IL&FS liquidity crisis credit negative for banks, debt market: Moody’s

Mumbai :Sounding a warning on liquidity crisis at IL&FS group, global rating agency Moody’s on Wednesday said it is credit negative for banks and debt market in India. The defaults would impact mutual funds, pension funds and insurance companies.
One particular asset challenge for banks in a potential ILFS default comes from the Company’s complex corporate structure. This could result in high variation of ultimate losses across banks depending on where the banks’ specific exposures lie, Moody’s said in a statement.
Now the group flagship — IL&FS, and key group entities carry either default “D” grade or sub-investment grade rating.
ILFS has a complicated structure, with the holding company at the top owning stakes in its financial services arm as well as in multiple subsidiary companies that operate its infrastructure assets.
As of 31 March 2018, debts incurred by ILFS in the form of bank loans accounted for around 0.5 per cent – 0.7 per cent of overall banking system loans. “We do not expect the exposure of any rated bank to exceed 2 per cent of its loan book”, rating agency said.
The consolidated debt of flagship – IL&FS is Rs 910 billion.
These securities issued by group entities carried high investment grade ratings. That met the holding eligibility criteria for most of the institutional investors like mutual funds, pension funds and insurance companies. Hence, a default on these instruments could affect a wide range of market participants.