IL&FS classification: RBI rejects bankers plea for six-month moratorium

Published: January 9, 2019 5:55:57 AM

The Reserve Bank of India (RBI) has turned down a request from bankers for a special dispensation for asset classification norm with respect to their over Rs 50,000-crore exposure to IL&FS and its subsidiaries.

IL&FS classification: RBI rejects bankers plea for six-month moratorium (Reuters)

Mitali Salian

The Reserve Bank of India (RBI) has turned down a request from bankers for a special dispensation for asset classification norm with respect to their over Rs 50,000-crore exposure to IL&FS and its subsidiaries. The request was made by bankers last month as recovery efforts is impacted as the National Company Law Appellate Tribunal (NCLAT) is hearing a government petition urging a 90-day moratorium on repayments by IL&FS and its subsidiaries.

A banker, who is aware of the development, told FE: “The central bank hasn’t given anything in writing, but has verbally mentioned that no further special forbearance is required in case of IL&FS group loans. They (RBI) have suggested that banks stick to the schedule of asset classification norms in case of these loans.”

With RBI refusing to allow special dispensation, several banks will have to classify exposure to IL&FS as a non-performing asset for the quarter ended December. Banks had sought a six-month moratorium on classification of their exposure to the beleaguered group.

During this period, they wanted their exposure to be treated as standard. The exposure of banks is about 60% of the total debt of the IL&FS group — Rs 50,000 crore out of Rs 91,000 crore.

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According to RBI norms, banks have to make a provision (or in some cases as a penalty accelerated provisioning) of anywhere between 15% and 40% on sub-standard non-performing assets from six months to a up to a year, based on whether it is secured or not. Second year onwards, the NPA attracts a provisioning of 100% on the unsecured portion and between 25%-40% between second and fourth year on the secured portion.

On October 15, 2018, the NCLAT in an interim order stayed all proceedings against IL&FS group and its 348 firms till further orders, hearing an urgent petition moved by the government.

This was after the ministry of corporate affairs had approached the appellate tribunal after the Mumbai bench of National Company Law Tribunal (NCLT) had turned down its plea to grant 90-day moratorium over loans taken by IL&FS and its subsidiaries.

The NCLT on October 1 suspended the board of IL&FS on the government’s plea and authorised reconstitution of the board by appointing seven directors two days later.

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