Banks have to create a provision equal to 15% of the exposure as a capital buffer once the loan is unpaid for 90 days
Reserve Bank of India (RBI) has rejected demand of the lenders to IL&FS group for an exemption from classifying the Rs 51,000 crore loans to the beleaguered infrastructure financier as non-performing assets.
Banks were seeking this as there is a moratorium on the recovery. The 90-day moratorium on the loans that began on October 15 will end on January 15.
“Indian Banks’ Association (IBA) had already submitted the demand on the provision relief to RBI, but the regulator rejected the demand,” said a senior banker who is a part of the consortium that lent to Infrastructure Leasing & Financial Services.
RBI’s regulatory prescription mandates banks to create a provision that is equal to 15% of the exposure as a capital buffer once the loan is unpaid for 90 days. This means that the banking system will have to undertake a provision of Rs 7,600 crore by the end of the current fiscal. Troubles for banks began when IL&FS defaulted on its term-loan repayments.
“On all our IL&FS accounts, there is a stand-still clause that prevents us from making any recovery efforts. By the end of the financial year, the entire exposure would have turned into an NPA, for which we have to set aside capital,” said a senior banker. Banks have exposure on the parent company, its subsidiaries and also on various special purpose vehicles.
The Ministry of Corporate Affairs (MCA) had approached the appellate tribunal after the Mumbai bench of the National Company Law Tribunal (NCLT) turned down its plea to extend the moratorium by another 90 days from January 15, the date on which the first moratorium ends. The matter is still pending with the National Company Law Appellate Tribunal (NCLAT), where the banks had opposed the extension of the moratorium.
While the total borrowings of the IL&FS group are around Rs 91,000 crore, it owes Rs 25,767 crore towards investment in non-convertible debentures by investors, Rs 3,028 crore in commercial papers, Rs 1,707 crore to non-banking finance companies, Rs 1,102 crore to corporates, Rs 9,137 crore to financial institutions and Rs 6,030 crore to foreign banks.
NO LEEWAY
- Banks have to create a provision equal to 15% of the exposure as a capital buffer once the loan is unpaid for 90 days
- This means that the banking system will have to undertake a provision of Rs 7,600 crore by fiscal-end
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