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Opinion
Andy Mukherjee

India Needs to Stop the IL&FS Rot From Spreading

Regulators should bail out the shadow lender, then make sure the contagion is curbed.

Advertising for an IL&FS-backed project in Gujarat: The latest gift was unwanted.

Advertising for an IL&FS-backed project in Gujarat: The latest gift was unwanted.

Photographer: Dhiraj Singh/Bloomberg

A tad late, but the message is finally reaching India’s regulators: Infrastructure lender IL&FS is not a business that can be allowed to fail without consequences. An unusual Sunday evening joint statement by the securities regulator and the central bank suggests a much-needed awareness of systemic risks.

Infrastructure Leasing & Financial Services Ltd. is a sprawling nonbank institution that used its highly rated paper to chalk up $12.5 billion of debt, which it funneled into the financing of long-term assets like roads, townships and water-treatment plants. Most of these businesses are owned by IL&FS-linked operating companies.