Government didn’t want rescue at expense of state-run FIs

NEW DELHI: The government pushed to replace the IL&FS board since, among other reasons, certain sections of the finance ministry were not comfortable with state-run institutions infusing more to save the firm.

State-run financial institutions together hold 40% in the firm. “It was not very convincing that our firms invest money today and stay hopeful the company will recover, particularly after so many allegations against the existing management and some past individuals who held key posts in the firm and its subsidiaries." said a government official aware of the developments.

The official said there was debate at the AGM last week over pushing banks to participate in any issue. “When we are asking banks to exit out of non-core assets, it makes no sense to force them salvage a failing firm,” said the official, adding that ultimately the government did not want IL&FS rescue to be at the expense of state-run lenders.


The government was also concerned about defaults by IL&FS and its group companies to other state-run institutions, which in turn would have had a contagion affect. “Already, investment by insurance companies was under threat to be disqualified under norms prescribed by the insurance regulator,” said the official. Another official said the attack by opposition on the government also led to fast-tracking of the plan to replace the board.