The Reserve Bank of India and Life Insurance Corporation will discuss a rescue plan for the IL&FS group on September 28. LIC is the largest shareholder in IL&FS with 25.34 percent.
The meeting is scheduled a day ahead of the annual general meeting (AGM) of IL&FS on September 29 when the infrastructure financing major will discuss the plans of debt reduction as well as fundraising.
Sources told Moneycontrol the banking regulator will discuss the recent events at IL&FS and proposed actions with shareholders. LIC Managing Director Hemant Bhargava will also attend the meeting.
It is likely that the second largest shareholder, the Orix Corporate, Japan that holds 23.54 percent stake also sends a representative to the meeting.
Other large shareholders in IL&FS include Abu Dhabi Investment (12.56 percent), Housing Development Finance Corporation - HDFC (9.02 percent), Central Bank of India (7.67 percent) and State Bank of India (6.42 percent).
However, sources said State Bank of India, Central Bank of India and Housing Development Finance Corporation (HDFC) will not be attending.
According to sources, Central Bank of India was on the lookout to sell its stake in the debt-strapped firm but will wait for the IL&FS shareholders' and board meet before taking a final decision.
Central Bank of India is under prompt corrective action (PCA) imposed by the RBI and therefore, may not be in a position to provide additional funds.
The advent of the crisis
The first signs of trouble in the IL&FS group emerged in June when IL&FS defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. Over the next two to three months, at least two rating agencies downgraded its long-term ratings.
Later, its financial services arm IL&FS Financial Services also defaulted on interest payment on commercial papers four times in September.
Further, IL&FS Financial Services also defaulted on seven debt repayments between September 12 and 27, the financial services arm of IL&FS informed the stock exchange.
The defaults include five bank loans, one deposit and one short-term deposit.
Lifeline from shareholders
IL&FS group has over Rs 91,000 crore in debt and is seeking a capital infusion from large shareholders like LIC.
A board meeting held on September 15 by IL&FS was inconclusive, with Hemant Bhargava stepping down from the Chairman's post at IL&FS.
The company needs an immediate capital infusion of Rs 3,000 crore and is also planning a Rs 4,500 crore rights issue. Its largest shareholder Life Insurance Corporation of India (LIC) could offer a lifeline to IL&FS if the firm is able to give a roadmap for a reduction in its debt in the next three to four months.
Regulatory action
RBI has also initiated a special audit of IL&FS after it defaulted on its Rs 450 crore inter-corporate deposits (ICDs) raised from state-owned Small Industries Development Bank of India (SIDBI).
IL&FS, which has missed more than five debt payments since August and has been downgraded by three rating agencies, as a result, has filed an application with the National Company Law Tribunal (NCLT).
The company has sought some "accommodations" from NCLT for itself and 40 group units under the Companies Act, according to a disclosure made to the stock exchanges.
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