INSUBCONTINENT EXCLUSIVE:
NCLAT on Monday ruled that no bank or financial institution (FI) shall declare the accounts of cash-strapped Infrastructure Leasing and
Financial Services (ILFS) and its group companies as non-performing assets (NPAs) without its prior permission.The order comes as a big
relief to both financial institutions and ILFS as it would prevent banks from making higher provisioning required for bad assets while also
giving the debt-ridden entity more breathing space to find investors and prevent fire sale of companies.Hearing petitions moved by a group
of lenders, the National Company law Appellate Tribunal (NCLAT) bench headed by Justice (Retd) SJ Mukhopadhyay said that in the interest of
government plan for the resolution of ILFS Group companies, its assets should not be declared as NPA without its approval.As per banking
regulations, an account is tagged as an NPA when payments remain due for 90 days
This means that NCLAT order now dilutes the provisions of the banking regulations and sets a precedent which could also have a bearing on
asset resolution process in other cases.During the last hearing on February 11, the NCLAT had allowed 22 companies of ILFS, which were
classified as "Green" companies based on their health, to start servicing the debts
It also allowed 133 group companies incorporated outside the country to continue with the resolution process.The appellate tribunal had also
approved appointment of retired Supreme Court judge Justice DK Jain to supervise the resolution process of the cash-strapped entity and its
group companies.The NCLAT had allowed ILFS and its group entities to be classified into three categories - Green, Amber and Red
Green companies are those which can service their debt obligations in normal course of operation, Amber companies can only meet the
operational payment obligations and the Red category comprises entities which cannot service their debt obligation even towards secured
creditors.In the case of ILFS, the NCLAT order has come as a relief for bankers as well, since several of assets were scheduled to be tagged
as NPAs in the current financial year
This would have added to the load on banks with higher provision of capital against bad assets
In fact, the Indian Banks' Association had even appealed to the Reserve Bank of India (RBI) for a special dispensation for ILFS that would
have given more time to resolve the asset, but the request was turned down.Banks have an exposure to the tune of Rs 16,000 crore in Amber
assets of ILFS and a special dispensation here could have prevented fire sale and easier resolution.The problem at ILFS started in September
when it first defaulted on debt securities in September last year
Subsequently, the government dismissed the board of the group and appointed an interim board headed by Uday Kotak to finalise a resolution
plan.The total debt of the group stands at Rs 91,000 crore, most of this is on the books of subsidiaries and special purpose vehicles
While some of these entities have the ability to pay, others don't.
