MUMBAI: The Reserve Bank of India, in a circular issued on Wednesday, has asked banks and financial institutions to disclose in their ‘notes to accounts’ details of defaults made by the Infrastructure Leasing & Financial Services (IL&FS) and IL&FS entities, and provisions that they need to be make for the same.
The National Company Law Appellate Tribunal (NCLAT) has currently barred the banks and financial institutions from classifying IL&FS defaults as Non-Performing Assets (NPA) without prior approval from it.
The Reserve Bank of India circular on Wednesday is a proactive assessment that the central bank has taken just in time before banks announce their march quarter earnings. This is also in line with the submission it made before the NCLAT, which barred the banks from classifying IL&FS group debt as NPA without its prior approval. Pending an order from the appellate tribunal, RBI has referred to the restraining NCLAT order of February 25, and asked banks to disclose the details in a specific format — to declare the amount outstanding, total amount of exposure that are stressed loans, provisions required to be made as per Income Recognition and Asset Classification norms, and provisions actually held.
As per the regulatory norms, banks have to recognise any account that has defaulted for over 90 days and set aside provisions for the same. Banks, as a prudent measure, may provide for the loans without technically declaring the IL&FS exposure as Non-Performing Assets. Some banks have already made contingency provisions during September as well as December quarter results, even while they held the accounts to be “standard”.Of the IL&FS group’s outstanding debt of Rs 94,216 crore, public sector banks have an exposure of Rs 35,382 crore, other banks Rs 9,436 crore, foreign banks Rs 6,031 crore and other financial institutions Rs 9,138 crore.