RBI follows tribunal dictat on IL&FS loans

Mumbai: The Reserve Bank of India (RBI) on Wednesday allowed banks to treat exposure to IL&FS and its group entities as non-performing assets (NPAs) following the National Company Law Appellate Tribunal’s (NCLAT) order allowing banks to declare defaulting loans of IL&FS and its group companies as bad loans.

More positive news on the IL&FS front emerged as a senior government official said loan exposure worth Rs 12,000 crore of almost 55 green category companies of IL&FS group is likely to be settled by July end.

The RBI in a late evening notification withdrew its April 24 circular that had asked banks to not treat their exposure to beleaguered IL&FS and its 300 group entities as NPAs, following a circular by the NCLAT on February 25. It had said that “no financial institution will declare the accounts of ‘Infrastru-cture Leasing & Financial Services Limited’ or its entities as ‘NPA’ without prior permission of this Appellate Tribunal”. The RBI circular had said that banks and all India financial institutions (Exim Bank, Nabard, NHB and Sidbi) must mention the total amount of exposure outstanding to IL&FS and IL&FS entities, of this the total amount of exposures which are NPAs as per Income Recognition and Asset Classification (IRAC) norms, but not classified as NPA. These banks, RBI had said, must also reveal the provisions required to be made and the provisions actually made by the banks in their notes to financial statements.

However the NCLAT on May 2 allowed banks to declare defaulting loans of IL&FS and its group companies as bad loans.

In view of the NCLAT order, the instructions contained in the previous circular stand withdrawn, the central bank said in a notification on Wednesday.

As per RBI’s IRAC norms, a loan where repayment has been delayed by more than 90 days should be classified as NPA and 15 per cent of the outstanding loan has to be set aside as provisions in the first year. The provisions then increase to 25 per cent, 40 per cent and finally to 100 percent as the asset quality deteriorates.

Meanwhile, Corporate Affairs Secretary Injeti Srinivas said loan exposure worth Rs 12,000 crore of almost 55 green category companies of IL&FS group would be settled by July end.

Ten out of the 55 group companies account for nearly 90 per cent of the loan exposure.

Besides, many of the green category companies have positive equity, which means that after settling debt obligations, shareholders would "get something in return for their equity stake", Srinivas said.

As part of the resolution efforts, the group companies have been classified into three categories, mainly based on their financial positions —  green, amber and red.

"In the green category, the major focus is on settling dues with respect to those ten large companies.

If the dues of the ten companies can be settled, then 90 per cent of the Rs 12,000 crore can be settled... By July end, we will be aspiring to settle the debt of green companies, which is around Rs 12,000 crore," he said.

In an interview to PTI, Srinivas also said there are a few cases where creditors are willing to restructure the entire loan to make 'amber' assets green. "We are open to that. If they can be made into green, then around Rs 2,000 to 4,000 crore of debt may shift from amber to green," he noted. The amber companies have debt obligations worth around Rs 20,000 crore and since there is a moratorium, the dues of these firms are not being paid yet. Amber companies are those that have enough money to pay senior secured creditors but not unsecured ones.