Chennai: A note from the Finance Ministry has reportedly revealed that the Infrastructure Leasing & Financial Services (IL&FS) group crisis may lead to catastrophic impact in the financial market.
According to a recent report from a media house, the government takeover of debt-ridden IL&FS came after a confidential Finance Ministry note warned that “the future impact of more defaults in the group may be catastrophic” for financial stability.
“The replacement of the existing management by a new management would be the first step towards restoring confidence and to avoid any suboptimal liquidation of assets,” said a letter from the Department of Economic Affairs to the Ministry of Corporate Affairs on 30 September.
The confidence of the financial market needs to be restored and the “present management has lost all credibility”, read the letter, according to the report.
“Hours later, the National Company Law Tribunal (NCLT) ordered the superseding of the IL&FS board and setting up of a new one, which includes India’s richest banker, Uday Kotak,” the report further added.
The government’s move to pull the troubled lender, IL&FS, out of the financial muddle may have boosted investor sentiments, but it may take a while for an actual recovery to happen.
According to banking experts and analysts, non-banking financial companies (NBFC) stocks will be under pressure due to higher valuations. With banks cutting fresh lines of credit, there will be acute liquidity issues, hitting the NBFCs.
INDIA TO BOOST DOLLAR INFLOW
India is considering a special deposit scheme for non-resident Indians to boost dollar inflows, a report stated. Economic Affairs Secretary Subhash Chandra Garg had said in June if needed the government could raise funds through foreign currency non-repatriable (FCNR) deposits, sovereign bonds or other routes to increase forex reserves.