IL&FS Provisioning: Banks to seek relief from Reserve Bank

Mumbai | Published: December 15, 2018 4:51:24 AM

Bankers to Infrastructure Leasing and Financial Services (IL&FS) and its subsidiaries have decided to seek relief from the Reserve Bank of India (RBI) on provisioning norms after December 17, if the National Company Law Appellate Tribunal (NCLAT) extends its stay on proceedings against IL&FS and its 346 subsidiaries.

ilfs, rbi, resercv bank, reserve bank of indiaAccording to the IL&FS 2018 annual report, the group?s consolidated gross debt stood at Rs 91,091 crore

By Mitali Salian

Bankers to Infrastructure Leasing and Financial Services (IL&FS) and its subsidiaries have decided to seek relief from the Reserve Bank of India (RBI) on provisioning norms after December 17, if the National Company Law Appellate Tribunal (NCLAT) extends its stay on proceedings against IL&FS and its 346 subsidiaries.

According to a banker aware of the developments, “Bankers are worried that the appellate tribunal’s stay on legal proceedings against IL&FS loans could cause the accounts to turn non-performing assets, putting the burden of higher provisioning on banks. It has been mutually decided that we will wait until December 17 and approach the central bank in case the tribunal extends the moratorium.”

Bankers will request the central bank to announce a six-month relief from asset classification and provisioning norms on loans to IL&FS and its subsidiaries, based on the respective dates of defaults.

Alternately, bankers will seek a relief until the NCLAT’s moratorium itself is lifted, he added.

The appellate tribunal that has currently stayed proceedings against the group companies till further order based on an appeal by the ministry of corporate affairs and is expected to extend the moratorium at the hearing coming up next week.

The government moved the appellate tribunal after its request for a 90-day moratorium was turned down by the Mumbai bench of the National Company Law Tribunal (NCLT).

The moratorium was sought by the MCA counsel so that the new board of directors could work towards resolving the constraints in making payments to creditors and submit the financial results at the earliest.

“Essentially, with no control on the NCLAT’s moratorium, bankers don’t want to take on the burden of provisioning that could come with further deterioration in the quality of loans to the holding company and its subsidiaries.”

According to the IL&FS 2018 annual report, the group’s consolidated gross debt stood at Rs 91,091 crore, including Rs 55,870 crore in term loan liabilities, of which current liabilities stand at Rs 8,919 crore.

It has been reported that bankers also agreed to request that they be allowed to treat the assets arising from the exposure to IL&FS or its subsidiaries as standard and provide accordingly after the above-mentioned six-month relief or moratorium that bankers seek comes to an end.

Also read: RBI board steers clear of taking a decision on diluting governor’s power, for now

According to RBI norms, banks have to make a provision (or in some cases, as a penalty, accelerated provisioning) of anywhere between 15% to 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 will attract a provisioning of 100% on the unsecured portion and between 25%-40% between second and fourth year on the secured portion.

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