Translate

How India Tackled the ILFS Crisis

How India Tackled the ILFS Crisis 

By Dr. Lalit Kumar Setia |  @drlalitsetia  |  drlalitsetia@gmail.com  |  Created October 26, 2018; 
Updated December 16, 2018
Whenever any company becomes sick, there are two alternatives either get it recovered by taking necessary steps or sell it to someone who is capable to manage it better than present owners. In liquidity crunch i.e. shortage of cash in the economy; every company suffers with lack of capital. In last quarter of the year 2018; the companies located in India, reported various problems due to liquidity crunch in India. The Corporate Affairs Ministry and National Companies Law Tribunal supervises the status of companies on basis of their Asset-Liability Management (ALM) position. The housing and infrastructure companies borrow through rising commercial papers and through external commercial borrowings (ECBs) to manage their working capital level which is must to meet the short-term obligations. The management of each company look for balancing their loans, maintaining sufficient liquidity, and strengthening the balance sheet. The housing and infrastructure companies are funded by banks, big corporate people, and in case any such company fails to meet its financial obligations; the sign becomes negative for all such stakeholders. In 2018, the IL&FS defaulted in making payments of its short-term loans and a crisis happened. 

IL&FS Crisis

The IL&FS crisis happened due to liquidity crisis because the company had invested money in long-term projects and required to pay the liabilities for which it had less assets to be converted into cash. The liquidity ratios i.e. Current Assets Ratio and Liquid Assets Ratio had not maintained in IL&FS which are required to be maintained in each business so that such crisis cannot be happened. Seeking loans and financing for the growth of business, is very good and must for an entity but at the same time, it is also must to maintain the short-term interest payments for servicing of the debt.

Monitoring and Control over Liquidity

In India, the monetary policies of RBI controlled the quantum of liquidity in the economy. The liquidity is monitored on daily basis and banks are directed according to the situation for maintaining the bank reserves, foreign investment flows, and growth rate of Indian economy. The income tax department asked the citizens and corporate entities to pay the advance taxes and to invest in tax-saving insturments, particularly to reduce the liquidity in Indian market. On the other hand, the financial assistance to IL&FS and banks to deal NPAs, waiving off farmers’ debt, safeguarding export-oriented companies like textile firms etc; are particularly to increase the liquidity in Indian market. With each step of increasing liquidity, it is required to keep in mind the threat of rise in inflation and with each step to decrease liquidity, it is required to keep in mind the impact on citizens and corporate entities. Further, the Cash Reserve Ratio (CRR), Statutory Reserve Ratio (SLR), Repo Rate, Reverse Repo Rate, and other tools are used by the Reserve Bank of India to contain the inflation by reducing the liquidity in Indian market.

Tackling Liquidity Crisis of IL&FS

In the crisis of IL&FS, for safeguarding the whole economy by continuing the works of infrastructural development, the RBI intervened on directions of the central government to tackle the liquidity crisis. Due to this crisis, government paid more interests to small saving investors and increased the burden of interest payments. The threat of financial instability also be seen by various economists to alert the Indian government only due to such intervention. It is must to improve the cash supply to reduce the defaults of corporate entities and it is also necessary to control the liquidity to contain the inflation.
*Copyright © 2018 Dr. Lalit Kumar. All rights reserved.

No comments:

Post a Comment

I will be happy to hear from you. Please give your comments...

Auto_1

Horizontal Responsive1

Popular Posts

LoP1

Special Offer!

Funny Baba

Free Seminars

Featured post

Grow with a New Mindset and EQ

Grow With a New Mindset and EQ Everyone in this world is unique in most aspects and behaves differently because everyone has their own set o...

Free Notes

Tips to Grow

Earn Money

Popular Posts

Free Download

Tax Saving

Fun in Life

Labels

Progress Leaves Important Questions India Economic Growth Energy Governance Government Business Commerce Current Affairs Demand Economic GST General Knowledge Indian Youth Information Technology Parents Procedure Solutions Advance Tax Adverse impact of Social Media Agriculture Banking Change Children Clerk Common Man Corruption Currencies Decision Development Employees Financial Management Free Trade Agreements Growth Indian Culture Indian Economy Indian Rupee Interest on Advance Tax Liberalization Liquidity Management Money Notes Opportunity PPPs Personality Pollution Reforms Safety Supreme Court Technology United States 80C 80EE Accounts Act Action Advantages Air Quality Index Anti-virus Anti-virus Protection Appreciate Appreciation Assets and Liabilities Astrology Author Autocratic Automation BIFR Basic Exemption Limit Behavioural Benefits Best Resort Bitcoins Budget Business Environment CAD CBI Court CHSL Capacity Capital Capital Expenditure Capital Gain Capital Market Capital Stru Capitalism Care Taker Cash Cash Flow Cashier Challenge Change Management China Chit Fund Clean Clearing House Commission Competitive Examination Compliments Computer Computer Virus Consolidated Statements Consumers Contractual Control Covid-19 Pandemic Credit Criminal Law Act Crisis Crops Crypto-currencies Current Account Deficit Current Events Custody Cutomers Cyber Crimes DBT Dairy Register Dairy Writing Data Theft Debit and Credit Debt-trap Deficit Delhi Demonitization Dera Sacha Sauda Detecting virus Dictatorship Diet Difficult Situations Digital Disadvantages Dollar Donald Trump Download and Install Dr. MSG Drawing and Disbursing Officer Duties of Diarist EQ Earning Money Easy Electricity Emotions Employment Empowerment Environment Environmental Crisis Equity Ethical Values Evaluation Event Examination Expense Accounts Exposure Farmers Faster Finance Financial Administration Financial Control Fiscal Deficit Fixing Responsibility Food Grains For example Foreign Institutional Investors Free Fuel Prices Further Scope Geography Getting rid of Corruption Global Market Globalization God Good and Simple Tax Goods and Services Tax Google Adsense Google Desktop Government Departments Gurmeet Ram Rahim Singh Hacking Harmony Health Problems High Cour Honesty How Google Adsense Works Humanity IL&FS Identification of Assets and Liabilities Immunity Imports and Exports Imprisonment Income Income Accounts Income and Expenditures Indian Institute of Management Indian Jal Shakti Indoor Plants Industrialization Inflation Internet Inventions Investments Irregularities Jobs Journal Judgement Labour Language Law Leadership Learning Life Life Style Linking Aadhaar Loans Loss to Government MBA Mahatma Gandhi Management Development Programmes Managerial Success Managing the work performance Marketing MeToo Mind Mindset MoU Mobile Governance Moral Morality Motivation NITI Ayog NPAs NPS NRF Narendra Modi National Pension System Net Assets Value New Industrial Policy Niti-Aayog Non Performing Assets Outsourcing PSUs Palmistry Paper Parking of Funds Penalties People Personal Ledger Account Petroleum Picasso Police Commissioners Political influence Practical Problems Precautions Prime Minister Prime Minister Narendra Modi Principles of Management Probing Problem Problems Procurement Products Protection Public Public Sector Entities Publication Quality education RTI Activists Rafale Reaction Rebuilding organizations Record Keeper Recovering from Sickness Recovery Religious Research Paper Retrieval Revival Rulers' actions SIPs SSC Search Engine Section 234 (B) Seeking Information Self-education Services Sexual Harassment Sim Card Simple Sirsa Smog Social Media Social Responsibilities Society Solar Solved Speed Up Spiritual Saints Spyware Stability Staying Calm Storage Store Keeper Struggle Success Suggestions Surplus Sushant Rajput TDS Take-Home Salary Talent Retention Tax Tax Planning Teacher Technical Factors Tender Tips Touch Trade War Types of Tenders Unemployment Values Verify Aadhaar Waiving Off Water Webpages What Why and How to Evaluate Work Environment Writing Off Youtube deferred payment of advance tax e-Shram Portal higher education insolvency managerial skills scam training training courses world

Happy Moments

Learn and Update

Popular Posts

Auto_1

Horizontal Responsive1