RBI extends enhanced borrowing limit for banks under MSF till March 31

 The Reserve Bank of India (RBI) has extended the enhanced borrowing facility provided to banks by six months to meet liquidity shortage till March 31, 2021.

On March 27, the central bank had increased the borrowing limit for scheduled banks under the marginal standing facility (MSF) scheme from 2 per cent to 3 per cent of their net demand and time liabilities.

The facility which was initially available up to June 30 was later extended up to September 30 due to economic disruptions caused by the COVID-19 pandemic and subsequent lockdown.

"With a view to providing comfort to banks on their liquidity requirements as also to enable to continue to meet LCR requirements, it has been decided to continue with the MSF relaxation for a further period of six months, that is up to March 31, 2021," the RBI said in a statement late on Monday.

This dispensation, it added, provides increased access to funds to the extent of Rs 1.49 lakh crore and also qualifies as high-quality liquid assets for the liquidity coverage ratio.

Under the MSF, banks can borrow overnight at their discretion by dipping into the statutory liquidity ratio. The marginal standing facility rate currently stands at 4.25 per cent.

FinMin to decide borrowing calendar for H2 of FY21 in Sept last week

 The finance ministry in consultation with the Reserve Bank of India (RBI) will decide the borrowing calendar for the second half of the current fiscal in the last week of this month, sources said.

As per the announcement made in May, the government intends to borrow remaining Rs 5.02 lakh crore out of Rs 12 lakh crore during the October-March period to meet rising expenditure to combat COVID-19 crisis amidst moderation in tax collections.

The exact date for the meeting to decide the borrowing calendar is yet to be fixed but most likely it should happen in the last week of this month, the sources said.

The government had envisaged to raise 58 per cent of the total borrowing target of Rs 6.98 lakh crore from the dated securities in the first half of the current fiscal.

During first quarter of 2020-21, the central government issued dated securities worth Rs 3,46,000 crore as against Rs 2,21,000 crore in the same period a year ago. In the second quarter, the borrowing through dated papers has touched Rs 3.60 lakh crore as of September 18.

Thus, total borrowing so far this fiscal has been Rs 7.06 lakh crore, exceeding the government borrowing plan of Rs 6.98 lakh crore. This leaves the room for borrowing of less than Rs 4.94 lakh crore in the second half of the financial year.

One more borrowing as per the calendar is likely to take place on September 25 of Rs 30,000 crore. After that, the borrowing for the remaining six months of the current fiscal will be limited to Rs 4.64 lakh crore if the government does not raise its borrowing level beyond Rs 12 lakh crore.

Hard-pressed for funds to combat rising coronavirus infections, the government in May increased its market borrowing programme for the current financial year by more than 50 per cent to Rs 12 lakh crore.

Finance Minister Nirmala Sitharaman in the 2020-21 Budget, presented in Parliament in February, had pegged the gross market borrowing -- which is also a reflection of fiscal deficit --, for the current fiscal at Rs 7.80 lakh crore. The amount was up from Rs 7.1 lakh crore in 2019-20.

However, in view of the impact of the lockdown on tax collection and the need to garner additional resources to fight the pandemic, the government decided to substantially increase the market borrowing programme for the current fiscal by about 54 per cent or Rs 4.2 lakh crore.

The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.

The Budget has pegged fiscal deficit at 3.5 per cent for the next fiscal, down from 3.8 per cent of the GDP in the current financial year.

Last fiscal, the government had to resort to the 'escape clause' in the Fiscal Responsibility and Budget Management (FRBM) Act for deviating from fiscal deficit target to 3.8 per cent from the Budget estimate of 3.3 per cent for 2019-20.

The 'escape clause' allows the government to breach its fiscal deficit target by 0.5 percentage points in times of severe stress in the economy, including periods of structural change and those when growth falls sharply.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

RBI announces outright purchase of Rs 10k-cr of bonds from secondary mkts

 The Reserve Bank of India (RBI) on Thursday announced an outright purchase of Rs 10,000 crore of bonds from the secondary markets, to be conducted on September 24.

So far, the central bank had been planning to simultaneously buy and sell bonds in equal amounts, with an intention to keep the operation liquidity neutral. However, this is the first time in this fiscal that the central bank announced an outright open market operations (OMO) purchase. In OMOs, RBI buys or sells bonds from the secondary markets.

The RBI had carried out an outright OMO purchase operation of Rs 15,000 crore on March 26. After that, all the OMOs were simultaneous buy and sell operations, in which the central bank bought long term securities and sold short-term securities, also called ‘Operation Twist’ in market parlance.

In the latest round of outright OMO purchase, the RBI would be buying bonds maturing between 2026 and 2031. The central bank said it was doing so in view of the “current liquidity and financial conditions.”

Well, the liquidity surplus in the banking system has indeed come down from their recent highs of Rs 7 trillion to Rs 4.67 trillion as on Wednesday, but it is still at a huge surplus. However, investors now expect the banking system to be flush with liquidity, and as such a substantial reduction in surplus liquidity causes flutters and puts pressure on the bond yields. RBI may have wanted to arrest that before yields climb up.

“We still have a long way to go insofar as the borrowing programme is concerned,” said R K Gurumurthy, head of treasury at Lakshmi Vilas Bank.

The government’s annual borrowing target is Rs 12 trillion, of which more than half has been borrowed at near 6 per cent yields, which is a decade low cost of borrowing for the government, RBI governor Shaktikanta Das said on Wednesday. The 10-year bond yield closed at 6.03 per cent on Thursday.

However, the outright OMO announcement has important ramifications for the future. The bond market has been demanding an OMO calendar, and expects the central bank to chip in with at least Rs 2-3 trillion of OMO support to accommodate the heavy borrowing programme. This is also a kind of indirect monetisation, and the central bank has tried to avoid that. However, the OMO announcement removes any such doubt that it is the beginning of many such operations to come.

“If the RBI goes for large OMOs, or gives a calendar, or even announces its intent to do more that could cool yields a bit and help a large borrowing programme, in second half, sail through without pushing yields higher,” said Harihar Krishnamurthy, head of treasury at First Rand Bank.

With the announcement of the OMO, the central bank also said it would convert some bonds maturing between April, 2021 and December 2022 for securities maturing between 2031 and 2060. The RBI said it conducted a special OMO of simultaneous purchase and sale of Rs 10,000 crore.

Latest news LIVE: Tourism could be engine of growth, says RBI governor Das

 The country’s economic recovery is likely to be gradual as the country is still reeling from the impact of coronavirus (COVID-19), RBI Governor Shaktikanta Das said on Wednesday.

Addressing the FICCI National Executive Committee Meeting, the central bank chief said that the economic recovery is not fully entrenched. He added that the GDP data for the first quarter (Q1) was a telling reflection of how COVID-19 affected the economy.

 

Meanwhile, the Parliament's monsoon session is underway, which started on Monday with unprecedented precautions against the coronavirus, including staggered sittings of both houses and social distancing between MPs.

The Bihar government has set the wheels in motion for the construction of a new complex of the Patna Collectorate, days after the high court lifted an interim stay on the demolition of the historic landmark, dealing a blow to a sustained bid by citizens for its preservation. Chief Minister Nitish Kumar is slated to lay the foundation stone of the new complex.

Stay tuned for the latest news of the day.

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03:08 PM 

Rupee settles 12 paise higher at 73.52 against US dollar

The rupee strengthened by 12 paise and settled at 73.52 (provisional) against the US dollar on Wednesday supported by positive domestic equities and weak American currency.

 

At the interbank forex market, the local unit witnessed high volatility against the US dollar. It opened at 73.70, gained the lost ground and finally closed on a positive note at 73.52 against the US dollar, registering a gain of 12 paise over its previous closing price 73.64.

 

During the session, the domestic unit touched an intra-day high of 73.48 and a low of 73.78 against the greenback.

02:52 PM 

Tamil Nadu: 587.5 kg of tobacco products seized from a house in Madurai

02:40 PM 

2.83 mn domestic air passengers in Aug, 76% lower than in Aug 2019: DGCA

A total of 2.83 mn domestic passengers travelled by air in August this year, 76 per cent lower than the corresponding period last year, aviation regulator DGCA said on Wednesday.

 

While IndiGo carried 1.68 mn passengers, a 59.4 per cent share of the total domestic market, SpiceJet flew 39.1 mn passengers, which is 13.8 per cent share of the total market, the DGCA data noted.

 

These two airlines were followed by Air India, AirAsia India, Vistara and GoAir at 278,000, 192,000, 142,000 and 133,000 passengers respectively in August, the data showed.

 

As many as 2.12 mn people travelled by air domestically this July, the regulator had said last month.

02:30 PM 

Centre has no proposal to amend Official Languages Act: MHA

MoS for Home Affairs, Nityanand Rai clarified that the Central government has no proposal to amend the Official Languages Act to include Scheduled languages other than Hindi and English as its official languages as suggested by the Supreme Court. The Minister clarified this in a written reply in Rajya Sabha to the unstarred question posed by Marumalarchi Dravida Munnetra Kazhagam (MDMK) founder and Member of Parliament (MP) Vaiko.

02:18 PM 

Centre in SC favours time bound trial of pending cases against lawmakers

The Centre favoured expeditious disposal of pending cases against former and sitting lawmakers on Wednesday before the Supreme Court and said these matters "must reach their logical conclusion" within a time frame.

 

A bench of Justices N V Ramana, Surya Kanta and Hrishikesh Roy was told by Solicitor General Tushar Mehta, appearing for the Centre, that he has no problems with the suggestions made for speedy disposal of case by senior advocate Vijay Hansaria, appointed as amicus curiae in the matter.

 

Mehta said that if proceedings of any of these cases against lawmakers are stayed by the high court, then the top court may direct the it to decide the matter in a time bound manner.

02:11 PM 

Volvo Car India partners with HDFC Bank to launch Volvo Car Financial Services

Volvo Car India on Wednesday said it has partnered with HDFC Bank to launch Volvo Car Financial Services to enable buyers get easy finance for its vehicles.

 

The service facilitates finance of up to 100 per cent of ex-showroom price of the car and offers convenient repayment options, with no foreclosure charges under specific conditions, the company said in a statement.

 

Other features of the financial service include loans for up to 7 years and option to finance insurance, extended warranty, service package and accessories.

01:59 PM 

Revenues of Indian airlines fell by 85.7% in April-June period due to Covid-19

The revenue of Indian airlines fell by 85.7 per cent to Rs 3,651 crore during the first quarter of 2020-21 in comparison to the corresponding period a year ago due to Covid-19, said Civil Aviation Minister Hardeep Singh Puri on Wednesday. Moreover, employee count at the Indian carriers went down from 74,887 on March 31 to 69,589 on July 31, a decrease of 7.07 per cent, Puri stated in a written reply to a question in Rajya Sabha.

 

"The revenue of airport operators has reduced from Rs 5,745 crore during April-June 2019 to Rs 894 crore during April-June 2020," he said.

 

The minister said the employee count at airports has reduced from 67,760 on March 31 to 64,514 on July 31.

01:52 PM 

Prime concern is to protect depositors, ensure financial stability: RBI

The Reserve Bank of India (RBI) is more concerned about the depositors interest and preserving financial stability than giving doles to the industry, governor Shaktikanta Das indicated to industry captains on Wednesday.

 

“The primary concern in the banking system is the protection of depositors’ money. Ultimately, it is the depositors’ money that is being lent out,” governor Das said in an interaction with the governing council of the industry lobby group Federation of Indian Chambers of Commerce & Industry (FICCI). Read more

01:41 PM 

CBI probe for Kerala gold loan firm case: HC seeks Centre's call

Acting on six different petitions, the Kerala High Court on Wednesday passed an interim order seeking Centre's view on the need for a federal probe into a gold loan firm's claim of having gone bust, besides asking police to treat each complaint as an individual case against the company.

 

The high court directed the Personnel Department of the Centre to take a call on the need for a CBI probe into the manner in which the leading finance firm -- Popular Finance -- went bust leaving thousands of depositors in the lurch.

01:28 PM 

Just 2 papers for power connection: Govt drafts easier, user-friendly rules

In a first-of-its-kind move, the Union power ministry on Wednesday announced it had drafted rules providing for the Rights of Electricity Consumers to simplify the procedure for electricity connection. Just two documents would be required for an electricity connection with load of up to 10 kw. Recognising that consumers were the most important stakeholders, the ministry invited suggestions and recommendations from the public on the draft by September 30. Read on...

Will take necessary measures to promote growth: RBI Guv Shaktikanta Das

 RBI Governor Shaktikanta Das on Wednesday assured the industry that the central bank will take all necessary measures to ensure liquidity in the system and promote economic growth.

Indian economy contracted 23.9 per cent in the first quarter of the current financial year.

Addressing a virtual conference organised by industry body Ficci, Das said that Gross Domestic Product (GDP) data released by the government was a "reflection of the ravages of the COVID-19".

Observing that the economic recovery was not yet fully entrenched, the RBI Governor said recovery is likely to be gradual.

"The recovery is, however, not yet fully entrenched and more over in some sectors the optics which was noticed in June and July, they appear to have levelled off... by all indications, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with increasing infections," he said.

As per government data, GDP during the April-June quarter contracted 23.9 per cent on account of the strict lockdown imposed by the government towards end of March to check the spread of coronavirus infections.

In his address, Das spoke about the initiatives taken by the central bank to ease the liquidity situation and make available funds to the businesses impacted by the pandemic and subsequent lockdowns.

The Governor also assured the industry that "RBI is battle ready... whatever measures are required will be taken by the RBI" to help the industry and businesses to come out of the COVID-19-induced crisis.

Further, he asked businesses to capitalise on the new opportunities created by the pandemic at the global level.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

One-time loan recast for India Inc may come up at Friday's RBI board meet

A one-time restructuring of loans for India Inc may figure in discussions at the Reserve Bank of India’s (RBI’s) central board meeting on Friday — the first since the outbreak of the Covid-19 pandemic.
While the central bank has not decided its position on the merit of such a scheme in the current situation, the affidavits to be filed in the Supreme Court by the Centre, the RBI, and the Indian Banks’ Association with regard to the loan moratorium scheme may have a bearing.

A relaxation in the delinquency period for classification of non-performing assets (NPAs) to 180 days from the current 90 days had found mention in internal meetings of the finance ministry as well, a source said.
Finance Minister Nirmala Sitharaman said on Thursday that a one-time loan restructuring facility for non-MSMEs (medium, small and micro enterprises) was under active consideration. “An intense engagement is on with the RBI to come up with such a scheme. There is a lot of stress now,” she said at a webinar organised by the Chennai International Centre.
ALSO READ: Govt, RBI measures have slowed down contraction in economy: NCAER
The need for such a loan restructuring has gained urgency after the central bank last month said the country’s gross domestic product (GDP) growth would be in negative territory in FY21. The International Monetary Fund expects India’s GDP to contract by 4.5 per cent this financial year.
chart
The RBI had allowed a one-time loan restructuring scheme for India Inc in the aftermath of the 2008 financial crisis. The banking regulator’s August 27, 2008 circular allowed for the restoration of standard asset classification to accounts that had turned NPAs during the restructuring approval process, provided that the restructuring package was implemented within 90 days from the date of receipt of application by the bank taking it up. The two conditions imposed were that the restructuring could not be repeated and that the dues to the bank were fully secured.
What is now being speculated is that a new scheme may have to be suitably tweaked as the ground realities are completely different as no business can go to the pre-Covid levels anytime soon. Therefore, the 2008 circular’s stance that no account is to be taken up for restructuring by banks unless financial viability is established, and there is a reasonable certainty of repayment from the borrower, may not be practical in the current context.
ALSO READ: MSMEs may need massive restructuring post moratorium, says industry
It had further held that accounts not considered viable should not be restructured and banks should accelerate the recovery measures in respect of such accounts. Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects or activity financed by banks would be treated as an attempt at evergreening a weak credit facility and would invite supervisory concern and action.
In 2008, there was no Insolvency and Bankruptcy Code. As of today, there are several cases where a resolution plan is in place. Some of them were crafted just a few months ago, and a one-time restructuring may include reworking these plans as well.

One-time loan recast for India Inc may come up at Friday's RBI board meet

A one-time restructuring of loans for India Inc may figure in discussions at the Reserve Bank of India’s (RBI’s) central board meeting on Friday — the first since the outbreak of the Covid-19 pandemic.
While the central bank has not decided its position on the merit of such a scheme in the current situation, the affidavits to be filed in the Supreme Court by the Centre, the RBI, and the Indian Banks’ Association with regard to the loan moratorium scheme may have a bearing.

A relaxation in the delinquency period for classification of non-performing assets (NPAs) to 180 days from the current 90 days had found mention in internal meetings of the finance ministry as well, a source said.
Finance Minister Nirmala Sitharaman said on Thursday that a one-time loan restructuring facility for non-MSMEs (medium, small and micro enterprises) was under active consideration. “An intense engagement is on with the RBI to come up with such a scheme. There is a lot of stress now,” she said at a webinar organised by the Chennai International Centre.
ALSO READ: Govt, RBI measures have slowed down contraction in economy: NCAER
The need for such a loan restructuring has gained urgency after the central bank last month said the country’s gross domestic product (GDP) growth would be in negative territory in FY21. The International Monetary Fund expects India’s GDP to contract by 4.5 per cent this financial year.
chart
The RBI had allowed a one-time loan restructuring scheme for India Inc in the aftermath of the 2008 financial crisis. The banking regulator’s August 27, 2008 circular allowed for the restoration of standard asset classification to accounts that had turned NPAs during the restructuring approval process, provided that the restructuring package was implemented within 90 days from the date of receipt of application by the bank taking it up. The two conditions imposed were that the restructuring could not be repeated and that the dues to the bank were fully secured.
What is now being speculated is that a new scheme may have to be suitably tweaked as the ground realities are completely different as no business can go to the pre-Covid levels anytime soon. Therefore, the 2008 circular’s stance that no account is to be taken up for restructuring by banks unless financial viability is established, and there is a reasonable certainty of repayment from the borrower, may not be practical in the current context.
ALSO READ: MSMEs may need massive restructuring post moratorium, says industry
It had further held that accounts not considered viable should not be restructured and banks should accelerate the recovery measures in respect of such accounts. Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects or activity financed by banks would be treated as an attempt at evergreening a weak credit facility and would invite supervisory concern and action.
In 2008, there was no Insolvency and Bankruptcy Code. As of today, there are several cases where a resolution plan is in place. Some of them were crafted just a few months ago, and a one-time restructuring may include reworking these plans as well.

One-time loan recast for India Inc may come up at Friday's RBI board meet

A one-time restructuring of loans for India Inc may figure in discussions at the Reserve Bank of India’s (RBI’s) central board meeting on Friday — the first since the outbreak of the Covid-19 pandemic.
While the central bank has not decided its position on the merit of such a scheme in the current situation, the affidavits to be filed in the Supreme Court by the Centre, the RBI, and the Indian Banks’ Association with regard to the loan moratorium scheme may have a bearing.

A relaxation in the delinquency period for classification of non-performing assets (NPAs) to 180 days from the current 90 days had found mention in internal meetings of the finance ministry as well, a source said.
Finance Minister Nirmala Sitharaman said on Thursday that a one-time loan restructuring facility for non-MSMEs (medium, small and micro enterprises) was under active consideration. “An intense engagement is on with the RBI to come up with such a scheme. There is a lot of stress now,” she said at a webinar organised by the Chennai International Centre.
ALSO READ: Govt, RBI measures have slowed down contraction in economy: NCAER
The need for such a loan restructuring has gained urgency after the central bank last month said the country’s gross domestic product (GDP) growth would be in negative territory in FY21. The International Monetary Fund expects India’s GDP to contract by 4.5 per cent this financial year.
chart
The RBI had allowed a one-time loan restructuring scheme for India Inc in the aftermath of the 2008 financial crisis. The banking regulator’s August 27, 2008 circular allowed for the restoration of standard asset classification to accounts that had turned NPAs during the restructuring approval process, provided that the restructuring package was implemented within 90 days from the date of receipt of application by the bank taking it up. The two conditions imposed were that the restructuring could not be repeated and that the dues to the bank were fully secured.
What is now being speculated is that a new scheme may have to be suitably tweaked as the ground realities are completely different as no business can go to the pre-Covid levels anytime soon. Therefore, the 2008 circular’s stance that no account is to be taken up for restructuring by banks unless financial viability is established, and there is a reasonable certainty of repayment from the borrower, may not be practical in the current context.
ALSO READ: MSMEs may need massive restructuring post moratorium, says industry
It had further held that accounts not considered viable should not be restructured and banks should accelerate the recovery measures in respect of such accounts. Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects or activity financed by banks would be treated as an attempt at evergreening a weak credit facility and would invite supervisory concern and action.
In 2008, there was no Insolvency and Bankruptcy Code. As of today, there are several cases where a resolution plan is in place. Some of them were crafted just a few months ago, and a one-time restructuring may include reworking these plans as well.

Govt okays Ordinance to give more teeth to RBI over co-operative banks

The Union government on Wednesday decided to take the Ordinance route to give more powers to the Reserve Bank of India to supervise co-operative banks, akin to commercial banks.
The RBI will get more auditory and managerial powers over 1,482 urban co-operative banks and 58 multi-state co-operative banks after the Ordinance is approved by the President to become a law. The Ordinance will, however, need an approval from Parliament within six months of becoming a law.
ALSO READ: Is the spot market mechanism the panacaea for the slack in energy sector?
“The urban co-operative and multi-state co-operative banks will come under the supervisory control of the RBI. The supervisory norms which apply to commercial banks will also be applicable to them. The move will help keep the depositors’ money safe,” Information and Broadcasting Minister Prakash Javadekar said in a press briefing.
In February, the government had said that the audit of such co-operative banks will be according to RBI regulations and the best management practices laid down by the regulator will also apply to them. The RBI will get powers to supersede the board of co-operative banks.
The RBI will be allowed to set the minimum level of qualifications for the board members of such lenders which will need the consent of the regulator to appoint a chief executive officer. The managements of such banks are elected through co-operative bodies at present and the RBI has limited control over their appointments.

ALSO READ: Myntra sells 10 million items during India's biggest fashion sale event
There are 86 million depositors with deposits worth Rs 4.84 trillion with such banks. “During the process of restructuring (of such banks), it is seen that the depositors face troubles and line up in front of the banks. This will not happen going ahead,” Javadekar said.
The Cabinet had approved the Banking Regulation Amendment Bill, 2020 in February to propose similar changes but the government has now decided to take the Ordinance route to expedite the process.
Right now, while the registrars under the state and central governments have control over incorporation, registration, management, recovery, audit, supersession of board of directors and liquidation, the RBI is “invested with regulatory functions", according to the RBI’s Trends and Progress Report 2018-19.
The RBI is also responsible for the supervision of urban co-operative banks, empowered to give suggestions on prudential norms for capital adequacy, income recognition, asset classification and provisioning, liquidity requirements and single or group exposure norms.
chart
ALSO READ: India coronavirus dispatch: How close are we to a Covid-19 vaccine?
There was a dual control of the RBI and respective states and the central governments that restricted timely regulator action against co-operative banks.
However, even after the recent proposed changes in legislation, the RBI will be gaining control over a small share of the co-operative banks.
ALSO READ: Hetero to deliver first set of 20,000 vials of Remdesivir as DCGI approves
As of March 2019, 1,544 urban co-operative banks accounted for merely 1.6 per cent out of the 97,792 co-operative banks. In fact, 96,248 rural co-operative banks accounted for around 65 per cent of the assets of co-operatives and were controlled by the respective state government legislation.

RBI proposes 10-yr term for bank promoter-CEOs, 15 yrs for non-promoters

A chief executive officer (CEO) or whole-time director (WTD) of a bank could work till she or he turned 70, and any promoter or major shareholder should not continue as CEO for more than 10 years, the Reserve Bank of India (RBI) reiterated on Thursday.
But if the CEO or WTD is not a promoter or major shareholder, the person can stay in office for 15 years.
The person stands a chance for re-appointment only after three years, the period in which there should be no association with the bank in any capacity.
“This will not only help in achieving the separation of ownership from management but also reinforce a culture of professional management,” the discussion paper said.
The central bank said if any such rule was made on the basis of the paper, the CEO or WTD who has completed such 10 or 15 years in the bank would have two years or till the expiry of the tenure, whichever of the two affords the person a longer timeframe, to identify and appoint a successor. This then closes the case of some private bank CEOs trying to get a reappointment after they have turned 70, and puts the onus on them to put through a succession plan.
ALSO READ: SC asks Airtel, Vodafone Idea for road map on payment of AGR dues
The discussion paper put together the best practices of corporate governance in banks, and wanted to create a clearly definable separation between the board and the management. The central bank said board meetings should record the minutes, even the views of dissenting members.
“It must be ensured that the minutes of the meeting of the board as well as its committees are so recorded that it shall be possible to appreciate the quality of deliberations including individual directors view on the matter, independence of directors, critical decisions made, dissenting views expressed and discussed within the decision-making process,” the paper said.

chart
The paper said the senior management of a bank must be responsible for unacceptable behaviour and weak management oversight, even as the board’s responsibilities won’t end with just appointing the senior management.
The board will be responsible for creating the culture and values of the bank, and should have an oversight on adherence to such values. It is also the board’s job to ensure that primary responsibility in operations lies with the senior management and the CEO. The board will have to ensure there is no conflict of interest either in management or in the bank’s dealings with its group entities. If there is such a conflict, the person concerned in the management or the board should remain at arm’s length.
ALSO READ: Mukesh Ambani gets 552,000 shares in RIL rights issue, company says
The board has to ensure that the CEO and WTD are visible in championing the values of the bank, and must “face material consequences if there are persistent or high-profile conduct and value breaches”.
The board will have the powers to take disciplinary action on remuneration or career progression of a person if the values and code of conduct are breached.
The board must have well-established whistle-blower policies to ensure that every complaint can be investigated confidentially and independently. The board will have the responsibility to report any material concern directly to the RBI.
The nomination and remuneration committee of a board should comprise at least three non-executive directors.
The committee should promote a strong risk culture, and reassure that there is “no excessive, unquestioned dependence on the opinions of third parties including but not limited to advocates, valuers, auditors, etc., by ensuring that the opinions are verified properly and cautiously by, inter alia, cross checking the opinion by mandating that more than one opinion is sought”.

Govt needs clear 'entry and exit plan' on fiscal expansion: Shaktikanta Das

The coronavirus pandemic will expand the government’s fiscal deficit beyond 3.5 per cent of India’s gross domestic product (GDP), said Reserve Bank of India (RBI) governor Shaktikanta Das as he called for a "well calibrated roadmap” to manage finances.
“The 3.5 per cent fiscal deficit target for this year will be very challenging to meet,” Das told news agency Cogencis in an interview. "It has to be a judicious and balanced call keeping in mind the need to support the economy on one hand and the sustainable level of fiscal deficit that is consistent with macroeconomic and financial stability.”

“There has to be a very well calibrated and well thought out roadmap for entry and exit.” The RBI has not yet taken a view on monetising the government deficit.
“We will deal with it keeping in view the operational realities, the need to preserve the strength of the RBI's balance sheet, and most importantly, the goal of macroeconomic stability, our primary mandate. In the process, we also evaluate various alternative sources of funding too,” he said.
ALSO READ: Coronavirus LIVE: 4 CMs tell Modi they want lockdown extended after May 3

The RBI has not participated in treasury bill auctions and neither has it decided whether there would be a special coronavirus bond, instrument analysts have been suggested that can be used for a private placement of government debt with the central bank.
The central bank had a sense that the new Targeted Long Term Repo Operations or TLTRO 2.0 will might not be as good as the previous such operations, as “banks are not willing to take on credit risk in their balance sheets beyond a point,” he said.
The Reverse Repo Rate is a liquidity management tool, and the cut is temporary. The policy signaling rate continues to be the repo rate. While the RBI does not need to take the approval of the monetary policy committee (MPC) for tweaking its liquidity tools, the central bank discussed the measure with the members.
RBI has not taken a final view on the rate of Standing Deposit Facility (SDF), which can be deployed to let banks park their excess liquidity with the central bank without any collateral, but at a lower rate than the reverse repo. However, SDF “is always available with RBI and it can be activated at any moment,” Das said.
India continues to enjoy the trust of foreign investors, and its banking system remains healthy, Das said.
Banks can extend moratorium to everybody, including non-bank financial companies (NBFC), but the failure of TLTRO 2.0 proved that banks are not ready to take risk. The challenge of ensuring flows to the mid- and small-sized NBFCs and microfinance institutions continues.
"That is an issue that is very much on our table. We will take further measures as necessary to address that challenge."
The RBI, according to Das, “remains in battle-ready mode".
While extending the moratorium on loans, the RBI also told banks to set aside 10 per cent as provision, which can be written back later.
"We are constantly monitoring the sector. Going forward, whatever measures are required, we would mandate that," he said.

Relief measures announced by govt, RBI not enough, says India Inc

India Inc is near unanimous in its view that the relief measures announced by the Reserve Bank of India (RBI) and the government are not enough, even as it seeks a comprehensive stimulus package from the state to combat the adverse impact of Covid-19 on their businesses.
The finding is based on a quick survey of 25 CEOs representing big companies in areas ranging from financial services and banks to energy, automobiles, ports, consumer electronics, IT and internet, real estate companies and also large business conglomerates.
An overwhelming 96 per cent of the CEOs surveyed want the extension of the moratorium on loan payments to three months, which was announced by the RBI, to be further relaxed to at least a year to even two years. And, of course, all of them are pushing for a stimulus package from the government. Many also point out that the Insolvency and Bankruptcy Code (IBC) rules need to be made flexible — such as the deferment of proceedings for six months from the date on which the lockdown is lifted.
Says Venu Srinivasan, chairman of TVS group: “The moratorium on loan repayment should be extended. More importantly, NPA recognition norms should be relaxed as well. Otherwise, the NBFC industry will go bankrupt. Also, IBC proceedings should be deferred by six months for all micro, small and medium companies.”
chartHarsh Goenka, chairman of RPG Enterprises, expresses a similar view: “The government has to pump in money to revive demand. But industry is looking for relief in the payment of taxes, statutory dues like PF and ESIC (three months’ payment to be deferred without interest and penalty), as well as employment relief (like reimbursement of minimum wages to companies which have paid contract workers) and increase in working capital limits from 10 per cent to 25 per cent.”
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Clearly, industry is pushing for a much bigger package than what is being considered by many in the government. The managing director of a leading diversified conglomerate says: “The total package should be US $100 billion, first for the poor, then the self-employed, micro, small and medium sector, in that order.” A CEO of a leading ports company suggests that 10 per cent to 15 per cent of the GDP should be given as relief “to all those contributing to the GDP.”
The CEOs are divided on whether the country will go into a recession, though all agree that there will be a slowdown. While 40 per cent of the respondents say that recession is inescapable, the rest are more positive and believe that there will be some growth, ranging from 1 per cent to 3 per cent.
And though about 60 per cent of the respondents said that they would not cut pay or sack their employees, about 12 per cent said they have no option but to do so. The rest said that they did not know yet what they would do, and that decisions would be taken only in the future.
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There is, however, a consensus amongst more than half (52 per cent) of the respondents that the lockdown should be partially lifted after 14 April. The discussions between Prime Minister Narendra Modi and some chief ministers on Thursday suggest that this might happen in a staggered manner. But others say that life is more important than business — 28 per cent of the CEOs feel that the lockdown should continue for another 15 days.
chart“I am surprised that in many of the CEO forums on video, corporates are keen to start business rather than concentrate on the risks to health,” says the CEO of a leading internet company. Those favouring a partial lifting of the ban have suggested different models for a staggered reopening. Says the CEO of a financial services company: “There should be transport across city lines and state lines so that migrants can go home. Secondly, large industrial outfits should be opened, and also infra projects which generate employment to wage earners and small shops — but not malls.”
chart
Others have suggested opening up in clusters in cities. “The government should identify red hotspots and seal them, identify orange hotspots and open them partially and identify green spots and open them liberally,” says a Mumbai based CEO.

RBI increases WMA limit of states, UTs by 30%, relaxes export rules

The Reserve Bank of India (RBI) has decided to increase the Ways and Means Advances (WMA) limit for state governments and union territories by 30 per cent till September 30, and allowed exporters six months extra to realise their export-proceeds, as measures for dealing with the coronavirus-led slowdown.
The central bank also said banks don’t need to activate countercyclical capital buffers (CCyB) for one more year, which means the banks can utilize the capital earmarked for the buffer.
WMA is a temporary liquidity arrangement with the central bank, which enables the centre and the states to borrow money up to 90 days from the RBI to tide over their liquidity mismatch. On Tuesday, The RBI also increased the WMA for the centre to Rs 1.2 trillion for the first half, up from Rs 75,000 crore in the first half last year, and Rs 35,000 crore for the second half of 2019-20 originally announced. In case of the centre, the RBI had said that it may issue bonds if the central government utilizes 75 per cent of its WMA.
In case of states, the central bank has constituted a committee to look into the WMA limits of states and union territories. However, the raising of limit is an ad hoc measure, pending the recommendation of the committee. In mid-March, the RBI had a meeting with all the states to discuss increasing the WMA limit.
Relaxing the export norms, the RBI said exporters can now take 15 months to realise and repatriate their export proceeds, for exports made up to July 31. As per the normal rules, the exporters have to repatriate the export proceeds within 9 months. But the RBI took the call to give the leeway to the exporters to “enable the exporters to realise their receipts, especially from COVID-19 affected countries within the extended period and also provide greater flexibility to the exporters to negotiate future export contracts with buyers abroad”.

Covid-19 relief: RBI move to allow banks in NDF may stem volatility

As part of the regulatory package for dealing with the fallout of the Covid-19 pandemic on Indian financial markets, the Reserve Bank of India (RBI) announced today that “the time is apposite to remove the segmentation between the onshore and offshore markets” and accordingly it has been decided to permit banks in India which operate International Financial Services Centre (IFSC) banking units or IBUs, to participate in the non-deliverable forwards (NDF) market from June 1, 2020 through their branches in India, foreign branches or through their IBUs.
The provocation for this move is no doubt the recent large capital outflows from the markets that caused huge volatility in the forex markets – offshore NDF and onshore rupee. The volatility, widened spreads and drop in liquidity were more pronounced in the NDF markets and spilt over to the local forex market. If Indian banks were allowed to operate in the offshore markets, it would have perhaps have been possible to stem the volatility in the NDF market and the spillover effect - this could also have also facilitated more effective RBI intervention.
RBI
The RBI Task Force (August 2019) that studied the NDF markets extensively discussed the suggestion made to it to permit Indian banks to deal in the offshore market. The arguments made were: removing segmentation between onshore and offshore markets would improve liquidity and price discovery; there would be better customer pricing through increased transparency in the offshore market; there would be better access to information for local authorities and there would be a level playing field with overseas banks who freely deal in NDF markets. While the merits of the arguments were appreciated, the downside risk was that participation of Indian banks in NDF will improve liquidity in the NDF market and undermine the development of the onshore market. Also, completely removing the segmentation between the offshore and onshore markets would militate against the capital control measures in place; hence it felt that the measures to bring the NDF market onshore should precede allowing Indian banks to participate in NDF market.
Hence, while it is perhaps apposite to remove some segmentation between offshore and onshore markets to allow the Indian banks to effectively participate in the NDF markets to stem the volatility there and spillover effects to onshore markets, there is a need to have separate limits on the positions the banks can take in the NDF market within the overall position limit. This is comparable to the regulation that foreign banks operating in the local markets are not allowed to take off-setting positions (in their overseas branches) in the NDF markets.
Former RBI deputy governor Usha Thorat had chaired the task force on offshore rupee markets, which had come out with its recommendations in August 2019

RBI unveils 5-yr financial inclusion strategy: Here're key recommendations

The Reserve Bank of India (RBI) has come up with a National Strategy for Financial Inclusion 2019-24, aimed at providing access to formal financial services in an affordable manner. It aims to promote financial literacy among customers.
The Financial Inclusion Advisory Committee of the RBI — in consultation with the Centre, Securities Exchange Board of India (Sebi), Insurance Regulatory and Development Authority of India (Irdai), and Pension Fund Regulatory and Development Authority of India (PFRDA) — has recommended various ways in which the objective can be fulfilled.

The committee has recommended universal access to financial services wherein every village should have access to a formal financial services provider within a 5-km radius. Customers may be on-boarded through an easy and hassle-free digital process. This includes increasing banking outlets of commercial banks. Further, digital financial services have to be strengthened in all tier-II to tier-VI centres to facilitate a less-cash society by March 2022.
RBI unveils 5-yr financial inclusion strategy: Here're key recommendations
The plan aims to provide basic financial services — savings account, credit, micro-life and non-life insurance products, pension product, and a suitable investment product — to every eligible adult. To achieve this, every adult enrolled under the Pradhan Mantri Jan Dhan Yojna should be enrolled under an insurance scheme and pension scheme by March. Further, the public credit registry has to be made fully operational by March 2022 so that authorised financial entities can leverage the same for assessing credit proposals.
Under the national strategy, the committee has recommended new entrants to the financial system — eligible and willing to undergo any livelihood/skill development programme — may be given the relevant information regarding government livelihood programmes to help them augment their skills.
The committee has said customers have to be made aware of the recourses available for grievance resolution. Adequate safeguards also need to be ensured to store and share customers’ biometric and demographic data, so that their Right to Privacy is protected.
Therefore, it has been recommended to devise a customer grievance portal or mobile application that will act as a common interface for lodging, tracking, and redressal of grievances pertaining to the financial sector, collectively by all stakeholders, by March 2021. It has also been advised that there should be co-ordination between all stakeholders.

Easier RBI asset quality norms puts banks at risk, mar transparency: Fitch

Issuing a warning about the adverse effect of relaxing asset quality norms, rating agency Fitch said the move it signifies a gradual shift away from RBI’s effort to enhance the quality and transparency of asset classification in Indian banking system.
The Reserve Bank of India gave 12 more months for the one-time restructuring scheme for micro, small and medium-sized enterprises (MSMEs). Also it announced a relaxation in asset classification for certain real estate projects, marking a further dilution of the regulator's drive to enhance loan recognition, Fitch said.

There is a risk that such regulatory leeway will perpetuate moral hazard as it allows aggressive lending growth and risk-taking in certain sectors in the five years till March 2019 (FY19).
It is not clear at the moment whether this forbearance will be extended to non-bank financial institutions (NBFIs). But the probability of this is high, considering the impact that the NBFI liquidity squeeze and a slowing economy have had on the MSME and real estate sectors.
In recent years, banks have preferred to lend to NBFIs, which lend heavily to the real estate and MSME sectors. This was a seen as a way to deploy their excess liquidity, while limiting their own direct exposure to these areas, Fitch added.
Indian banks have a poor track record with restructuring. The RBI's asset-quality reviews in FY16 and FY18 found that a dominant share of loans restructured post-FY12 had degraded into non-performing loans (NPLs). In that context, Fitch will make appropriate adjustments to objectively assess the performance of the underlying loan book of its rated entities in India. This will be done to ensure their comparability with those of global peers.
The RBI's latest measures also nudge banks to lend more for specific purposes, namely automotive and housing purchases, and to the MSME sector. Banks can now knock off the equivalent of additional loans disbursed to these fields between end-January and end-July 2020 from their net demand and time liabilities for calculating their cash reserve ratio.

Revival in high-frequency indicators shows modest growth momentum recovery

This was a “no-event policy” of the Reserve Bank of India (RBI) in terms of monetary measures, as the “status quo” and "continuation of accommodative stance" were in line with expectations.
The Monetary Policy Committee (MPC) of the RBI has kept the repo rate, as well as the reverse repo rate, under the liquidity adjustment facility (LAF), unchanged at 5.15 per cent and 4.9 per cent, respectively, and has also decided to continue with the accommodative stance, considering the need to revive growth and because the inflation rate conforms to the target.

The MPC has projected the GDP growth at 6.0 per cent for 2020-21, in the range of 5.5-6.0 per cent in the first half of the year and 6.2 per cent in Q3 FY21. The projections are in line with our expectations of 5.5-6 per cent for the next financial year.
A revival in high-frequency indicators hints at a modest improvement in growth momentum. The RBI’s business expectations index suggests a sharp rise in Q4, which is corroborated by the manufacturing purchasing managers’ index (PMI) for January 2020 peaking to an 8-year high of 55.3, on the back of an increased output and new orders. Several high-frequency indicators of services have also turned upwards lately.
Improved private consumption, considering better agricultural output and better terms of trade towards agriculture, easing of global trade market conditions due to improved performance of the global economy, further easing of lending rates, and a reduction in the personal income-tax rates in the recently presented Budget are also likely to support the growth outlook.
One of the noteworthy observations in the policy is the vigilant outlook on inflation by the MPC. As mentioned in our pre-policy expectations, the consumer price index (CPI)-based inflation crossed MPC’s upper-band target in December 2019, for the first time since the MPC was formed, primarily on the back of an unusual spike in onion prices.
Despite expectations of a moderation in inflation from the elevated level of 7.35 per cent in December 2019, the RBI's MPC expects a hardening of prices of other food items, notably those of pulses and proteins. That may keep headline inflation elevated in the short run, at least through the first half of 2020-21. CPI-based inflation projections have been revised upwards to 6.5 per cent for Q4 of 2019-20, and 5.4-5.0 per cent for the first half of 2020-21. Several of the underlying factors indicate continued inflationary pressures. We expect the MPC to adopt a cautious approach in its next policy as well, till the time inflation moves within its comfort zone. In the statement, the MPC has also recognised that there is policy space available for future action. If the inflation cools down and growth concerns continue, we can expect the much-needed monetary easing in the next policy.
RBI has also released a statement on Developmental and Regulatory Policies announcing some important initiatives.
• In order to ensure adequate liquidity to enable banks to augment credit flows to productive sectors, from the fortnight beginning on February 15, 2020, the RBI would conduct term repos of one-year and three-year tenors of appropriate sizes amounting to a total of Rs one lakh crore at the policy repo rate. This move has the potential to bring down cost of funds of the banks that utilise the LAF window on a regular basis providing an additional source of funding.
• Incentivising banks by giving leeway in CRR on incremental lending to certain productive sectors like auto, housing and Micro, Small and Medium Enterprises (MSMEs) which will have multiplier effect on various sectors and economy as a whole. This will improve sentiments for lending, reduce banks’ funding cost and thus ensure better transmission of rates and also increase the flow of funds to these sectors.
• With a view to further strengthen monetary transmission, pricing of loans by SCBs for medium enterprises will be linked to an external benchmark effective April 1, 2020. A one-time restructuring of loans to MSMEs that were in default as on January 1, 2019, is permitted without an asset classification downgrade considering the importance of MSMEs. This is in addition to the measure announced in Union Budget 2020-21, and will provide much needed relief for the cash-starved MSMEs.
(The author is chief economic advisor at Brickwork Ratings. Views are personal)
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.

Now, switch on/off your card for online payment, set transaction limits

The Reserve Bank of India (RBI) on Wednesday told banks that any fresh card issued should be only for physical use within India, such as in automated teller machines (ATMs) and point-of-sale (PoS) devices. Internet and other facilities can be activated only when the customer specifically requests for the same.
Customers will also have the option to cap the amount in any kind of transaction, for both physical and internet use, the central bank said.

For existing cards, banks will exercise their own discretion whether to allow cards for internet usage or not. But those cards that have never been used for online transactions, or by any means of ‘card not present’, such facilities will have to be disabled automatically. In other words, cards never used for internet transactions cannot be used for online transactions anymore.
“For existing cards, issuers may take a decision, based on their risk perception, whether to disable the card not present (domestic and international) transactions, card present (international) transactions, and contactless transaction rights. Existing cards, which have never been used for online (card not present)/international/contactless transactions, shall be mandatorily disabled for this purpose,” the RBI said in a notification on its website.
When a bank issues a debit or credit card, it also gives internet banking credentials. However, those not comfortable with such transactions are easy victims of call-centre frauds, where the fraudster calls and seeks information of the card, one-time password (OTP), to siphon off money.
In a way, the RBI is assuming that people who already do online transactions know the importance of CVV numbers, or OTPs and do not part with them over a phone call. They can continue with such facility. But people not aware of internet-related frauds will not have to bother about such frauds happening with them as that very facility won’t be available by default anymore.
The RBI also told banks to provide all cardholders the facility to “switch on/off and set/modify transaction limits (within the overall card limit, if any, set by the issuer) for all types of transactions —domestic and international — at PoS/ATMs/online transactions/contactless transactions, etc.”
This facility should be made available on a 24x7 basis through multiple channels — mobile application/internet banking/ATMs/interactive voice response — and can be offered through branches as well.
The banks should send alerts, update on information, status, etc through text messagess and email, as and when there is any change in the status of the card, the RBI said.

Newly appointed Dy Guv Patra to look after RBI's monetary policy division

Newly appointed RBIDeputy Governor Michael Debabrata Patra will look after the key monetary policy department along with seven other units, the central bank said after reshuffling portfolios of deputy governors.
Besides the governor, the Reserve Bank of India (RBI) has four deputy governors looking after different departments.

Patra, who was the executive director, took over the post that was lying vacant since June last year when Viral Acharya resigned.
As executive director, he was a member of the Monetary Policy Committee (MPC) of the RBI, which is invested with the responsibility of monetary policy decision making in India. He will continue to be an ex-officio member of the MPC as deputy governor.
As deputy governor, Patra will look after Monetary Policy Department including Forecasting and Modelling Unit (MPD/MU), the central bank said.
He is the second insider after S S Tarapore to become deputy governor in charge of monetary policy. Mostly, the position in the past has been given to external economists.
His other portfolios include Financial Markets Operations Department, Financial Markets Regulation Department including Market Intelligence, International Department, Department of Economic and Policy Research, Department of Statistics and Information Management, Corporate Strategy and Budget Department and Financial Stability Unit.
The RBI further said Deputy Governor N S Vishwanathan will look after departments of co-ordination, regulation, communication, enforcement department, inspection department, and risk monitoring. He has also been assigned the job of Secretary's Department.
Ten departments including currency management, information technology, and foreign exchange, had been given to B P Kanungo.
Deputy Governor M K Jain will look after departments of supervision, financial inclusion, human resources, among others.
Patra, a career central banker since 1985, has worked in various positions in Reserve Bank of India.
A fellow of the Harvard University where he undertook post-doctoral research in the area of financial stability, Patra has a PhD in Economics from the Indian Institute of Technology, Mumbai.

RBI likely to put rate cuts on extended pause after spike in inflation

A spike in India's retail inflation in December has raised the chances that the Reserve Bank of India (RBI) will put rate cuts on hold for some time despite economic growth languishing at more than six-year lows.
Some economists believe the RBI's monetary policy committee (MPC) may even change its stance from 'accommodative' to 'neutral' at its February meeting.

The RBI has cut rates by a total of 135 basis points in five moves in 2019 and shocked markets by holding rates steady at its December meeting.
"With CPI inflation likely to persist above the RBI's upper band of the target range of 2-6%, we cannot completely rule out the possibility of a shift in the policy stance to neutral," said Upasna Bhardwaj, economist with Kotak Mahindra Bank.
India's annual retail inflation rose to 7.35% in December - its highest in more than five years, data showed on Monday, and well above the 6.2% predicted in a Reuters poll.
At its December meeting, the central bank revised the CPI inflation projection for the second half of 2019/20 to 5.1-4.7% from 3.5-3.7% forecast at its October meeting.
The December reading is 225 bps above the upper end of the MPC's range and sharply above the central bank's medium term target of 4%, which has now been breached three times in a row.
Not all economists, however, agreed a change in stance was warranted just yet.
"We think monetary accommodation still has further steam of another 50 bps in this rate cut cycle, albeit the timing of same is a tad tricky. For now, a February cut appears ruled out," Madhavi Arora, lead economist with Edelweiss Securities said.
Economists said the MPC may watch for a possible reversal in food prices to see how inflation pans out in coming months.
"Even though we expect the headline CPI inflation to correct sharply in January 2020 and further in February 2020, it is expected to remain sticky above 4.3% in the next few quarters," Aditi Nayar, principal economist at ICRA, said in a note. She also highlighted the possibility of a change in stance to neutral.
Investors are now waiting to see if the central bank will offer support via special open market operations to curtail a sharp uptick in bond yields ahead of the federal budget on Feb 1.
"I think in this situation the correct approach would be to focus on transmission and 'Operation Twist' where the yield curve can be managed through liquidity and buyback options rather than through rate cuts," said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investments in India.