INSUBCONTINENT EXCLUSIVE:
India is marking the 10th anniversary of the 2008 global financial crisis with its own mini-Lehman moment.True to script, ratings companies
have belatedly realized that the ILFS Group - Infrastructure Leasing Financial Services Ltd
and its associates - is woefully short of liquidity, with about $500 million in repayments coming due in the second half of its fiscal year
through March and only about $27 million available
The group, which missed a payment in the commercial-paper market last month, is now late in servicing an inter-corporate deposit.Shocks are
starting to reverberate amid an avalanche of ratings downgrades
That's only to be expected: On the hook for the group's $12.5 billion debt are banks and mutual funds
everything from roads and tunnels to water treatment plants and power stations
This is the stuff that ILFS has been financing for 30 years; none of it can be liquidated to make lenders and debt-fund investors whole
Trouble starts when power plants get stranded for lack of fuel or purchase contracts, and roads clear environmental hurdles only to crash
into low tolls, poor usage and payment disputes with the highway authority
all-too-powerful founder of the ILFS empire and Indian equivalent of "Gorilla" Richard Fuld at Lehman, stepped down for health reasons in
The rest of the board exists only for decorative purposes.Opacity, meanwhile, has a propensity to amplify panic
As ILFS goes radioactive, the money market doesn't know who's exposed to its toxicity, and to what extent
After mapping exposures from debt-charge documents, analysts at Nomura Research have managed to locate 64 percent of the group's liabilities
to banks.The same vulnerabilities that were exposed by the Lehman crisis are on display a decade later in India
The ILFS Group is too big to fail; isn't regulated nearly as closely as it would have been as a deposit-taking institution; and has no
"living will" - a plan to let it fail safely.Not only do India's state-run banks have bulky exposure to ILFS, they have also lent to some of
the same projects that put it in trouble
Nomura reckons that ILFS Transport Network's road assets are being carried as standard on the balance sheets of many banks
That's laughable, given that ILFS Transport's own one-year default probability is approaching 10 percent, according to a proprietary
Asking banks to reclassify these advances as nonperforming and make provisions at a time when they have no profits and $200 billion in
stressed assets would be a stab to the heart of India's financial system.Repugnant as the idea may be to taxpayers, socializing losses is
often the only way to avoid panic from spreading
policymakers understood that only after they let Lehman go
In the case of ILFS, New Delhi will have to mount a rescue before retail customers of money-market mutual funds turn wary
It's time perhaps to give old faithful Life Insurance Corp
of India another shot at national service
(The insurer is busy bailing out a bank, as we speak.) After all, a young population makes India's insurance customers the perfect vessels
for dispensing mercy.(Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services
He previously was a columnist for Reuters Breakingviews
He has also worked for the Straits Times, ET NOW and Bloomberg News.)Disclaimer: The opinions expressed within this article are the personal
The facts and opinions appearing in the article do not reflect the views of TheIndianSubcontinent and TheIndianSubcontinent does not assume
any responsibility or liability for the same.
