repayment. Now the investments of mutual funds have to be repaid/interest serviced. The debts of company have spiralled from Rs 486 to 910 billion in the last five years, while the operating profit has hovered between Rs 50 to 72 billion. The company is facing a severe financial crisis.

Larger defaults are possible as most of their lendings are tied up in infrastructure financing — roads, bridges, power stations etc that are unable to repay IL&FS. The time for bail-out has come. What will be the contagion impact of the failure of this company on banks, mutual funds and other entities? The only question is who will suffer this time — Life Insurance Corporation (the usual candidate) or the State Bank of India? 

No investigation has been carried out as to how the financials of this behemoth came to such a sorry pass. Did the Reserve Bank of India’s supervisory department throw up danger signals and take remedial steps regarding this? Public money cannot, as a routine, be used to shore up badly managed financial behemoths. There must be accountability. The sooner the better.

Arun Pasricha  New Delhi

---

Letters can be mailed, faxed or e-mailed to: 

The Editor, Business Standard

Nehru House, 4 Bahadur Shah Zafar Marg 

New Delhi 110 002 

Fax: (011) 23720201  •  E-mail: letters@bsmail.in

All letters must have a postal address and telephone number