A study of IL&FS crisis in the context of NBFCs and shadow banking in India

Abstract

In September 2018, IL&FS Financial Services, a company of the IL&FS Group, defaulted in its payment obligaons for bank loans and short-term deposits and also failed to meet its obligaons for redempon of commercial paper. The rang agency ICRA went on to downgrade the rangs of the short-term & long-term borrowing programs of IL&FS. The defaults have affected hundreds of investors, banks and mutual funds associated with IL&FS. This has caused panic among equity investors even as several other non-banking financial companies are facing a default scare. There are clear signs of distress in India’s short-term debt market and the shadow banking sector. The government has moved fast and nominated a new board for IL&FS while RBI has iniated a special audit given the potenal systemic risk of the crisis to the enre NBFC sector.The objecve of this study is to understand the fundamental issues involved in the IL&FS crisis and the NBFC sector as a whole