Describing the IL&FS matter as a "watershed moment", Corporate Affairs Secretary Injeti Srinivas has said it was a blessing in disguise that forced the government to take the bull by its horns and address the difficult issue of corporate governance.
Nearly two years after the IL&FS problems surfaced in late 2018, the resolution process is in progress and is expected to be completed this year.
Soon after the fiasco came into light, the corporate affairs ministry superseded IL&FS board, initiated probe into some group entities and various entities, including independent directors, came under the regulatory scanner.
It also had an adverse impact on non-banking financial companies (NBFC) sector and triggered liquidity concerns.
When asked about the spillover effects of IL&FS fiasco on NBFCs and overall corporate governance, Srinivas the matter exposed cracks in the edifice of corporate governance in the country.
"I think IL&FS was a watershed moment... A highly acclaimed group such as IL&FS, which was considered to be the gold standard, turned out to be badly mismanaged and misgoverned.
"In a way, it was a blessing in disguise because it forced us to take the bull by its horns and address the difficult issues of corporate governance," he told PTI.
DHFL was among the entities in the NBFC space that faced problems in the wake of the crisis at IL&FS.
According to Srinivas, who has a key role in spearheading the efforts to address issues arising out of the crisis, many believe that IL&FS caused DHFL crisis but it is equally true that IL&FS helped us to detect DHFL in a more timely manner.
"It is not to say that all NBFCs are bad but those which grew recklessly by over-leveraging and had poor risk management, failed. Equally, we have to admit that post IL&FS, NBFC sector did face liquidity issues.
"But those without asset-liability mismatch have been able to slowly recover. However, those NBFCs with serious asset quality issues are the ones that are facing the music," the secretary said.
He noted that the maze of transactions between hundreds of subsidiaries within the IL&FS group created a veil that concealed the real picture and timely intervention of the government prevented value destruction.
"Broadly, if you look at, against the Rs 94,000 crore external debt (around Rs 73,000 crore secured and Rs 21,000 crore unsecured), we expect substantial recovery. Far more than the average 43 per cent recovery we have had from the IBC (Insolvency and Bankruptcy Code) so far," he said.
The NCLAT has approved the entire proposal of the government, which is in the "final stages of resolution".
"We had hoped that bulk of the resolution would be over by August '20. But now due to COVID-19, that is likely to be delayed by a few months. The government has proposed a comprehensive resolution framework balancing stakeholders interests (banks, provident funds, pension funds and others)," he said.
The recovery efforts involve multi-pronged strategies, including the transfer of entity as a going concern, asset monetisation, creating InvITs (Infrastructure Investment Trusts) and debt restructuring.
"The new board has done a good job. Of course, things will have to be expedited. We have to work against all odds and ensure that things are brought to closure as soon as we can," he said.
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