One week after we reported that India’s NPL crisis finally erupted after IL&FS, a major shadow bank at the heart of India’s economy defaulted in one day on three debt payments, India’s government announced on Monday that it would immediately seize control of a shadow lender whose defaults have caused widespread upheaval at mutual funds.

The nationalization is virtually unprecedented: the nation’s corporate affairs ministry has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer Services in 2009. A bid by the government to take control of debt-laden realty firm Unitech in late 2017 was stalled by the Supreme Court after the move was challenged.

According to Bloomberg, officials ousted Infrastructure Leasing & Financial Services Ltd.’s entire board and a new six-member board will meet before Oct. 8, the National Company Law Tribunal said on Monday. India’s richest banker Uday Kotak and ICICI Bank Chairman G.C. Chaturvedi will be part of the proposed board, which will elect a chairperson themselves.

An AAA-rated entity for decades, over the last few years IL&FS, saw an increase in its debt levels. The situation worsened in the last two months with both the parent company and its subsidiaries defaulting on a number of repayment obligations. Banks and insurance companies have the largest exposure to IL&FS.

For India to resort to such a dramatic move, the panic must have been palpable: the nationalization, which unfolded within the span of a hectic day in Mumbai, underscores the government’s concern about IL&FS’s defaults spreading to other lenders in the world’s fastest-growing major economy.

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