IL&FS exposure: IBA may again turn to RBI for relief to banks

By: and | Updated: February 12, 2019 5:12 AM

Following the series of defaults by some entities of IL&FS, the government superseded the board and appointed Kotak as its chairman in October 2018.

RBI, Monetary Policy Committee, Shaktikanta Das, rbi policy rate, Inflation, oil pricesThe government superseded the board and appointed Kotak as its chairman in October 2018.

The Indian Banks’ Association (IBA) will likely approach the Reserve Bank of India (RBI) again, seeking a special dispensation for banks to defer provisioning requirements for their exposure to the crisis-ridden IL&FS. However, instead of a relief on banks’ total exposure of over Rs 50,000 crore to the entire group, the IBA may seek a breather for only ‘amber’ companies of IL&FS, sources told FE.

The ‘amber’ category refers to those IL&FS entities that may have adequate cash flows for repayment to secured creditors but not enough to meet claims of unsecured creditors.

Sources said in a meeting of senior bankers with corporate affairs secretary Injeti Srinivas on January 22, the official had suggested that the IBA take up the issue with the central bank again, giving “full justification” for any such request. The meeting was also attended by Uday Kotak, chairman of the government-appointed board of IL&FS and the vice-chairman of Kotak Mahindra Bank.

As per the plan, the ‘amber’ companies will meet operations and management expenses and other essential costs to preserve the value of going concerns. The rest of their funds will be kept in escrow accounts for distribution among creditors at a later date upon resolution of the stressed assets at the company level. The total exposure of banks to the ‘amber’ companies wasn’t immediately available.

RBI had already turned down requests by some bankers in December 2018 to relax the asset classification rule for their exposure to all IL&FS entities. The bankers had argued that 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.

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All IL&FS entities have now been divided into three categories — green, amber and red, said the sources. The ‘green’ category refers to those companies that are operating with a positive net worth and cash flows to meet one-year payment obligations of all creditors, while the “red” category companies are those that are not in a position to repay even to the secured creditors.

On Monday, the NCLAT allowed 22 ‘green’ entities of IL&FS to service their debt obligations. 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.

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

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

Following the series of defaults by some entities of IL&FS, the government superseded the board and appointed Kotak as its chairman in October 2018.

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