IL&FS Investment Managers, a unit of India’s Infrastructure Leasing & Financial Services (IL&FS) – an Indian infrastructure development and finance company and one of the nation’s largest “shadow banks” – which announced three debt defaults on Friday, said on Saturday morning its Managing Director Ramesh Bawa had resigned as managing director and chief executive officer as a management exodus begins. The company’s independent directors – Renu Challu, Surinder Singh Kohli, Shubhalakshmi Panse and Uday Ved – had also submitted their resignation papers.

The company first defaulted on commercial paper, then on short-term borrowings known as inter-corporate deposits according to Bloomberg. It has also failed to pay Rs 4.5 billion ($62 million) in ICDs to government-backed lender Small Industries Development Bank of India.

As we noted on Friday, IL&FS revealed a series of three defaults on its non-convertible debt obligations and inter-corporate deposits.

With the meltdown of IL&FS in motion, another unit, IL&FS Transportation Networks, reported that its chief financial officer, Dilip Bhatia, was demoted to chief strategy officer, for the goal of divestment of assets. The regulatory filing said Bhatia would relinquish his responsibilities as CFO with immediate effect, and the company will search for a replacement.

The shockwaves spread further on Friday, when IL&FS Financial Services, another unit of the IL&FS group, said its managing director and chief executive had resigned.

Why is this important? IL&FS’s outstanding debentures and commercial paper account for 1% and 2% respectively, of India’s domestic corporate debt market as of March 31, according to Moody, while its bank loans made up about 0.5% to 0.7% of the entire banking system loans.

And while bad loans in the Italian banking system have received a ton of attention from investors, India is not far behind and India’s economic recovery is built on an even shakier foundation.

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