- Editor's View
- 3 min read
Bankers’ Godfather moment: Make him an offer he can't refuse
This week itself the current management of IL&FS announced that they will complete the whole resolution process by the next year. IL&FS, a gigantic infrastructure lender, defaulted on repayments for the first time in June 2018, sparking the biggest financial crisis in India. The chairman of the company resigned. The company then had a litany of defaults and the total debt amount involved was close to Rs 1 lakh crore.
I read The Godfather, a bestselling crime novel, a few years back and haven’t got over it even today. Before even reading the novel the caption on the first page startled me. “Behind every great fortune there is a crime,” it said.
It was a very impressive book, filled with thrilling incidents and dramatic events. The story and every move of Don Vito Corleone are intriguing. There is a character named Johnny Fontane (Said to be based on the famous American singer, Frank Sinatra) in the novel who has a contract with a band leader Less Halley. But Halley does not release Fontane from the contract. Finally, Fontane brings his family friend Don Corleone. Don in his own way deals with Halley… and gives him an offer that Halley can't refuse. Of course, the offer is either to sign the releasing contract of Fontane for $1,000 or take a bullet shot.
For example, in the Videocon Industries case, the majority of the bankers were ready to take a 95% haircut. The total claim amount was Rs 71,433 crore and the plan was approved for Rs 2,962 crore, which was less than 5%. Bankers couldn't refuse the offer as they did not have a choice.
IL&FS, the single lender, drained the liquidity in the whole NBFC sector. Bankers became risk-averse and preferred to stay away from lending to any NBFC thereafter.
Considering the large company and higher stakes, the Ministry of Corporate Affairs, intervened and formed a committee headed by Uday Kotak, the billionaire banker.
After 3.5 years of painstaking battle, the committee has resolved most of the issues. Out of a total Rs 99,000 crore, the committee had assessed that they would be able to recover about Rs 61,000 crore. It managed to resolve Rs 55,000 crore. Additional Rs 6,000 crore will be recovered within the next financial year. The committee had to let go of a few borrowers, they had to go through the rigorous process to make and accept offers. While the issue looks resolved, there is going to be a big loss. The dome-shaped glass headquarters of IL&FS in BKC, the central financial centre in Mumbai, will lose its name. In the resolution efforts, the building will be sold to Brookfield.
We at ETBFSI, have covered this story in detail with a time chart. (Click here: How the IL&FS crisis ravaged India's NBFC sector - A Timeline)
Apart from IL&FS, Axis Bank's takeover of Citi Bank’s retail business is a terrific and unusual story of this week. ( Click here: Axis Bank- Citi Deal may complete in 9-12 months: Amitabh Chaudhary)
(Editor's view is a column written by Amol Dethe, editor, ETBFSI. Click here to read more of his articles.)