ILFS lenders will have to set aside additional capital to provision for soured loansNew Delhi:The Reserve Bank of India (RBI) has asked lenders of Infrastructure Leasing and Financial Services(ILFS) to classify loans extended to bankrupt shadow banking firm as non-performing, two sources with direct knowledge of matter told Reuters on Tuesday.While RBI decision does not come as a big surprise, it means ILFS's lenders will have to set aside additional capital to provision for soured loans.Bad loans at country's banks reached a record $150 billion at end of March, with state-run banks accounting for lion's share.
The huge pile of bad debt has hurt bottom lines of state-run banks and hindered their ability to issue new loans.In October, government took control of ILFS, after a string of defaults on debt obligations by infrastructure financing and construction company spooked domestic markets.ILFS, which has a total debt of Rs 91,000 crore ($12.97 billion), has been trying to sell its assets to repay debt after several defaults forced government to overhaul its management.Government-owned firms, including Life Insurance Corp (LIC) and State Bank of India (SBI), own nearly 40 per cent of company.
Japan's Orix Corp has a 23 per cent stake and Abu Dhabi Investment Authority 12 per cent.Apart from State Bank of India, other domestic lenders include Bank of Baroda, Punjab National Bank, and Union Bank of India, among others.One of sources said RBI told lenders to book loans to ILFS as non-performing assets in December quarter.The second source said RBI's decision was conveyed to banks on Tuesday.The RBI did not respond to an email seeking comment.
SBI and other lenders were not immediately reachable for comment.($1 = Rs 70.1730)