IL&FS Crisis: Normalcy To Return To System In Few Weeks, Says SBI Chief Rajnish Kumar
In the wake of the IL&FS crisis, efforts are underway by the Indian government, banking regulator as well as the State Bank of India to try and stabilise the system very quickly, said SBI Chairman Rajnish Kumar.
Things are likely to return to normal in a couple of weeks, he assured.
Kumar said that the Infrastructure Leasing & Financial Services Ltd. was a unique institution operating in the infrastructure financing and construction space.
“It is an engineering, procurement and construction contractor, holding assets as well as its finances - it was a 3-in-1”, Kumar said, adding that all infrastructure financing firms have faced trouble in India, whether it is banks or non-banking financial companies.
“Infrastructure, particularly the BOT (build-operate-transfer) model, has caused a lot of problem even to the banks. We ourselves have suffered in the financing of infrastructure,” Kumar said during an interactive session at the 9th New India Lecture' organised at the Indian Consulate in New York.
The lecture series is organised by the Consulate in partnership with the U.S.-India Strategic Partnership Forum.
Responding to a question on IL&FS and the impact of shadow banking on the Indian economy, Kumar said since it is a non-banking finance company, it has had a contagion effect.
Because of the IL&FS default, there is pressure on mutual funds. The corporates who were providing liquid funds to mutual funds have become very cautious. In turn, the mutual funds have become cautious about their investments.Rajnish Kumar, Chairman, SBI
Kumar added that in wake of the IL&FS crisis, the SBI stepped up in a big way.
“This is how we are trying to stabilise the system and tackle the situation. RBI has announced measures around improving liquidity for NBFCs. The government, RBI and SBI - all of us are trying that the system stabilises very quickly,” he said.
IL&FS and its subsidiaries have defaulted on several debt repayments recently. It needs an immediate capital infusion of Rs 3,000 crore and is also planning a Rs 4,500-crore rights issue.
A ‘Very Badly Needed’ Fight
On the Insolvency and Bankruptcy Code, introduced in 2016, Kumar said he considers it the most significant reform that the current government has carried out.
“It's a new law, a new process. So obviously, there are some hiccups because there are issues around how the provisions of the code are interpreted," he said.
It is very hard for the existing promoters to believe that there is a law and a real threat of them losing control of the business. It’s never happened in India in the past. That’s where the fight is, but this was very badly needed.Rajnish Kumar, Chairman, SBI
He said, going forward, the litigation will come down and the resolution will happen within the time frame of 180-270 days.
“For this process to succeed, it is important that cases are referred at the earliest sign of trouble. Definitely there's a paradigm shift in the creditor-debtor relationship in India”, he added.
As a potential weapon, the IBC works very well, but we have to be “careful before we exercise it”, he said. “The threat works much better than the actual resolution.”