IL&FS' lenders to feel heat of defaults in Q2, see dent in capital adequacy

The lenders, especially public sector banks (PSBs) and institutions with exposure (loans and debt) worth Rs 570 billion, to Infrastructure Leasing and Financial Services(IL&FS) will feel the heat of defaults in for the financial year's second quarter, ended September. They might have to set aside additional capital for default grade loans and for mark-to-market (recalculating assets at current values) provisioning for erosion in the value of bonds of IL&FS group entities.PSB executives said loans to group holding company IL&FS and entities might still be treated as "standard". But, the risk weight for loan exposure will rise sharply from 20 per cent (for AAA-rates ones) to over 100 per cent for default (grade 'D'). Given the Rs 130-billion loan exposure to the holding entity, the capital to be set aside for default grade loans will go up by at least Rs 10 bn. This would have a marginal impact on the capital adequacy ratio, varying among lenders, bankers said. Loans will be