In 2018, Infrastructure Leasing & Financial Services (IL&FS) — once a trusted name in infrastructure lending — defaulted on its debt. Over ₹90,000 crore worth of liabilities came under scrutiny, sparking panic in Indian financial markets and exposing cracks in how infra projects were being financed.
This is not just a case of corporate failure — it’s a lesson in what not to do when managing long-term infrastructure risk.
What Was IL&FS?
L&FS was a systemically important NBFC (Non-Banking Financial Company) that operated in:
Project financing
Advisory and infrastructure development
SPVs (Special Purpose Vehicles) across roads, power, ports, water, and more
t was backed by big names like:
LIC (25%)
ORIX Japan (23%)
HDFC, State Bank of India, and others
For years, IL&FS was seen as a reliable vehicle for India’s infrastructure ambitions.
hat Went Wrong?
Despite the image of stability, the group was riddled with mismanagement, debt layering, and opaque cash flows.
Here’s what caused the collapse:
| Issue | What Happened |
|---|---|
| Over-leveraging | 350+ subsidiaries with complex inter-company loans and weak parent cash flow |
| Project delays | Toll roads, power, and water projects delayed → cash flows didn’t start |
| Evergreening of loans | Borrowed fresh debt to repay older debt → unsustainable debt spiral |
| Lack of credit discipline | Lending to risky or stuck projects without proper risk buffers |
| No central cash control | SPVs operated in silos with no consolidated cash monitoring |
| No transparency to investors | Rating agencies and regulators were unaware of true financial health |
The result? Defaults across multiple bond and loan obligations in September 2018 — a full-blown financial contagion risk.
Lessons from IL&FS Collapse
🟥 1. Structure & Governance Matter as Much as Capital
Having big investors means nothing if your structure lacks accountability. IL&FS’s 350 subsidiaries operated without financial integration or central governance.
🟥 2. Project Delays Can Sink Cash Flow
Many IL&FS projects had delayed land acquisition, poor planning, or stalled approvals. This delayed revenue, leading to repayment issues. Without clear contingency buffers, defaults followed.
3. Inter-company Lending is Risky in Infra
IL&FS borrowed at the parent level and pushed funds to subsidiaries (SPVs), but these often couldn’t repay. Cash never came back up, choking parent-level liquidity.
4. Ratings Can’t Replace Risk Analysis
IL&FS was rated investment-grade until just before default. This shows why analysts must go beyond credit ratings and study project cash flows, timelines, and structural risk
Summary
The IL&FS crisis wasn’t just financial — it was a structural failure.
The group’s collapse taught India the need for:
Transparent cash flow structures
Clean governance in SPVs
Conservative assumptions in project finance
Early warning systems for DFI/NBFC lenders