IL&FS Financial told to cut loans to group firms
RBI gives time till March 2019 to meet CAR norms
The Reserve Bank of India (RBI) has asked IL&FS Financial Services to reduce debt exposure in all IL&FS group entities by March 2019, in conformity with the regulations on group debt exposure for non-banking financial companies (NBFCs).
The RBI asked IL&FS Financial Services, a 100 per cent subsidiary of IL&FS, to bring its exposure down within a year, after inspection revealed norms on capital adequacy ratio (CAR) and group exposure limits were breached in March.
As on March 31, the NBFC’s exposure to the top 10 group firms was around 26 per cent of total credit exposure and 208 per cent of its tangible net worth. According to the RBI’s norms, no NBFC can lend to any single borrower exceeding 15 per cent of its net owned fund; and to any single group of borrowers exceeding 25 per cent of its owned fund.
The RBI directive assumes significance as the NBFC’s parent, IL&FS, is facing liquidity problems and has asked its promoters, led by Life Insurance Corporation, to infuse ~45 billion by a rights issue by the end of September. Beside, IL&FS has sought additional lines of credit worth ~35 billion from its promoters for meeting immediate requirements.
According to a source, IL&FS Financial Services followed its own policy while reporting CAR in respect of the definition of ‘companies in the same group’ since October 2007. The NBFC treated each business vertical as separate group exposure for meeting the regulatory guidelines on prudential norms.