Road construction takes place near the IL&FS building in Mumbai. (Photographer: Abhijit Bhatlekar/Bloomberg News)

RBI Rejects Request For Special Classification Of IL&FS Loans

The Reserve Bank of India has refused to give any special dispensation to lenders of Infrastructure Leasing & Financial Services Ltd., asking them to classify the loans as non-performing if they are overdue by more than 90 days.

According to two bankers in the know, the banking regulator did not accept a request submitted by a group of lenders to retain a standard asset classification for loans to IL&FS while stepping up provisions against the loans. The request was part of a broader letter written by banks to RBI governor Shaktikanta Das in December.

IL&FS owes Rs 60,000 crore to banks and other lenders. Defaults by the infrastructure conglomerate began in September 2018 after it failed to repay an inter-corporate deposit held by SIDBI. The group’s financial position deteriorated rapidly from there and on October 1 the government superseded the board. Since then IL&FS and its group firms have defaulted on a number of debt obligations.

Banks will now have to classify these as non performing assets as soon as they become overdue by 90 days or more. For some lenders, this may mean a rise in NPAs and provisions during the December-ended quarter. To be sure, not all loans to IL&FS will turn bad in the December quarter.

RBI Rejects Request For Special Classification Of IL&FS Loans

Bankers had argued for a standstill on asset classification as the National Company Law Tribunal has placed group companies under a moratorium. Because of this, banks have been unable to take control of the assets of IL&FS and monetise them.

Lenders, in their letter, had said that they will still make adequate provisions against the loans while retaining them as standard. According to them, this would have made it easier to eventually sell the assets.

As per the asset classification and provisioning guidelines of the RBI, banks are required to make 15 percent provisioning in the first year against any loan account which has been classified as an NPA. The rate of provisioning rises as the NPA ages, with banks having to fully provide against the account after it has been an NPA for four consecutive years.

The Uday Kotak-led interim board appointed to finalise a resolution for IL&FS is currently in the process of finding buyers for some of the individual assets to repay lenders. Some of the assets up for sale include road and renewable energy projects along with the securities and settlement businesses. IL&FS and its 347 subsidiaries and associate companies have total debt of about Rs 91,000 crore.

Also read: Macquarie Is Said to Be Among Parties Interested in IL&FS Assets