February 25, 2026

The government has done well to supersede the board of the troubled IL&FS Ltd. and appoint a six-member board under the chairmanship of Uday Kotak to try and clear the mess the company finds itself in. The IL&FS fiasco had the potential to snowball into a major payments crisis that could have shattered the Indian financial system, bringing down mutual funds, stock markets, insurance companies, banks and NBFCs. On paper, the group has, through a maze of subsidiaries, more assets than liabilities. But none of its assets are likely to fetch the market price in these troubled times, making a bail-out necessary.

Although brewing for a few months, the crisis finally erupted when on September 14, the company defaulted in payments of bank loans and interest, deposits and commercial paper obligations. Subsequently, it also failed to pay back inter-corporate deposits, leading to a ratings downgrade. It created panic in the financial markets.

The first task that the new board faces is to unravel the links of the maze of companies that the group controls. It also has to take stock of the assets on the books, some of which like the ones in the energy and transport sectors are almost duds, and evaluate them. Then, it will have to prepare a roadmap of how the issue will be resolved. The markets will have to prepare themselves for a long haul as all this cannot be done in a hurry.