First Cut | IL&FS companies to be categorised according to cash flow

Madhuchanda DeyMoneycontrol Research

Going by media reports, the National Company Law Appellate Tribunal (NCLAT) has asked the government and Infrastructure Leasing & Financial Services (IL&FS) to provide a list of group companies that have the ability to meet payment obligations over the next one year. The Mumbai bench of NCLAT has further suggested that the companies be split into three categories -- green, amber and red -- according to their solvency and cash flow.

The bench said companies under the green category should not be put under moratorium and those under the amber category should pay their secured creditors.

This should bring a lot of relief to banks with exposure to IL&FS group companies that have operating assets. In the absence of this, a lot of those exposures supported by steady cash flow would have technically slipped to non-performing on account of the moratorium. Federal Bank, for instance, has exposure to only operating assets of IL&FS and this should bring it relief.