With the sudden downfall of IL & FS (Infrastructure Leasing & Financial Services), in one or the other way almost all sectors are facing the counter effects. NBFCs, Housing Finance Companies & Banks are directly facing the consequences. Comparing IL & FS with NBFCs is not actually right thing to do, as it was not involved in any retail operations. The main function of IL & FS was to project funding.
IL & FS was established as “Satyam Construction Private Ltd.” on May 6, 1988. Later in the year 1993 it became deemed public company. Since then it is operating in a full- fledged manner. Infrastructure is something which is a stepping stone for a country to succeed and so it was always encouraged by government too. IL & FS is currently a group of almost 348 businesses having a AAA rating.
But the question is then what went wrong?
According to RBI, this liquidity crunch faced by IL & FS is just a short-term bubble. But is it so? Infrastructure Industry is facing financial & other issues since 2013, itself. In August, 2018 for the first time IL & FS, defaulted to pay the amount to SIDBI (Small Industrial Bank of India). Even after such liquidity crunches the credit rating agencies didn’t lowered the rating from AAA. This is a major setback for Credit Rating agencies.
According to IL & FS the main reason for liquidity crunch is that many of infrastructure projects are not getting enough funds from government & banks. Not only this there are many projects where government is liable to pay but has not yet paid. Because of all this reason it has turned into such a massive threat today.
Currently a resolution plan is being framed under Mr. Uday Kotak & it is even expected to resolve the whole issue within 8-9 months. Let’s wait till then & expect this to be a short-term bubble only.
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