Government-owned entities — banks, insurance companies and their provident and pension funds — with high exposure to various debt papers of Infrastructure Leasing & Financial Services (IL&FS) could emerge as the biggest losers if the company were to default on its forthcoming debt obligations.
An offer letter filed by IL&FS with the capital markets regulator to raise funds through private placement in June 2018 showed that as of March 2018, the list of top ten debenture holders of IL&FS included nine investors that are either government entities or are investment funds run by them as of March 31, 2018.
While the total exposure of top 10 debenture holders of IL&FS amounts to Rs 3,716 crore, the exposure of these nine government-owned entities accounted for nearly 92 per cent at Rs 3,416 crore.
The list includes General Insurance Corporation, LIC, SBI Employees Pension Fund, Postal Life Insurance Fund, NPS Trust, Oriental Insurance Company and United India Insurance among others.
Besides the exposure to debentures of IL&FS, government-owned banks have a sizeable term loan exposure to IL&FS.
While the total term loan exposure of 12 banks amounts to Rs 2,835 crore, the exposure of seven government-owned banks including Bank of India, Bank of Baroda and Syndicate Bank, among others, amounts to Rs 1,825 crore.
As of March 31, 2018 the principal outstanding on these loans by PSBs amounted to Rs 1,480 crore.
Among private sector banks that have term loan exposure, there is Bandhan Bank (Rs 200 crore principal outstanding); Karur Vysya Bank (Rs 100 crore); South Indian Bank (Rs 200 crore) among others. Government-owned entities also have exposure to unsecured and unrated inter corporate deposits/short term deposits.
While Small Industries Development Bank of India had Rs 800 crore exposure ICDs/STDs, Micro Units Development and Refinance Agency (MUDRA) had an exposure of Rs 285 crore to ICDs/STDs. Inter-corporate deposits are unsecured borrowing between corporates.
The government-owned entities do not just have high exposure to debt papers of IL&FS but are also major stake holders with an aggregate holding of 40.25 per cent. While LIC owns 25.34 per cent stake in IL&FS, Central Bank of India and State Bank of India own 7.67 per cent and 6.42 per cent. UTI holds 0.82 per cent in the company.
Experts say that the fact that there is substantial government holding in IL&FS is one key reason for both the government and private sector entities to subscribe to its papers.
“There has been a systemic failure as everyone failed on their part. The fact that IL&FS is backed by government and the papers had top rating from rating agencies is enough for any investor to simply go and subscribe to it,” said the CIO-debt of a leading mutual fund.
IL&FS has defaulted on around Rs 450 crore of inter-corporate deposits to the Small Industries Development Bank of India starting August 27, 2018 and there is a likelihood of more defaults in the coming weeks. Meanwhile, IL&FS has been looking to raise funds from LIC and SBI in order to meet its obligations.