Exposure to IL&FS: Government to ask RBI for relief to banks

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Published: January 23, 2019 2:20:56 AM

Public sector banks (PSBs) — already saddled with non-performing assets — will be hit harder than private peers as their capital base could shrink further and force them to turn to the government for larger infusion.

Exposure to IL&FS: Government to ask RBI for relief to banks

The government will approach the Reserve Bank of India (RBI) seeking a special dispensation for banks to defer provisioning requirements for their exposure to crisis-ridden Infrastructure Leasing & Financial Services (IL&FS), official sources said on Tuesday.

Earlier in the day, top officials in the ministries of finance and corporate affairs met senior bankers in North Block, the building that houses the finance ministry, to hammer out a solution, amid mounting fears that lenders could see a spurt in bad loans from their over `50,000-crore exposure to the debt-laden group if the RBI refuses relief.

Public sector banks (PSBs) — already saddled with non-performing assets — will be hit harder than private peers as their capital base could shrink further and force them to turn to the government for larger infusion.

Separately, top executives of SBI and Punjab National Bank and Uday Kotak, chairman of the government-appointed board of IL&FS and the vice-chairman of Kotak Mahindra Bank, met corporate affairs secretary Injeti Srinivas on Tuesday, banking sources said.

Importantly, the central bank has reportedly turned down requests by some bankers to relax the asset classification rule.

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The bankers had sought relief from the RBI last month, saying their recovery efforts were impacted due to the fact that the National Company Law Appellate Tribunal (NCLAT) was still hearing a government petition for a 90-day moratorium on repayments by IL&FS and its arms.

Banks are required to make a provision of 15-40% on sub-standard NPAs in 6-12 months, based on whether these are secured or not.

In an interim order in October last year on a petition by the government, the NCLAT had stayed all proceedings against IL&FS group and its 348 entities until further orders.

Meanwhile, the debt-laden group is striving to monetise assets, having already put some entities for sale. It’s expected to recover from the current crisis in the next four to five months.

The government could cite the availability of funds in escrow accounts of certain IL&FS companies while seeking the special dispensation from the RBI, said the sources.

The total debt burden of the IL&FS group is estimated at `91,000 crore, of which loans by banks account for over `50,000 crore.

Meanwhile, rating company Crisil has trimmed creditworthiness of two special purpose vehicles of IL&FS (Jharkhand Road Projects Implementation Company and North Karnataka Expressway), citing “heightened risk” of defaults. Even Icra has reportedly placed ratings of six mutual fund schemes from three fund houses (HDFC, UTI and Aditya Birla) under watch due to their exposures to IL&FS SPVs.

Following a series of defaults by some entities of IL&FS, the government superseded the board and appointed Kotak as its chairman in October 2018. The IL&FS crisis first came under heightened public glare in August 2018 when one of its arms defaulted on the repayment of `1,000 crore debt to Sidbi.

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