Default By Top India Non-Bank Lender Rattles Market

A top infrastructure lender in India is now being questioned by regulators over its $12.6 billion debt, just months after creditors gave the lender a seal of approval.

Reports in Bloomberg said Infrastructure Leasing & Financial Services (IL&FS) Group, a top financier of infrastructure projects, now faces a special audit from the Reserve Bank of India (RBI) after an August default shook the markets. According to regulators, the financier’s existing debt struggles may pose a risk to other non-bank lenders as it gears up to manage $500 million in repayment obligations in the coming six months. The entity also serves as a top lender to other non-bank lenders, reports said.

While the financier is being probed, questions have mounted over how credit raters failed to miss the debt struggles of IL&FS. Moody’s Investors Service and Fitch Ratings both rated the lender favorably, reports said, despite IL&FS seeing a 44 percent increase from 2015 levels.

“Rating agencies need better market intelligence and surveillance, rather than depending on historical data and some structure based on past estimates,” said distressed asset turnaround specialist and Brescon Corporate Advisors Founder Nirmal Gangwal in an interview with the publication. “They also need to factor changes on the ground like change of leadership, cash flow management in recent past and market environment.”

IL&FS Founder Ravi Parthasarathy left the financier earlier this year due to health reasons, reports noted.

Now, government regulators are examining the credit-rating market, too. According to India’s Department of Financial Services (DFS) Secretary Rajiv Kumar, “There is definitely a case for revisiting ratings standards and the whole rating framework.”

Separate reports in the Financial Times said India’s non-bank lenders are struggling as a result of IL&FS’s default and the subsequent fears over the nation’s corporate bond market.

“Suddenly, everyone seems to be extremely cautious, not taking any counterparty exposure, not putting money even in liquid investments,” said Prabodh Agarwal, chief financial officer of financial group India Infoline Finance Limted (IIFL), in an interview with the publication.