It is wrong to ask infrastructure financiers such as Infrastructure Leasing & Financial Services (IL&FS) to follow the NPA (non-performing assets) rules that are applicable to commercial banks, said RSS ideologue and board member of Reserve Bank of India (RBI) S. Gurumurthy.
An account is considered non-performing if interest and/or principal is due for more than 90 days.
“What’s happening to ILFS is unfortunate. ILFS assets are built for 30 years return on 10-year finance,” the RBI director said.
IL& FS assets are built for 30 years return on 10-year finance
“They have to refinance it every 10 years. This is the structural model of ILFS. The NPA rules, which are applicable only to commercial banks, are being applied wrongly,” Mr. Gurumurthy tweeted. The Basel Committee rules, he argued, were applicable for commercial banks and not universal banks. In India, most of the lenders, however, were universal banks that extended term loans for infrastructure projects, he added.
Basel norms
“Basel rules are designed for commercial banks, not universal banks which all Indian banks are, and term-lending institutions which IL&FS & the likes are. Applying NPA norms to them is to ask one play football with hockey rules. Unfortunate a good institution is being destroyed,” he said in an another tweet. IL&FS had defaulted on commercial papers and, as a result, its rating was downgraded. On Friday, the MD and CEO of IL&FS Financial Services, Ramesh Bawa and four independent directors had resigned.
