Pedestrians walk past a union bank of india Ltd. bank branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Adverse NCLAT Order May Turn Union Bank’s Rs 900-Crore IL&FS Exposure Into A Bad Loan

Union Bank of India said its exposure to the IL&FS thermal power project could turn into a bad loan in the next quarter if the National Company Law Appellate Tribunal does not modify its order for cash flow into special purpose vehicles.

The lender’s exposure to the plant is close to Rs 900 crore, Managing Director and Chief Executive Officer Rajkiran Rai G told BloombergQuint.

The appellate tribunal, in its order in October 2015, said that cash flows of the parent of the IL&FS group be ring-fenced within the company till debt obligations are met. This means that special purpose vehicles and associate companies would be starved for capital and won’t be able to service their debt soon.

“As of now, it [the exposure] is not downgraded, so the cash flows in these accounts is good, which is escrowed. But because of the recent NCLAT order, money is not flowing to the loan account from the escrow account,” the official said. “We hope once this issue is resolved, the NCLAT order is expected to be modified to the extent of cash flow to the special purpose vehicles, we hope this account will not slip.”

An adverse decision by the tribunal, however, may cause a slippage in the next quarter, he said.

Also read: Operational IL&FS SPVs Seek Refund Of Debt Payments, Says India Ratings

Here are the bank’s earnings highlights for the third quarter:

  • Net interest income fell 2.1 percent to Rs 2494.1 crore.
  • Net profit stood Rs 153.2 crore compared to a net loss at Rs 1,250 crore.
  • Other income stood at Rs 1,095 crore versus Rs 873.1 crore.
  • Provisions stood at Rs 2,139.1 crore versus Rs 1,710 crore in the preceding quarter.
  • Gross non-performing asset came at 15.66 percent versus 15.74 percent in the September quarter.
  • Net NPA stood at 8.27 percent versus 8.42 percent in the previous quarter.

Watch the full interaction with the management here: