IL&FS: the default of a AAA-rated group

The defaults. In July 2018, the group's road business struggled to repay bonds. In early September 2018, a group company failed to repay a ₹1,000 crore short-term loan from SIDBI, and other group companies defaulted on deposits, inter-corporate deposits and commercial paper. Panic spread through the debt market, and mutual funds and lenders pulled back from NBFCs as a whole.

The takeover. The central government applied to the NCLT under Sections 241 and 242 of the Companies Act. On 1 October 2018, the NCLT suspended the existing board and appointed directors proposed by the government, with Uday Kotak as chairman.

The size of the problem. The group had 302 entities at the time of the crisis, many of them offshore, and original debt of ₹99,355 crore.

The investigations

• The Serious Fraud Investigation Office filed a chargesheet against 30 parties, including two audit firms, for concealing information and misreporting the accounts.
• The Ministry of Corporate Affairs moved to ban the auditors, Deloitte Haskins & Sells and BSR & Associates, under Section 140(5) of the Companies Act. ICAI's disciplinary body found them prima facie guilty of professional misconduct.
• The NCLT allowed the ministry to bring an independent director and audit committee member of a group company into the proceedings.

The resolution. The new board set a resolution target of ₹61,000 crore, about 61% of the original debt. As of 30 September 2025, the group had repaid ₹48,463 crore to creditors, and 202 of the 302 entities had been fully resolved.

• Long-term assets funded with short-term money. Infrastructure projects that take decades to pay back were funded partly with short-term borrowings such as commercial paper and inter-corporate deposits. When short-term lenders stopped rolling over, the group could not pay.
• A very complex structure. Hundreds of subsidiaries, many abroad, made it hard for outsiders to see where money and risk sat.
• High ratings despite rising debt. The group's debt carried top ratings until shortly before the defaults. Investors who relied on the rating alone had no warning.
• No controlling promoter to absorb losses. IL&FS was owned mainly by large institutions. A professionally run board without a dominant owner still failed to control risk.

• A rating is an opinion, not a guarantee. Read the cash flows and the funding structure yourself.
• Asset-liability mismatch can sink a solvent-looking group. Check how long-term assets are funded.
• Complexity is a risk in itself. If the structure cannot be explained simply, the risks probably cannot be measured simply.
• Auditors and independent directors face consequences. IL&FS showed that regulators will pursue auditors and directors, not just management.
• Contagion. One large default can freeze funding for a whole sector, as NBFCs found in late 2018.