IL&FS arm may lose 90% of Rs 19K cr gross bad loans

IL&FS Financial Services Ltd (IFIN) has a gross non-performing assets (GNPA) of around 90%, possibly a record for companies in its financial bracket.

“One of the things that would have struck many of you is that a company which reported GNPA of about 5% in March 2018 (has such a high GNPA later). I have heard double digit GNPA, but 90% GNPA, I am sure all of you would say is unusual by any standards that is the challenge which we have to face,” said Uday Kotak, non-executive chairman, IL&FS, on Wednesday.

Six months ago, on October 3, Uday Kotak-led management took charge of IL&FS group.

While updating on the last six months’ performance on the resolution and recovery processes undertaken by the management, N Sivaraman, chief operating officer, said, “Group entity’s recovery will be subject to the resolution process and what kind of valuation are we able to realise and get the money back.”

IFIN has an external exposure of Rs 10,656 crore, while the exposure to IL&FS Group and its various entities is Rs 6,849 crore. IFIN’s other current assets is Rs 1,300 crore, making the total exposure Rs 18,805 crore.

As of March 2018, the gross bad loans were around 5.3%, which jumped to around 61.8% in September 2018. This further increased to about 90% in December 2018.

“As far as enforcement with the third parties is concerned, the recovery process is on. But I still fear that we are staring at around 90% gross NPA, which means that these are difficult credits. We have lent money, but they have defaulted on their normal servicing. There’s a portion of the credit, which we have been able to collect Rs 697 crore from those assets. We have also been able to get Rs 235 crore from the recovery process,” said Sivaraman.

Showing confidence in improving the numbers, the senior executive said they are not saying that this 90% is to be forgotten.

“The recovery efforts are on. There are enough opportunities to make sure that we are able to recover. We will use the legal process to recover in the form of Insolvency and Bankruptcy Code (IBC), one-time settlement, even criminal process, etc; multiple ways of making the client or borrower to come to the table. We can’t predict the timeline over here. It’s going to be time consuming and long drawn process,” Sivaraman said.

At the group level, the total outstanding debt (fund based as well as non-fund based) currently stands at Rs 99,354 crore. Of this, Rs 48,470 crore is fund-based debt in four holding companies, namely, IL&FS, IFIN, IL&FS Energy Development Co Ltd (IEDCL) and IL&FS Transportation Networks Ltd (ITNL).

Kotak also expressed concern about the net worth of the entities and businesses of the group. “It would be reasonable to assume that there is significant erosion in net worth, and in many cases there could be significantly negative net worth,” he said.