IL&FS jitters erode 12.5% of MF assets; AUM shrinks to Rs 22 trn in Sept

The crisis linked to Infrastructure Leasing & Financial Services (IL&FS) has hit the mutual fund (MF) industry hard, with 12.5 per cent, or Rs 3.16 trillion, of industry assets getting shaved off in a single month. Total assets under management (AUM) shrunk to Rs 22.04 trillion in September from Rs 25.2 trillion at the end of August.

Most of the damage was due to record outflows from liquid and fixed-income schemes, where large investors invested. The two schemes saw outflows of Rs 2.4 trillion in September — the most since at least January 2008. The pullout in debt market schemes alone accounted for close to 10 per cent of August’s AUM tally.

Industry participants attribute the sharp pullout to nervousness among corporate investors following the IL&FS default, which had quasi-sovereign status. The large amount of outflow has caught the industry by surprise. Industry had earlier estimated outflows in such schemes at around Rs 1 trillion. 

IL&FS crisis: India's busted Macquarie clone must go under the knife

When even a 24-year-old Indian entrepreneur has no difficulty raising $1 billion in a day from global investors, it’s easy to forget that it wasn’t always like this.

Only two decades ago, a storied Mumbai financier could get away with raising $25 million of debt for a client, giving it just about half of that money five years later, and making the company service the full amount thereafter.

But what goes around, comes around. The institution that made a business of exploiting India’s desperation for funds, particularly for long-gestation infrastructure projects, is now seeking to protect its assets from unpaid creditors trying to push it into bankruptcy.

Infrastructure Leasing & Financial Services Ltd. had 30 years to spawn an Indian clone of Macquarie Group: a powerhouse of finance, investments, asset ownership and risk management. Instead, Ravi Parthasarathy, the founder who stepped down recently as chairman, went on to build an unwieldy, debt-fueled empire that has now crumbled. Shareholders will have to move in to rescue IL&FS in their meeting on Saturday.

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