IL&FS GROUP SCAM
PRESENTED BY:-
221278- SHASHWAT KHANDELWAL
221279-KHUSHI DORA
221175-JAPLEEN KAUR
221125-JASJIT SINGH BHATIA
221045-NAVJOT SINGH TANEJA
The IL&FS (Infrastructure Leasing & Financial Services)
scam was one of India’s biggest financial frauds, exposed
in 2018. IL&FS, a major infrastructure financing company,
defaulted on its debt obligations of over ₹91,000 crore
A BRIEF due to mismanagement, financial irregularities, and
fraudulent practices. The company used a complex web of
OVERVIEW 347 subsidiaries to hide losses while executives awarded
themselves high salaries and bonuses. The crisis triggered
panic in the financial sector, leading to a liquidity crunch.
The Indian government intervened, replacing the board to
prevent systemic collapse. Investigations revealed
widespread corruption, misgovernance, and regulatory
failures.
SECTIONS
INTRODUCTION & BACKGROUND GOVERNMENT & REGULATORY ACTIONS
01 (JASJIT SINGH) 04 (JAPLEEN KAUR)
Overview of IL&FS Steps Taken by RBI, SEBI, & Governments
Importance of IL&FS in India’s Infra sector Resolution Plan & Debt Restructuring
Brief on how the scam came to light Role of NCLT & Supreme Court Verdicts
MODUS OPERANDI OF THE SCAM
02 (NAVJOT SINGH) LESSONS LEARNED & CONCLUSION
How they operated 05 (SHASHWAT KHANDELWAL)
Key Fraudulent Activities Corporate Governance Failures
Role of key individuals Changes in Regulatory Framework Post-
Scam
IMPACT OF THE SCAM
03 (KHUSHI DORA)
Key Takeaways for Financial Institutions &
Investors
Effect on the economy
Govt Intervention and Public Reaction
Effect on Investors & Businesses
01
INTRODUCTION & Established in 1987
BACKGROUND Fo u n d e d by
Foundation CBI, HDFC, and UTI.
A i m e d to f u n d
i n f r a st r u ct u re p ro j e ct s
in India.
Acted as a developer, financier,
and facilitator for
infrastructure projects.
Bus iness Operated through a complex
web of over 300 subsidiaries,
Model joint ventures, and associates.
Focused on public-private
partnership (PPP) projects in
roads, energy, etc.
One of India’s largest
infrastructure financing
companies, pivotal in nation-
building.
Undertook major projects
like highways, urban
transport, and power
distribution.
IMPORTANCE OF Its AAA credit rating
enabled it to raise large
IL&FS IN INDIA’S amounts of capital.
INFRASTRUCTUR
Played a key role in
E SECTOR financing projects under
India’s infrastructure
development agenda.
Played a crucial role in
innovative financial
structuring for
infrastructure projects.
The crisis surfaced in 2018 when IL&FS
defaulted on debt payments.
Major credit rating agencies
downgraded IL&FS’s ratings from AAA
to junk status in a matter of days.
BRIEF ON HOW
Investors, banks, and mutual funds were
THE SCAM exposed to over ₹91,000 crore (approx.
$12 billion) in debt.s.
CAME TO LIGHT
The defaults caused a liquidity crunch in
the Non-Banking Financial Companies
(NBFC) sector.
Government intervention became
necessary due to systemic risk to the
financial sector.
Secured funding through bank loans,
02 debentures, and borrowings from
mutual and pension funds.
HOW IL&FS Established a complex web of over
300 subsidiary entities to channel
OPERATED funds.
(FUNDING
STRUCTURE, Obtained short-term loans to finance long-
term infrastructure projects, leading to a
SUBSIDIARIES) mismatch in maturity timelines.
Leveraged a strong credit rating to
repeatedly raise capital despite poor
financial performance.
Circular Financing:
Subsidiaries borrowed money
and passed it around to appear
financially stable.
KEY
Fake Transactions &
FRAUDULENT Overstated Profits:
Manipulated financial
ACTIVITIES statements to show profits
while incurring losses.
(MISMANAGEME
Debt Overhang: Borrowed
NT, FAKE excessively but failed to
generate returns, creating a
TRANSACTIONS, financial bubble.
DEBT CRISIS) Auditor & Rating Agency
Failures: Deloitte and KPMG
allegedly overlooked
irregularities. Credit agencies
maintained high ratings despite
financial instability.
Ravi Parthasarathy (Chairman &
CEO): Alleged mastermind behind
financial mismanagement.
ROLE OF KEY Hari Sankaran (Vice Chairman):
Played a crucial role in debt
INDIVIDUALS accumulation.
INVOLVED
Other Board Members & Senior
Executives: Complicit in
fraudulent activities and
misleading investors.
Impact on the Impact on the Impact on the
NBFC Sector Stock Market Banking Crisis
1. Liquidity Crunch – 1. Sharp Decline in 1. Government &
The crisis triggered Financial Stocks – RBI Intervention
panic across the – To prevent a
Non-Banking The stock market
full-blown crisis,
Financial Company saw steep
(NBFC) sector, government
leading to severe declines, with agencies and the
liquidity banking and RBI intervened,
constraints. Many
NBFCs faced
NBFC stocks ensuring an
difficulties in being the worst orderly
securing short-term
funding, worsening
affected due to resolution for
their cash flow their exposure to IL&FS and
issues.
IL&FS. infusing liquidity
into the system.
Government Intervention & Public
Reaction to the IL&FS Crisis
THE IL&FS SCAM:
A CASE
1. Board Dissolution & Restructuring STUDY
– The Indian government dissolved the IL&FS board in
October 2018 and appointed a new board led by Uday Kotak to restructure the company
and restore investor confidence.
2. Regulatory
PRESENTED BY: Reforms – The crisis exposed loopholes in corporate governance and poor
regulatory oversight. The government and regulators (RBI & SEBI) introduced stricter norms
Jasjit Singh - 221125 for NBFCs to prevent similar failures.
Khushi Dora
3. Liquidity Support & Policy Measures – To stabilize the financial system:
Navjot Singh
Japleen Kaur-221175• RBI injected liquidity into the banking and NBFC sectors.
• The government
Shashwat provided a partial credit guarantee for NBFCs to ease funding pressures.
Khandelwal-221278
4. Asset Resolution Process – The new board initiated the sale of IL&FS assets to recover
funds and repay creditors.
Public Reaction:
THE IL&FS SCAM:
Aof CASE
1. Backlash Over Misuse Public Money –STUDY
IL&FS had investments from LIC (Life
Insurance Corporation) and SBI (State Bank of India), which meant that a
significant portion of public funds was at risk. This led to public outrage over
PRESENTED BY:
mismanagement and regulatory failures.
2. Erosion
Jasjit Singh of Trust in Financial Institutions – Investors, depositors, and the
- 221125
Khushi Dora
general public lost confidence in NBFCs, mutual funds, and government-
Navjot Singh
Japleen Kaur-221175 backed institutions like LIC and SBI.
Shashwat Khandelwal-221278
3. Stock Market Panic – The crisis led to panic selling in financial stocks, further
deepening market instability.
Effect on Investors and Businesses Due to
PROBLEM STATEMENT
the IL&FS Crisis
Our study focuses on evaluating the market landscape, consumer trends, and competition pertinent
to the new product.
1. Losses for Retail and Institutional Investors –
Many mutual funds and pension funds had exposure to IL&FS debt. When IL&FS
01 02 03
defaulted, these funds faced write-downs, leading to substantial losses for
investors.
SCOPE OF THE STUDY RELEVANCE OF THE STUDY
Institutional investors, including LIC, SBI, and private RESEARCH QUESTION
banks, suffered losses,
Our study aims to pinpoint Understanding its market How can the new product
affecting their balance
challenges and opportunities,
sheets.
implications is crucial for effectively address the market
[Link]
Debtfeasibility,
Market Disruptions
and offer – businesses aiming to stay needs, leverage market trends,
The crisis
strategic caused a loss competitive
insights. of confidence in corporate
and meet evolving bonds and debt instruments,
and differentiate itself in the
leading to higher risk premiums. customer needs. competitive landscape?
Many investors withdrew funds from debt-oriented mutual funds, fearing
further defaults.
OVERVIEW
FRAMEWORK Innovation Adoption Theory
Market Segmentation Theory
Product Differentiation Theory
Impact on Businesses
1. Liquidity Constraints for Companies –
PROPONENTS
• IL&FS was a major financier for infrastructure projects, real estate, and construction
companies. Its collapse led to a credit squeeze, forcing many companies to delay or cancel
projects.
• Small and mid-sized NBFCs also struggled to raise funds, affecting lending to SMEs and
consumers.
2. Delays in Infrastructure Projects –
• Major highway, energy, and urban development projects stalled due to funding shortages.
• This slowed down economic activity in construction, logistics, and related industries.
AARON LOEB DANIEL GALLEGO REESE MILLER
3. Job Losses and Economic Slowdown –
Innovation Adoption Market Segmentation Product Differentiation
• The halt in infrastructure projects led to job losses, particularly in the construction and
Theory Maker Theory Maker Theory Maker
engineering sectors.
• The overall slowdown in the infrastructure sector negatively impacted GDP growth.
04
The collapse of Infrastructure Leasing &
Financial Services (IL&FS) in 2018 was one of
the biggest financial crises in India’s non-
GOVERNMENT banking financial sector. The company’s
default on debt payments triggered panic in
AND the financial markets, leading to regulatory
REGULATORY interventions from the government, RBI, SEBI,
and legal proceedings in the NCLT and
ACTIONS Supreme Court. Following is a detailed
breakdown of the actions taken by various
authorities to address the crisis.
The Indian government dismissed the
existing IL&FS board and appointed a
new six-member board led by Uday
Kotak to manage the crisis.
The takeover was aimed at
preventing a financial
contagion that could have
impacted the entire banking
and NBFC sector.
The move was approved by the
GOVERNMENT National Company Law
Tribunal (NCLT) to ensure a
legally structured resolution
TAKEOVER (2018) process.
Government agencies initiated
probes into financial
irregularities, mismanagement,
and the role of auditors and
credit rating agencies.
The new board focused on asset
monetization, debt restructuring,
and classifying subsidiaries into
green, amber, and red categories
to facilitate creditor repayments.
RBI intensified its oversight of NBFCs
to prevent similar collapses in the
future.
Strengthened regulatory framework for
NBFCs, particularly in risk assessment
and capital adequacy norms.
ROLE OF
RBI revised lending guidelines for
RESERVE BANK NBFCs to limit excessive leverage.
OF INDIA
Introduced stricter norms for asset-
liability management to ensure liquidity
buffers.
Encouraged banks to perform enhanced
due diligence on NBFCs before extending
loans.
SEBI examined the role of credit rating
agencies that had given IL&FS high
ratings despite financial distress.
Penalized auditors for lapses in
financial disclosures and
transparency.
ROLE OF
SECURITIES AND
Strengthened rules for mutual funds
EXCHANGE BOARD investing in corporate debt to ensure
better risk management.
OF INDIA
Mandated enhanced disclosures by
mutual funds regarding their
exposure to NBFCs.
RESOLUTION PLAN AND DEBT RESTUCTURING
THE IL&FS SCAM:
The I L&FS board i mpl emented a s t r uc t ured as s et monet i z at i on pl a n to recover
RESOLUTION
A CASE STUDY f unds .
• Var i ous s ubs i di ar i es and i nf ra s t r uc t ure proj ec t s under I L&FS were i dent i f i ed for
s al e to rai s e l i qui di t y.
PLAN • The ai m was to maxi mi ze recover y for c redi tors whi l e ens ur i ng mi ni ma l
di s r upt i on to c r i t i c al i nf ras t r uc t ure proj ec t s .
PRESENTED BY: t
Jasjit Singh - 221125
Khushi Dora
Navjot Singh
The IL&FS group had over 300 subsidiaries, making the resolution complex.
•Japleen Kaur-221175
A three-tier classification system was introduced to categorize subsidiaries: DEBT
Shashwat Khandelwal-221278
• Green: Financially stable entities capable of meeting obligations.
RESOLUTION
• Amber: Entities with limited financial distress, requiring restructuring but having the
potential to repay debt partially.
FRAMEWORK
• Red: Insolvent entities with no capacity to repay debt.
• This classification enabled structured resolution, preventing a blanket liquidation that
could have caused wider financial distress.
Allowed IL&FS to be Resolved Under
Insolvency and Bankruptcy Code
(IBC):
• This allowed a structured legal
framework for debt resolution.
• Helped protect the interests of
creditors by ensuring an orderly
ROLE OF liquidation of assets.
NATIONAL
Prevented Arbitrary Actions by
COMPANY LAW Creditors:
TRIBUNAL (NCLT) • The tribunal put a stay on
lenders individually declaring
IL&FS and its subsidiaries as
defaulters.
• This avoided a chaotic rush by
creditors and ensured a systematic
resolution process.
The Supreme Court monitored the
resolution process to ensure that
stakeholders received their dues in a just
manner.
ROLE OF THE
Legal proceedings were initiated against
SUPREME former IL&FS executives for financial
mismanagement.
COURT
Penal actions were taken against auditors
who failed to detect and report financial
irregularities.
COMPLETE BREAKDOWN OF THE THREE LINES
OF DEFENSE MODEL:
First Line (Management) Failures:
Financial Engineering: Created artificial revenue streams through circular transactions
between subsidiaries. Example: IL&FS Transportation would "sell" projects to IL&FS
Rail, booking fake profits
Debt Concealment: Used Special Purpose Vehicles (SPVs) to keep ₹28,000 crore debt
off balance sheets through structured financial products
Culture Issues: "Don't ask, just approve" mentality enforced by long-serving CEO Ravi
Parthasarathy
Second Line (Risk/Compliance) Collapse:
Risk committee met only twice annually despite ₹91,000 crore
exposure
No whistleblower mechanism - 3 executives who raised concerns
were sidelined in 2016
Compliance reports falsified to show non-existent collateral for
loans
Third Line (Audit) Failures:
Deloitte issued clean reports despite:
47% of assets being intangible (vs 25% industry norm)
Receivables aging over 360 days for key projects
Internal audit team understaffed - 4 auditors for 347 entities
COMPREHENSIVE REGULATORY REFORMS
RBI's Structural
Changes THE IL&FS SCAM:
Enforcement
Enhancements
SEBI's Market Reforms
A CASE STUDY
Liquidity Mandates: Rating Agency Overhaul:
High-Quality Liquid Probability of default
SFIO granted power
Assets (HQLA) must be published
requirement increased to arrest without monthly
PRESENTED
from 50%BY:
to 100% for warrant Historical rating
large NBFCs accuracy scores
Daily monitoring of NCLT fast-tracking mandated
Jasjit Singh
maturity-mismatches
221125 for financial fraud Analysts cannot work on
(ALM reporting) same company >5 years
Khushi Dora
Governance Rules:
cases Audit Requirements:
Navjot Singh
Mandatory separation of Personal liability for Joint audit for all NBFCs
JapleenChairman & CEO roles
Kaur-221175 independent >₹5,000 crore assets
Independent directors Forensic audit triggers
ShashwatmustKhandelwal-221278
have financial directors in gross for:
sector experience negligence cases 10% revenue from
Risk committee must related parties
include one external Subsidiary debt >20% of
expert parent
ENHANCED AUDITING FRAMEWORK
Fraud Detection Protocols:
Required procedures:
THE IL&FS SCAM: Benford's Law analysis for transaction patterns
Full related-party transaction mapping
Verification of end-use for >₹50 crore loans.
A CASE STUDY
Auditor Responsibilities:
Must physically verify 30% of project sites
Required to interview junior staff (not just management)
PRESENTED BY: Mandatory review of deleted emails/electronic records
Jasjit Singh - 221125
Khushi Dora
Navjot Singh
Japleen Kaur-221175
Whistleblower Systems:
Shashwat Khandelwal-221278 SEBI Whistleblower Portal statistics:
3,247 complaints in 2023 (182% increase from 2018)
48% related to financial misreporting
Rewards up to ₹1 crore for credible information
INVESTOR SAFEGUARDS & MARKET REFORMS
1 . Debt Market Reforms:
Mutual fund regul ati ons:
Si ngl e i ssuer cap reduced from 15% to 10%
Mandatory l i qui di ty stress testi ng
Si de-pocketi ng al l owed for i l l i qui d debt
Insurance compani es prohi bi ted from i nvesti ng i n:
Zero-coupon bonds
Debt wi th <BBB rati ng
2. Di scl osure Requi rements:
Infrastructure compani es must now di scl ose:
Proj ect-wi se cash fl ows (quarterl y)
Debt maturi ty profi l es (monthl y updates)
Conti ngent l i abi l i ti es ( i ncl udi ng guarantees)
3. Redressal Systems:
NCLT fast - t rack:
Cases wi t h >1, 000 i nvestors pr i or i t i zed
Average resol ut i on t i me down to 14 mont hs (f rom 52 mont hs)
Cl ass act i on sui t s:
14 f i l ed agai nst I L&FS- rel ated ent i t i es
₹2, 800 crore recovered so far
INSTITUTIONAL PRACTICES
1 . Governance Structure:
Recommended board composition:
50% independent directors [Link] Reforms:
At least 1 forensic accounting expert Ethics training:
Mandatory rotation every 5 years 20 hours/year for senior
Risk committee requirements: management
Meet quarterly (not biannually)
Case-based learning modules
Direct reporting line to board
2 . Risk Management: Compensation reforms:
Liquidity monitoring: 60% variable pay deferred for 3
Daily cash flow projections years
30-day liquidity buffer requirement Clawback provisions for
Credit assessment: governance failures
Project viability analysis (not just
financials)
Site visits for >₹100 crore exposures
CONCLUSION
The IL&FS crisis stands as a watershed moment in India's financial history, exposing deep-seated
vulnerabilities in corporate governance, regulatory oversight, and auditing practices. The collapse
revealed how a combination of opaque subsidiary structures, negligent boards, and complacent rating
agencies could create systemic risks capable of destabilizing the entire NBFC sector.
In response, regulators have implemented sweeping reforms—from stricter liquidity norms and
mandatory auditor rotations to enhanced investor protections and real-time monitoring systems. While
significant progress has been made, including improved insolvency resolution timelines and reduced
NPAs in the NBFC sector, challenges remain in areas like municipal bond transparency and cross-
border supervision.
The crisis underscores that sustainable financial ecosystems require not just robust regulations but
also ethical leadership, vigilant governance, and a culture of accountability.
BIBLIOGRAPHY
Government Reports & Official Documents
• Ministry of Corporate Affairs (MCA) Reports on IL&FS Resolution
• Reserve Bank of India (RBI) Circulars on NBFC Regulations
• Securities and Exchange Board of India (SEBI) Guidelines on Rating Agencies & Debt Mutual
Funds
2. Legal & Regulatory Sources
• National Company Law Tribunal (NCLT) Orders on IL&FS Insolvency Case
• Supreme Court Judgments on IL&FS Debt Resolution.
THANK YOU
