IL&FS crisis aftermath: Govt, lenders to weigh solution

By: and |
Updated: January 22, 2019 3:10:17 AM

Recently, Liberty House missed the deadline to meet its commitment and to take over Amtek Auto, prompting banks to approach the National Company Appellate Law Tribunal (NCLAT) for action against the winning bidder.

IL&FS crisis aftermath: Govt, lenders to weigh solution

Top officials in the ministries of finance and corporate affairs will huddle with senior bankers on Tuesday to discuss key issues in the aftermath of the IL&FS crisis, including liquidity and challenges being faced by public sector banks (PSBs) in providing for their exposure to the debt-laden company, official sources told FE.

The crucial meeting comes amid reports that the Reserve Bank of India (RBI) has rejected bankers’ request for a special relief on provisioning requirement with regard to their over Rs 50,000-crore exposure to IL&FS and its entities, stoking fears of a fresh pileup of bad loans.

Corporate affairs secretary Injeti Srinivas, economic affairs secretary Subhash Chandra Garg and financial services secretary Rajiv Kumar are expected to attend the meeting. Senior bankers, including SBI chairman Rajnish Kumar, will also be part of it and submit inputs, said one of the sources.

Meanwhile, after his meeting with bankers and resolution professionals on Monday, Srinivas said the 12 initial large cases that accounted for around a fourth of the non-performing assets in the banking system will likely be resolved by the end of this fiscal. Insolvency and Bankruptcy Board of India chairman MS Sahoo too attended the meeting, aimed at reviewing the progress in the resolution of large cases and expediting the insolvency process.

The government is already considering relaxing the “related party” rule under Section 29-A of the IBC to make it less restrictive and give conditional approvals to certain relatives (of defaulting promoters), who apparently have nothing to do with the delinquency, to bid for stressed assets. The failure of successful bidders of stressed companies to make payment also came up for discussion. Recently, Liberty House missed the deadline to meet its commitment and to take over Amtek Auto, prompting banks to approach the National Company Appellate Law Tribunal (NCLAT) for action against the winning bidder.

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These 12 cases were recommended by the RBI in 2017 for resolution under the IBC that came into being in 2016. The central bank followed it up by sending a second list of 29 stressed companies. However, litigations that typically accompany the implementation of a new law have delayed the resolution process.

For instance, the resolution plan for Essar Steel, which has a debt of `49,212 crore, is pending for approval before NCLT. Similarly, the resolution process for Alok Industries (`29,500-crore debt) and ABG Shipyard (`18,130-crore debt) is still not over.

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As for the IL&FS crisis, bankers last month requested the RBI for relief on asset classification rule as their recovery efforts were impacted with the NCLAT hearing a government petition for a 90-day moratorium on repayments by IL&FS and its arms.

The total exposure of the IL&FS group is estimated at `91,000 crore, of which banks account for over Rs 50,000 crore. PSBs, already struggling with massive bad loans and rely heavily on government infusion, could see a further erosion of their capital base if the provisioning rules are strictly enforced.

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, the NCLAT had stayed all proceedings against IL&FS group and its 348 entities until further orders on a petition by the government.

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