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Lenders May Set Aside Provisions Against IL&FS Accounts In March Quarter

Banks may set aside floating provisions against IL&FS exposure in absence of NPA classification

Conversations around a possible rescue of strained Infrastructure Leasing & Financial Services Ltd, have narrowed down to a handful of large investors. 
Conversations around a possible rescue of strained Infrastructure Leasing & Financial Services Ltd, have narrowed down to a handful of large investors. 

Lenders to Infrastructure Leasing & Financial Services Ltd. will likely set aside floating provisions against their exposures to the group and its special purpose vehicles in the March 2019 quarter even though the accounts would not be tagged as ‘non performing’ immediately, three bankers in the know said. This, lenders believe, will help them avoid the ire of courts and the banking regulator.

The income recognition and asset classification norms of the Reserve Bank of India mandate that banks must classify an account as non-performing asset (NPA) if it has been in default for 90 days or more. However, the National Company Law Appellate Tribunal in a recent order said that banks cannot tag any IL&FS accounts as NPAs without the court’s permission. While the RBI has sought a modification of the order, a decision from the court is pending.

The RBI will await final orders from the court, governor Shaktikanta Das had said at a press conference this week.

According to the three bankers quoted above, lenders are likely to take a final decision on the matter after the National Company Law Appellate Tribunal (NCLAT) decides on an intervention petition filed by the RBI on April 8. Lenders will also look for any directions from the regulator on provisions against the account before they close their accounts for the last financial year.

The IL&FS Group has a consolidated debt of over Rs 98,000 crore, where public sector banks have the highest exposure of over Rs 35,000 crore, according to a presentation by the new board on April 3. Other banks, including private sector and foreign lenders have a total exposure of nearly Rs 16,000 crore. The rest of the debt is held by investors in non-convertible debentures and commercial papers, financial institutions, corporates and state governments.

State Bank of India, Punjab National Bank Ltd., Bank of Baroda, Union Bank of India, IDBI Bank Ltd. and Bank of India, have loan exposures to IL&FS Group. Most state-run banks are yet to make provisions against the account.

Private sector lender IndusInd Bank has already made floating standard asset provisions worth Rs 530 crore and overall provisions of Rs 600 crore against its exposure to IL&FS and its SPVs in the July-September and October-December quarters. While announcing its results for the October-December quarter, Yes Bank had declared that its exposure to the IL&FS Group was at Rs 2,530 crore, of which, Rs 1,913 crore was already classified as NPA and a 25 percent provision was being maintained.

In a press briefing earlier this week, Uday Kotak, non-executive chairman, IL&FS had stated that the board was not in a position to provide a timeline to lenders on repayment of their dues as the group structure is complicated and a resolution plan is not easy. It is also not possible to determine how long the NCLAT mandated moratorium will last, Kotak added.

The group is currently in the midst of a sale process for monetising 55 different assets across six business verticals to raise funds. The total debt associated with these assets is around Rs 40,000 crore. However, it is not clear how much the creditors will be paid from this. The IL&FS Group is also trying to sell its non-core assets including real estate and vehicles owned by the company, N Sivaraman, chief operating officer had said.

According to the NCLAT’s order, a sub-set of IL&FS entities, which are in a position to repay dues fully, will be allowed to restart payments. However, others which can either partially repay or not repay at all will remain under moratorium.