RBI nod to treat IL&FS exposure as NPAs

Instruction follows NCLAT order on May 2 to that end

MUMBAI: Following the National Company Law Appellate Tribunal’s (NCLAT) order on May 2, the Reserve bank of India has allowed banks to treat exposure to IL&FS and its 300 odd group entities as non-performing assets (NPAs) in their books.

The appellate tribunal, however, had said the lenders would not be able to initiate recovery process against these accounts or debit money from them.

The NCLAT order came on a plea moved by the Reserve bank of India (RBI), which had argued that banks had an obligation to mark these assets as NPA in the cases of non-payment of the loans, after they exceed 90 days of default.

Thursday’s RBI order is a reversal of its own April 24 instruction when the central bank had asked banks to not treat their exposure to IL&FS and its group entities as NPAs, following a circular issued by NCLAT to that end.

Appellate Tribunal had then said that “no financial institution will declare the accounts of ‘Infrastructure Leasing & Financial Services Ltd or its entities as ‘NPA’ without prior permission of this Appellate Tribunal”.

However, the RBI had then advised banks and financial institutions to disclose in their notes to accounts.

But the NCLAT on May 2 allowed the banks to declare the accounts of IL&FS and its group companies that have defaulted on repayments of loans as NPAs. A judicial bench then lifted the embargo on the banks to declare the accounts of the debt-ridden IL&FS and 300 group companies as NPAs.

“In view of NCLAT’s May 02, 2019 order, the instructions contained in the (April 24) circular stand withdrawn,” RBI said on Wednesday through a notification.




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