IL&FS crisis threatens to rob the savings of workers and soldiers

The crisis of Infrastructure Leasing & Financial Services (IL&FS), one of the largest non-bank financial institutions in our country, is having a huge negative impact on the retirement funds of lakhs of workers and soldiers.

The crisis of Infrastructure Leasing & Financial Services (IL&FS), one of the largest non-bank financial institutions in our country, is having a huge negative impact on the retirement funds of lakhs of workers and soldiers.

IL&FS is a company whose main business has been to raise money from various sources, including pension funds and provident funds, to finance large infrastructure projects. It is owned jointly by several financial institutions, headed by the Life Insurance Corporation (LIC) of India, Abu Dhabi Investment Authority (ADIA) and the Japan-based Orix group. Starting in September 2018, it started defaulting on servicing its massive outstanding loans, amounting to more than Rs. 94,000 crore.

Following the loan default, IL&FS has been brought under a new state-appointed management team. A rescue operation is being implemented, which involves writing off a big part of the outstanding debt of this group of companies.

Provident fund and pension fund trusts have collectively invested thousands of crores of rupees in bonds of the IL&FS group. These bonds had been promoted by credit rating agencies as “low risk”, thereby encouraging the managers of pension and provident funds to invest in them. Following the crisis and the government’s rescue measures, what was promoted as low risk has suddenly become highly risky.

The loans taken by IL&FS from commercial banks are generally against the security of productive assets. However, this is not the case when it comes to bonds of the company held by pension and provident funds. They are “unsecured” liabilities. The risk of loss is much greater for those holding unsecured bonds.

So far, over 50 funds, managing retirement benefits of over 14 lakh employees, are reported to have invested in IL&FS bonds. They include employees of public sector companies such as MMTC, Indian Oil, CIDCO, HUDCO, IDBI, SBI and the state electricity boards of Gujarat and Himachal Pradesh. They even include several army soldiers’ retirement funds.

The hard-earned savings of lakhs of workers and soldiers are now under threat of being wiped out. Several workers’ unions and federations of unions have filed cases with the National Company Law Tribunal for recovering their dues from IL&FS.

Institutions that borrow and lend money are an essential element in any society whose material needs are bought and sold in the market. The problem with capitalist countries at this time is that financial institutions driven by the motive of maximising their own profits have reached gigantic scales. They gamble with people’s savings. When they are unable to service their debt, the government intervenes to shift the burden of the crisis on to the backs of the people who have deposited their savings with such institutions.

Instead of being institutions in the service of society, both banks and non-bank financial institutions are acting as instruments to rob the working people.

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