Why India Loves A Crisis

How the IL&FS Fiasco is transforming the face of non-banking finance companies and the ecosystem that supports it.

- Ashish Gupta

Jim Collins, in his 2009 bestseller How The Mighty Fall, describes the five stages of decline a big company goes through. It starts with “Hubris Born of Success”; goes on to “Undisciplined Pursuit of More”; it is followed by “Denial of Risk and Peril”; then comes “Grasping for Salvation”, and finally, “Capitulation to Irrelevance or Death”. Sometimes, just sometimes, a company can recover from “Grasping for Salvation” to “Recovery and Renewal”. The sharp decline of the once blue-chip Infrastructure Leasing & Financial Services (IL&FS), one of India’s largest non-banking finance companies (NBFC), nine years later seems to exemplify what Collins had written.

UNFORTUNATELY FOR IL&FS, after a series of defaults on its debt instruments in September and October last year, there was no “Recovery and Renewal” but near “Capitulation to Irrelevance or Death”. The reason: the mandate of the new IL&FS board headed by billionaire banker Uday Kotak is not just to clear up the mess, but to also recover much of the ₹91,000-crore debt piled up over the years, through the sale of its assets. Hence, even if IL&FS were to survive, it will only be a shadow of its past—not the mega entity that operated across the globe with projects from Africa to China ranging from highways and sanitation projects to renewable energy through its 348 subsidiaries and associates.