Default of IL&FS sends shockwaves through India’s financial markets

A series of defaults by India’s key infrastructure lender, Infrastructure Leasing and Financial Services Limited (IL&FS), has sparked fears about the health of other non-bank lenders and led to a squeeze in India’s corporate debt market that these lenders have relied upon. This event is likely to dampen credit growth and decrease private sector investment in infrastructure, which will significantly worsen India’s economic outlook in the short to medium-run.On October 1st, the Indian government announced that it was effectively bailing out the IL&FS by replacing the existing board with a new handpicked one. This came after the group defaulted on a series of payments late last month. These defaults dented confidence in Indian financial markets and sparked fears of contagion through India’s shadow banking system given IL&FS’s systemic importance. The group has a debt pile of around $12 billion and accounts of approximately 3% of outstanding corporate bonds. While the government action staved off an immediate financial crisis, shares of other non-bank lenders have fallen as concerns about their ability to service short-term debt remain..............

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