‘Banks can declare defaulting IL&FS accounts as NPAs’

The National Company Law Appellate Tribunal (NCLAT) on Thursday allowed the banks to declare as non-performing assets (NPAs) the accounts of IL&FS and its group companies that have defaulted on payments.

A bench headed by Chairman Justice S.J. Mukhopadhaya lifted the embargo on the banks to declare the accounts of the debt-ridden IL&FS and its 300 group entities, which are unable to pay their debt.

However, the appellate tribunal has also clarified that although the banks would declare the IL&FS accounts as NPAs, they cannot initiate recovery process and debit money.

The bench has observed that lenders must not withdraw support until a resolution is found for the IL&FS and its group companies.

Presently, Infrastructure Leasing & Financial Services (IL&FS) Group companies, with a collective debt of over Rs. 90,000 crore, are going through a resolution process. The NCLAT had, in February, prohibited banks from recognising any IL&FS group accounts as non-performing assets without first seeking approval from the tribunal.

The RBI had moved the NCLAT to modify the order allowing the banks to declare the defaulting accounts of IL&FS as NPAs, as per banking regulations.

It contended that banks had an obligation to mark bad loans as NPA in cases of non-payment, after the default of 90 days.