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Crisis-hit IL&FS will create new non-performing loans, says Moody's

This is because lenders to operating companies have the first right to cash flows from operating assets

Abhijit Lele 

IL&FS, Infrastructure Leasing and Financial Services, Mumbai
A logo of IL&FS (Infrastructure Leasing and Financial Services) is seen on a building at its headquarters in Mumbai. Photo: Reuters

Rating agency Moody's said the default by IL&FS and its group entities would result in new non-performing loans (NPLs) for lenders. The operating firms are expected to have smaller losses, given the default on average, compared to those at the holding company. This is because lenders to operating have the first right to cash flows from operating assets. A majority of public sector banks have exposure to operating Private sector banks are more exposed to the holding firm and intermediate holding firms.

Banks' direct exposures to the company were about 0.6 per cent of the system loans as of March 2018. "We believe a significant share will become NPLs, though not to the extent that overall NPL ratios will increase," Moody's said in a statement. The loss, given default on individual banks' exposures to IL&FS, may vary depending on which part of the group a bank lent to.

First Published: Tue, December 04 2018. 02:26 IST