Mumbai: The Reserve Bank of India (RBI) on Wednesday withdrew its 24 April-circular which mandated banks to disclose their exposure to Infrastructure Leasing and Financial Services Ltd (IL&FS), and its group entities, in their notes to financial statements.
This comes after the National Company Law Appellate Tribunal (NCLAT) last week allowed banks to declare defaulting loans of IL&FS and its group companies as bad loans.
“In view of the National Company Law Appellate Tribunal’s (NCLAT) order dated May 2, 2019 in respect of Company Appeal (AT) No. 346 of 2018 and I.A. No. 1139 of 2019, the instructions contained in the above mentioned circular stand withdrawn," the central bank said in a notification on Wednesday.
RBI had earlier said that banks must disclose details, including total amount of exposure that are non-performing assets (NPAs) as per Income Recognition and Asset Classification (IRAC) norms, but not classified as NPA. These banks, RBI had said, must also reveal the provisions required to be made and the provisions actually made by the banks.
On 25 February, NCLAT had said that owing to non-payment of dues by Infrastructure Leasing and Financial Services (IL&FS) or its subsidiaries, no financial institution will declare the accounts as NPA without the prior approval of the appellate tribunal. The central bank had appealed against this order.
As per RBI’s IRAC norms, a loan where repayment has been delayed by more than 90 days should be classified as NPA and 15% of the outstanding loan has to be set aside as provisions in the first year. The provisions then increase to 25%, 40% and finally to 100% as the asset quality deteriorates.