RBI won't let any cooperative bank collapse, banking sector stable: Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday tried to assuage fears about the banking sector, reeling from one crisis after another, by claiming that it was sound and stable. Referring to the crisis at the Punjab and Maharashtra Cooperative (PMC) Bank, he said: “The RBI will not allow any cooperative bank to collapse.”
Since the Punjab National Bank scam came to light in February 2018, the banking sector has been hit two other major crises — the defaults of the Infrastructure Leasing & Financial Services and the Dewan Housing Finance Corporation. Now, the crisis at the Punjab and Maharashtra Cooperative (PMC) Bank has come to the fore.

“This case (PMC Bank) is already with the economic offences wing of the Mumbai police,” Das said. “The matter is under investigation. As soon as the RBI learnt about the irregularities, we responded.”
He added the RBI was in talks with the government to tighten regulations governing cooperative banks since some of them were facing crises. “A department has been formed and we are building a team to supervise these banks,” said Das.
Last month, a whistleblower raised an alarm over alleged irregularities at the Mumbai-based PMC Bank. The RBI appointed an administrator and sacked the management. It also limited withdrawal amounts and banned credit disbursal. The withdrawal limit was extended to Rs 25,000 on Thursday.
ChartFormer PMC Managing Director Joy Thomas has confessed to the RBI that 70 per cent PMC Bank’s loan book is exposed to one Mumbai-based realty group — Housing Development and Infrastructure (HDIL). The police on Thursday arrested HDIL promoted Rakesh Wadhwan and his son Sarang Wadhwan. Thomas was arrested on Friday.
Asked why the RBI, which carries out annual inspection of all cooperative banks, was not able to identify the problems, Das said all aspects of the PMC Bank was being looked into.
“As far as fixing responsibility for the PMC scam is concerned, we are looking into it,” said Das adding that he would not be able to provide details as the matter was being investigated.
He added, “Cooperative banks develop problems because of various factors. The discussion with the government on the amendment of regulations of cooperative banks is an ongoing process.”
The RBI governor said after the experience with the PMC Bank, the regulator would take a relook at the existing regulatory framework. “If any changes are required, we shall take them up with the government
PMC Bank is the 24th cooperative bank to be placed under RBI administrators in 2019. Urban cooperative banks are registered as cooperative societies either with the State Cooperative Societies Act or the Multi-State Cooperative Societies Act, 2002, and are regulated and supervised by the Registrar of Cooperative Societies of the respective states or by the Central Registrar of Cooperative Societies.
On the overall crisis in the non-banking financial company (NBFC) sector, Das said, “The RBI’s endeavour is to ensure that we do not encounter failure of another large systematically important NBFC. We are monitoring it. Wherever required, we are calling the management of those NBFCs, having a dialogue with them, and finding out how to resolve issues.”
He said in some cases the banks were also signing inter-creditor agreements according to the 7 June circular and trying to restructure loans.

RBI has Rs 1.96 trillion as contingency fund after record payout to Govt

The Reserve Bank's contingency fund, useful in fighting any exigency, has plunged to Rs 1.96 lakh crore as of June 30, after the Rs 52,000 crore excess payout to the government, says the central bank's annual report for FY19.
The RBI board has decided to transfer the excess reserves to government based on the Bimal Jalan committee report on the appropriate economic capital framework.

In the annual report, the central bank makes it clear that as of June 30, 2019 it "stands as a central bank with one of the highest levels of financial resilience globally." After the payout to the government, "the balance in the contingency fund as of June 30, 2019 was Rs 1,96,344 crore compared to Rs 2,32,108 crore as of June 30, 2018," the annual report said.
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It can be noted that the excess capital amount of Rs 52,000 crore had undershot market expectations of over Rs 1 lakh crore, and had been arrived at after arriving at a level for the reserves.
As per the committee, the surplus distribution policy targets having the capital reserves buffer in the range of 5.5-6.5 percent of the entire balance sheet.
According to people in the know, the committee had deliberated a lot before arriving at the level, and the 5.5 percent level will be sufficient to take care in the event of the 10 top banks going down and yet allow the RBI to play the role of the lender of last resort.
Apart from the Rs 52,000 crore, the RBI had also paid a surplus from its profit worth Rs 1,23,000 crore to the government, which is virtually double the size of the average of recent payouts.
Sources had on Wednesday explained that the higher amount was due to the gains of Rs 56,000 crore from the massive open market operations, Rs 21,000 crore from the changes in accounting norms of its forex operations, while there was also an advantage of zero provisions, which helped.
The annual report published Thursday says the RBI computed exchange gains/losses using weighted average cost method resulting in an impact of Rs 21,464 crore.
It also said income from domestic sources increased 132.07 percent to Rs 1,18,078 crore from Rs 50,880 crore in the previous fiscal.
It was mainly because of the coupon income following an increase in the portfolio of rupee securities, net income on interest under liquidity adjustment facility/marginal standing facility operations due to increase in net liquidity injection to the banking system and also write back of excess risk provision from the contingency fund.
A table on expenditure explained that the overall provisions plummeted more than 99.5 percent to Rs 64 crore from a high Rs 14,190 crore in the year-ago period as the buffer has demarcated at much lower but comfortable level.

Housing finance companies to be treated as NBFCs; come under RBI oversight

The Reserve Bank on Tuesday said housing finance companies (HFCs) will be treated as one of the categories of NBFCs for regulatory purposes and it will come under its direct oversight.
The Finance (No 2) Act, 2019 (23 of 2019) has amended the National Housing Bank Act, 1987, conferring certain powers for regulation of Housing Finance Companies (HFC) with Reserve Bank of India, it said in a release.

The RBI direction comes after notification issued by the central government, it added.
Finance Minister Nirmala Sitharaman in her maiden Budget 2019-20 speech in early July had announced that the National Housing Bank (NHB) will not remain as the regulator for the HFCs.
"HFCs will henceforth be treated as one of the categories of Non-Banking Financial Companies (NBFCs) for regulatory purposes. Reserve Bank will carry out a review of the extant regulatory framework applicable to the HFCs and come out with revised regulations in due course," the apex bank said in the release.
In the meantime, HFCs shall continue to comply with the directions and instructions issued by the National Housing Bank (NHB) till the Reserve Bank issues a revised framework, it added.
"NHB will continue to carry out supervision of HFCs and HFCs will continue to submit various returns to NHB as hitherto. The grievance redressal mechanism with regard to HFCs will also continue to be with the NHB," the RBI said.

RBI set to review foreign bond sale plan after economists flag risk

India’s central bank plans to discuss next month the government’s proposal to raise foreign currency debt, people familiar with the matter said, amid risks flagged by economists about the plan.
The Reserve Bank of India’s board will meet on August 16 to discuss, among others, the nation’s proposed maiden offshore bond sale plan, the people said, asking not to be identified as they are not authorized to speak on the subject.

The offering is mired in confusion after an official overseeing the plan was abruptly transferred out of the Finance Ministry last week, amid reports that the Prime Minister’s office had asked for a review. Finance Minister Nirmala Sitharaman said in an interview to the Economic Times newspaper that there’s no rethink and the plan is on course.
The sovereign bond plan was criticized by former RBI Governor Raghuram Rajan as one that has no real benefits and exposes the country to “faddish investors buying when India is hot, and dumping us when it is not.” A key nationalist ally of Modi’s ruling Bharatiya Janata Party has called the proposal a “dangerous idea” that could lead India into a debt trap.
Concerns raised by prominent economists will be discussed by the RBI board, one of the people said.
The 17-member RBI board has representation from two bureaucrats as well as a member of the Swadeshi Jagran Manch, a group affiliated to the ruling party’s ideological parent, the Rashtriya Swayamsevak Sangh.
A spokesman for the central bank declined to comment. The RBI is the debt manager to the government and there is a process of consultation between the central bank and the government, Governor Shaktikanta Das said in an interview last week.

Currency manipulation charges reek of bilateral hegemony: Shaktikanta Das

Reserve Bank governor Shaktikanta Das on Friday said ensuring orderly exchange rates is the responsibility of the IMF and not individual countries like the US and that currency manipulation charges by one nation against another reeks of bilateral hegemony.
It can be noted that US president Donald Trump has been singling out India and China as currency manipulators. Trump went to the extent of specifically mentioning Reserve Bank buying dollars from the markets as a proxy of setting the exchange rates.

Concerned over the issues around currency management, Das, without naming any country in particular, called for "collectively ensuring multilateral principles and frameworks for orderly exchange rates and payment arrangements are not superseded by bilateral hegemony."
Questioning how can some countries call others "currency manipulators," he said such labelling should not be a bilateral prerogative as there are multi-lateral institutions like the International Monetary Fund exist to do such policing.
"The best way forward", Das said is to strengthen existing institutions like the IMF and make them more "relevant and trusted".
Das' statement comes in the wake of the US treasury department's recent currency report to the Congress. While the latest report does not accuse India of currency manipulation, earlier reports had raised red flags over the RBI's dollar purchase. In fact, the latest bi-annual report paints all emerging markets as currency manipulators.
Amidst growing concerns about falling growth in the world economy, Das, while launching a book focused on the IMF, in the Capital on Friday called for closer coordination between monetary and fiscal policies across the world to cushion the impact of the slowdown.
Pointing out that global cooperation in finance has become "weaker" in recent years, Das specifically flagged the decade-old policy of low interest rate regimes in major economies as a challenge for emerging markets like India.
"It is important, in the backdrop of slowing global growth, that policies of monetary and fiscal authorities are well-calibrated so that they support growth without further build-up of leverage and asset price bubbles. Prudent policies are critical to growth with macroeconomic stability," he said.
Globally, monetary and fiscal policies need to focus on judiciously using policy space and undertake structural reforms to improve productivity, innovation and job creation, he said.
On the issue of low interest rates in many advanced economies, he said such countries are pursuing their policies without "recognizing their adverse impacts".
Das said a third of the total bonds issued by advanced economies worth $13 trillion getting yielding negative returns now.
Amid low global interest rates, total credit to the non-financial sector in emerging markets went up from 107.2 percent of GDP at the end of 2008 to 194.4 percent of GDP by March 2018, and dropped to 183.2 percent at the end of 2018, the governor said.
In the face of such difficulties, the emerging markets will be focusing on macroeconomic and financial stability, while focusing on growth.
The world will be looking at bodies like the IMF for dependable solutions, he said, but expressed doubts on how these challenge will be negotiated.
"Global order today faces several challenges that will test the skills of the international organisations as well as those of national monetary and fiscal authorities," he said.
He further said there is an urgency to the completion of the 15th general review of quotas, which has been delayed for four years now.

RBI issues circular on NPAs: defaults have to be recognised in 30 days

The Reserve Bank Friday issued a new framework for resolution of bad loans, replacing the previous norms quashed by the Supreme Court in April, offering a 30-day gap for stress recognition instead of the one-day default earlier.
The new norms replace all the earlier resolution plans such as the framework for revitalising distressed assets, corporate debt restructuring scheme, flexible structuring of existing long-term project loans, strategic debt restructuring scheme (SDR), change in ownership outside SDR, and scheme for sustainable structuring of stressed assets (S4A), and the joint lenders' forum with immediate effect.

The apex court had on April 2 struck down the stringent RBI circular, issued on February 12, 2018, for resolving bad loans under which a company could be labeled an NPA if it missed repayment for a day banks were asked to find a resolution within 180 days or else it should be sent to bankruptcy courts.
Also Read: Highlights of the RBI circular
The new circular provides for a framework for early recognition, reporting and time-bound resolution of bad loans.
The central banks said lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA).
Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default.
The central bank said once a borrower is reported to be in default by any lenders, financial institutions, small finance banks or NBFCs, the lenders shall undertake a prima facie review of the borrower account within 30 days from the day of default.
During this review period of 30 days, lenders may decide on the resolution strategy, including the nature of the resolution plan (RP) and the approach for implementation of the RP.
"In cases where RP is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA), during the review period, to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender," the new RBI circular said.
The lenders are free to initiate legal proceedings for insolvency or recovery, the central bank said.
The joint lenders' forum (JLF) as mandatory institutional mechanism for resolution of stressed accounts also stands discontinued, the RBI said.
The RBI said the new directions will come into force with immediate effect.

Shaktikanta Das meets Jaitley; govt says reports on FM's health 'baseless'

Reserve Bank Governor Shaktikanta Das called on outgoing Finance Minister Arun Jaitley here on Sunday.
The governor in a tweet said that it was a courtesy meeting.

"Had a courtesy meeting with Hon'ble Union Minister @arunjaitley this evening," Das tweeted while posting a picture of the meeting.
His tweet came amid speculations in some media on the state of Jaitley's health.
Dispelling such remours, the government Sunday said reports on the deteriorating health of Jaitley are false and baseless, and media should stay clear of rumour mongering.
"Reports in a section of media regarding Union Minister Shri Arun Jaitley's health condition are false and baseless. Media is advised to stay clear of rumour mongering," government spokesperson Sitanshu Kar tweeted.
Jaitley's college friend and media baron Rajat Sharma as well as Rajya Sabha MP Swapan Dasgupta also rejected reports on deteriorating health of the senior BJP leader.
Dasgupta tweeted that he met Jaitley Sunday afternoon and presented a copy of his book to him. In another tweet, he said, "Actually he is off all medication now. Just recovering his strength and working as usual. He is still meeting officials."
"Questions about @arunjaitley health understandable. He is recovering from a bout of heavy medication. But he is still in terrific form and his wit is firmly intact. Needs a little rest to get back his strength. All our good wishes," the MP tweeted.
(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 sells entire stake in NHB, Nabard to government for Rs 1,470 cr

The Reserve Bank has has divested its entire stake in National Housing Bank (NHB) and the National Bank for Agriculture and Rural Development (Nabard) for Rs 1,450 crore and Rs 20 crore, respectively.
The central bank sold stake in NHB on March 19, while it sold the stake in Nabard on February 26, the bank said in a statement Wednesday.

"With this, the government now holds 100 percent stake in both these financial institutions," the RBI said.
Divestment has been done on the recommendation of the second Narasimham committee report and the discussion paper prepared by the RBI on 'harmonizing the role and operations of development financial institutions and banks,' the central bank said.

RBI net dollar buyer for third straight month in Feb, snaps up $825 mn

The Reserve Bank remained a net buyer of the US dollar for the thirdconsecutive month in February, when it bought $825 million from the spot market, according to the data from the central bank.
In the reporting month, the central bank bought $2.086 billion and sold $1.261 billion in the spot market as the rupee was under pressure.

The central bank had turned net buyer of dollar for the first time in fiscal 2019 in December 2018, buying $607 million.
In January 2019, the RBI had net purchased $293 million.
It had bought $1.025 billion from the spot market and sold $732 million.
In February 2018, the apex bank was also a net buyer of $1.665 billion purchasing $3.320 billion and selling $1.655 billion in the spot market.
In FY18, the apex bank had net purchased $33.689 billion from the spot market, taking its total dollar purchase to $52.068 billion, and sold only $18.379 billion, this helped the country for the first time scale a life-time peak of $426.028 billion for the week to April 13, 2018 in the foreign exchange reserves.
In the forward dollar market, the outstanding forward sales at end February was $4.372 billion, compared to a sale of $3.032 billion in January, according to the RBI data.

Bidding for Jet Airways delayed, banks await RBI nod on debt conversion

A lack of clarity on the impact of the Supreme Court order quashing the Reserve Bank of India’s (RBI’s) February 12, 2018, circular has delayed the stake sale process of cash-starved Jet Airways. Sources aware of the development said banks were still awaiting approval from the RBI on the legality of debt-equity conversion at Rs 1. As a result, the process of bidding, which was scheduled to start on Saturday, could not take off.
“All legal approvals from the RBI need to be in place including examination of the issue of debt to equity conversion. Unless legal work is done, the bid document cannot be issued,” said an executive of a bank which is part of the consortium. Earlier this week, lenders’ consortium had announced that expressions of interest (EoIs) from bidders would be invited on April 6. They had set April 9 as the deadline for receiving bids giving investors four days to respond.
Now, the deadline for submission of bids will also be extended as the process has been delayed. “Whenever the EoI is published, four days will be given to interested parties to respond,” the official said. The bid document could be issued as early as Sunday if the legal processes are completed by then. In that case, April 10 would be the deadline for submission of bids, the official pointed out.
On February 14, the Jet Airways board had agreed to a plan wherein a consortium of lenders led by State Bank of India would take over the airline’s debt and convert it into 114 million shares for just Rs 1, giving them a 50.1 percent stake in the company.
A delay in the resolution process will further worsen the financial condition of the airline which is left with a fifth of its original fleet. Its creditors including aircraft lessors are threatening to de-register more planes and oil marketing companies have started suspending fuel supplies to the airline. On Friday, Indian Oil Corporation had stopped supply of fuel to the airline for more than two hours due to non-payment of dues.
The February 12 circular allowed banks to be allotted shares at Rs 1 for companies which have a negative book value.
Another banker who is overseeing the resolution process of Jet Airways said the lenders may have to wait for the RBI to issue a revised circular on resolution of stressed assets. “We have asked the RBI to give its opinion as soon as possible. We have highlighted that Jet Airways is a special case and any delay would harm the process. We expect to hear soon from them.” he said.
Experts pointed out that bankers need to exercise adequate caution so as to avoid legal conflict in future. “Resolution plan that involves debt to equity conversion of listed companies like Jet Airways could witness a high risk of litigation. As the RBI circular stands struck down, resolution plan that involved equity conversion could be subject to extended litigation by existing sponsors as well as shareholders,” brokerage firm SBI Caps noted in a report.
With the delay, the airline now faces the prospect of a shutdown anytime. There’s no consensus yet among the bankers on infusing Rs 1,500 crore of emergency funding into the company as they wanted clarity on new investors. A positive response to the EoI is important as that would allow the lenders to infuse emergency funding of Rs 1,500 into the company. The process of stake sale was extended as members of the lenders’ consortium wanted commitment from a new investor for further funds to be released.
While oil marketing companies resumed supply of fuel to the airline on Friday after government intervention, catering companies have now threatened to stop supply of in-flight meals if assurance of payment is not made. The airline has already stopped in-flight entertainment system in its long haul flights due to non-payment to suppliers. “Without funding, the airline will have to shut operations by April 12,” a Jet Airways executive said.
Worsening crisis
Rs 8,500 cr Jet owes to lenders; in addition, the airline has unpaid dues to lessors and employees
Rs 1,500 cr Emergency funding required
Rs 150 cr Lenders’ consortium led by SBI will infuse for now
90 Number of aircraft grounded due to non-payment to lessors
IOC stopped fuel supply on two days, but resumed after an assurance from Jet on settling dues
(Inputs from Abhijit Lele in Mumbai)

SC order on NPA circular: Govt, RBI will have to bring new rules, says Kant

The government and the Reserve Bank will have to bring in a new set of regulations to ensure that borrowers repay their debt on time following the Supreme Court striking down an earlier rule of the monetary authority, Niti Aayog chief executive Amitabh Kant said Wednesday.
Amidst a rash of announcements over income support schemes, the bureaucrat also stressed on the need to ensuring higher growth to fund such dole-outs.

With the Supreme Court striking down (the February 12, 2018 RBI circular on NPAs) as ultra vires, the issue needs to be relooked by both the RBI and government to arrive at a new regulation that will ensure that financial discipline from borrowers should continue, he told reporters.
Speaking on the sidelines of a conference of the world federation stock exchanges here, Kant said such a move ensuring timely repayment and resolution of stressed assets is essential for long-term growth.
Kant said a lot of work has been done by the government and the RBI to bring in financial discipline and good regulation to end crony capitalism.
In what is being seen as a jolt to the bad assets resolution framework, the Supreme Court Tuesday quashed the stringent RBI circular which mandated banks to recognise even one-day defaults and finding a resolution within 180 days failing which the account in question has to be sent to bankruptcy courts if it is Rs 2,000 crore and above.
The ruling by a division bench of Justices Rohinton Nariman and Vineet Saran has put a big question mark on the resolution of 70 large accounts which together owe the system over Rs 3.8 trillion.
The ruling came on a petition filed by 34 power companies which alone owe Rs 2.3 trillion to banks.
Legal and industry experts have voiced concern over the order, stating that there was a marked change in borrowers' behaviour after the circular was issued which would now change for the worse.
Meanwhile, on the rash of announcements on income support like the Congress promise of ensuring an annual income of Rs 72,000 each to poor families which account for 20 per cent of country's population through the Nyay scheme, which would involve an outgo of Rs 3.6 trillion per annum, Kant flagged the need to look at growth.
You cannot have redistribution without growth. If you don't grow higher you will not have surpluses to put into these schemes, he said, adding the country needs to grow at 9-10 per cent as against the present 7 per cent, to generate such surpluses.
While delivering his speech, he said radical reforms will be required to accelerate growth from the present levels.
We will have to focus more on manufacturing that will result in higher exports which deliver higher margins per unit of sale, he said, adding such a move will also create jobs as we cannot grow without jobs.
Agriculture will also need to be focused on, Kant said, and called for scrapping the APMC and Essential Commodities Acts.
He made it clear that agriculture cannot grow on subsidies and can develop only through market interventions.
He also said the country has become data-rich before actually becoming rich economically, stressing that the vast quantum of data being generated is a big asset, leading to a slew of changes, including an end to physical bank branches and branch managers.

Economists raise concerns over economic slowdown with RBI Governor

Economists raised concerns over a sharp slowdown in Indian economy and pitched for a monetary policy boost to support growth at a meeting with Reserve Bank of India Governor Shaktikanta Das on Tuesday, according to three participants.
Das met more than a dozen economists to get their views on the economy ahead of the Monetary Policy Committee (MPC) decision due on April 4.
Most economists expect the six-member MPC to cut the repo rate by 25 basis points for the second time in a row next month to 6.00 percent, a level last seen in August 2017. While the economists did not specify the extent of rate cut that the RBI could consider, one of them called for a 50-basis- point reduction, one of the participants said.
ALSO READ: $5 bn swap smartest move of RBI gov
"Most of the participants said that monetary policy needs to do the heavy lifting to boost growth as there was no space for fiscal expansion," another participant said.
The meeting under Das, who took charge in December, was in sharp contrast to the previous ones under former governor Urjit Patel, who was slightly reclusive and preferred to meet a small group of 5-6 economists. Das' style has, however, been more open and communicative.
India's economy expanded by 6.6 percent during October-December, its slowest pace in five quarters, on weak consumer demand and investments, dealing a major blow to Prime Minister Narendra Modi as he seeks a second term in office at a general election that kicks off next month.
Slowing growth has hit the federal government's tax collections, constraining its ability to substantially boost spending ahead of elections.
However, neither Das nor any RBI official from the monetary policy department gave any indication of their thoughts or views, as is typical in such big-group meetings.

ALSO READ: RBI Governor Das, bankers may not be on same page over passing rate cuts
Economists and strategists spoke of several issues including drought, liquidity management, exchange rate, inflation, growth, bank credit growth, real interest rates and monetary policy transmission.
"The meeting went on for two-and-a-half hours as there were many participants," said another economist who attended the meeting.
"But they didn't say a single word on these topics." The RBI did not respond to an email seeking comment on the meeting with economists.
Some economists pointed out that food inflation could begin inching up after September if monsoon rains were not sufficient, but was unlikely to push retail inflation past the RBI's 4 percent target.
Consumer inflation was at 2.57 percent on-year in February as food prices continued to fall for a fifth straight month. The economists also raised concerns over a slowdown in global growth that has hurt India's exports. India's outbound shipments grew 2.4 percent annually in February, slower than 3.7 percent in January.
"Overall, the view was that the downside risks to growth have increased since the last policy while inflation risks have remained muted," said a third participant.
"Not many of us clearly specified how much rate cut we wanted, but we presented the facts to make it clear to RBI that there was a need for a big boost to the economy."

No dilution on February 12 circular over stressed assets: RBI

The Reserve Bank of India Saturday maintained that there is no dilution in its stand with regard to February 12 circular on stressed assets recognition and resolution.
"It is reiterated that the Reserve Bank maintains its stand on all aspects of the Framework as has been consistently articulated in its communications, including the clarification given during the post-monetary policy press conference on February 7, 2019," the central bank said in a statement.

The statement comes amid reports that the RBI seems to be toeing the government line and considering relaxation of some of the aspects of the Revised Framework on Resolution of Stressed Assets issued on February 12, 2018.
As the matter is sub-judice and the Supreme Court has reserved its orders on the matter, the Reserve Bank will not comment on the specific details, it said.
Reserve Bank of India (RBI) Governor Shaktikanta Das last month had said there would be no changes in the circular.
The circular directed lenders to refer any loan account over Rs 2,000 crore under the Insolvency and Bankruptcy Code (IBC) if it is not resolved within 180 days of default.
It also underscored IBC's status as the cornerstone of the bad loan resolution framework, scrapping all previous mechanisms. The circular imposed a one-day default rule. Banks have to treat a company as a defaulter even if it misses repayment schedule by a day.
However, this harsh norms have been criticised in various quarters, including by a parliamentary committee.

No relief for bond market as RBI may prune debt purchases by over 40%

India’s central bank is seen curtailing its support for the bond market, dashing hopes of relief for investors reeling under two straight months of declines.
The Reserve Bank of India may buy Rs 1.7 trillion ($24 billion) of debt in the year starting April 1, according to a Bloomberg News survey of traders and economists. That compares with an estimated record Rs 3 trillion spent on such purchases this fiscal period.

Tightening the spigot on purchases is bad news for a market already jittery about the heavy supply of paper from Prime Minister Narendra Modi’s record $100 billion borrowing plan. The yield on new 10-year debt may climb as high as 7.75 percent over the coming months, according to ICICI Securities Primary Dealership Ltd., a level last seen in November.

“If the OMOs go out of the picture at a time when we have humongous debt supply hitting the system, we may see bond losses intensifying,” said Naveen Singh, head of fixed-income trading at ICICI Securities.
In a sign of things to come, the Reserve Bank of India on February 26 unveiled purchases for the first two weeks of March after earlier saying it would extend support for the entire month. The central bank may halt fresh buying in the quarter starting April as higher spending by the government will likely boost liquidity in the banking system, Singh said.
The purchases, aimed primarily at addressing the cash crunch in the banking system, have helped absorb a little over half the sovereign bond supply of Rs 5.71 trillion this fiscal year. The support may taper because of an improvement in liquidity, and HSBC Holdings Inc. expects the RBI to cut back buying to between Rs 1.8 trillion to Rs 2 trillion.
Even so, a clear majority for Modi’s party in the upcoming elections may burnish the appeal of Indian assets and lure dollar inflows, reducing the market’s reliance on RBI’s support, according to ICICI Securities. Foreigners have bought about $65.5 million of rupee bonds so far this month, paring the year’s withdrawal to $1.6 billion.
“If there is a continuity at the centre, foreign inflows might surpass our assumption and the RBI may not have to do huge OMOs,” ICICI’s Singh said. “In that case, things can change drastically.”

First time in FY19, RBI turned net dollar buyer in Dec, bought $607 million

The Reserve Bank has turned net buyer of dollars in December, the first time in the current financial year, as it purchased $607 million of the greenback on a net basis from the spot market, according to the latest data.
The central bank bought $837 million and sold $230 million in the spot market during the reporting month.

As against this, in December 2017, the RBI was a net buyer of $5.647 billion, after it bought $6.008 billion from the market and sold $361 million.
ALSO READ: RBI think tank wants independent body to verify official economic data
Between April and November 2108, the central bank had net sold $26.51 billion in the spot market against net purchase of $18.017 billion in the same period in 2017.
In FY18, the apex bank had net purchased $33.689 billion from the spot market, taking its total dollar purchase to $52.068 billion, and sold only $18.379 billion, this helped the country for the first time scale a life-time peak of $426.028 billion for the week to April 13, 2018, in forex reserves.
ALSO READ: Yield curve steepens, short-term rates drop on RBI rate cut decision
But since then, the forex kitty has been fluctuating and mostly sliding. The forex reserves stood at $398.122 billion for the fortnight ended February 8, 2019, and has reportedly crossed the $400-billion-mark last week.
In FY17, the RBI had bought $12.351 billion on a net basis.
In the forward dollar market, the outstanding net forward sales at the end of December 2018 was $2.426 billion, compared to a sale of $1.924 billion in November, show the RBI data.

RBI MSME package to help recast Rs 1-trn loans for 700k accounts: Govt

The Reserve Bank's restructuring package for small businesses announced last month will help recast Rs 1 trillion of loans for 700,000 eligible micro, small and medium enterprises, a top government official has said.
The estimate from the Department of Financial Services (DFS) secretary Rajiv Kumar is much higher than domestic rating agency Icra's assessment of Rs 10,000 crore. It comes even as some banks have seen a reluctance among the target MSMEs to take advantage of the scheme.

He said 700,000 MSME units need restructuring.
"They all can be restructured till March 2020 without downgrading the asset. Rs 1 trillion worth loans will get restructured," Kumar said late Friday, speaking at a post-Budget interactive meeting with industry captains.
He said the scheme will help free up additional resources which will fuel demand and create further opportunities in the industry.
ALSO READ: MSME units provided jobs to 10 crore people in past 4 years: Govt
It can be noted that the scheme was termed as "regressive" by analysts, as the RBI had officially discontinued the practice of restructuring of advances, which is among the factors blamed for the high NPAs as banks indulged in "ever-greening".
"During the past few years, RBI has been doing away with various schemes for asset quality forbearance and hence this is regressive from a credit culture point of view, given the past experiences of the banking sector with restructuring," Icra's group head Karthik Srinivasan had said.
The scheme was announced by RBI after a recommendation to consider the same by its central board at a crucial November meeting held amid friction between the central bank and the government.
ALSO READ: Interim Budget 2019: 2% interest subvention for MSMEs with Rs 1 crore loan
The government, which is to face elections in the forthcoming summer months, was pressing for leeways like the MSME recast to drive the economy, while the RBI was reluctant to set any new precedents. The board meet was followed by Governor Urjit Patel's resignation early December.
The scheme announced by RBI is a one-time scheme wherein a loan tenor and interest rate can be revised without classifying the asset as an NPA. The facility is available for standard advances of up to Rs 25 crore only.
Bankers said MSMEs have a reluctance to come forward and take advantage of such a scheme.
ALSO READ: Offer window for restructuring large firms' stressed loans: Assocham to RBI
A private sector banker said even though the asset continues to be standard, the borrower's credit history is impacted, which may cause some difficulty at a later stage.
The banker further said in the past as well, especially in the period post demonetisation or calamities like the floods in Kerala, MSMEs entitled for the help have shown a general reluctance to come forward.
Another banker said the scheme does not change things materially for an enterprise beyond acknowledging the pains an MSME has had to go through because of decisions like demonetisation or introduction of GST.
"This is not going to change the cash flows for a small enterprise which have been impacted or the general demand situation amid a sluggish economic growth," he said.

How a bad loan farce gets another rerun after U-turn in RBI's philosophy

A new year, a new central bank governor. Yet the first salvo to come out of the Reserve Bank of India’s policy arsenal in 2019 is an encouragement of good old “extend and pretend” lending.
Banks and shadow banks are being allowed a one-time restructuring of loans of up to 250 million rupees ($3.6 million) to micro, small and medium enterprises that were in default on January 1, without having to mark them as nonperforming, the RBI said on Tuesday. Lenders are being given an extension of 15 months (up to March 31, 2020) to pretend that these stressed loans are standard. All they have to do is to make an additional 5 per cent loss provisions. By contrast, a secured loan classified as nonperforming attracts immediate provisioning of 15 per cent, rising progressively to 40 per cent – even 100 per cent – as recovery became increasingly doubtful.
Classifying restructured loans as nonperforming is a standard prudential requirement. India relaxed the norm in 2001 to encourage banks to clean up an overhang of corporate debt that had piled up in the exuberant first decade of the country’s economic liberalization. The solution back then lay in encouraging lenders to send problem loans to so-called Corporate Debt Restructuring, or CDR, an out-of-of-court mechanism that helped banks recover some money in the absence of a modern bankruptcy law. Lenders could keep loans referred to the CDR as standard on the books, meaning they didn’t have to make steep provisions for losses.
ALSO READ: Banks recover Rs 404 bn of bad loans from defaulters in FY18: RBI report
However, the temporary palliative became a perennial crutch. When dealing with the aftermath of a different credit cycle in May 2013, it became clear to the RBI that banks were using the restructuring fig leaf to hide bad loans. To end the abuse, the RBI said it would scrap the asset-classification forbearance by April 1, 2015.
Even before that day arrived, there was enormous lobbying by banks at the behest of powerful corporate borrowers. India then was ranked 136th in the world for resolving insolvency; a modern bankruptcy law was still more than a year away. So RBI Governor Raghuram Rajan relented and gave lenders new tools – Strategic Debt Restructuring, or SDR, and (a year later) Scheme for Sustainable Structuring of Stressed Assets, or S4A – to avoid making provisions.

ALSO READ: PSBs' losses up 3.5 times to Rs 147 bn in Q2 on bad loans; PNB hit hardest
It wasn’t a free lunch. Rajan also began an asset-quality review in 2015, forcing banks to step up disclosure of bad debt. The stick annoyed errant debtors more than the restructuring carrot pleased them. Rajan had to leave after just a single three-year term. But his successor Urjit Patel continued to tighten the screws. Now that there finally was a functioning bankruptcy law, Patel scrapped all the halfway houses – CDR, SDR and S4A – in February last year. Relaxed norms for asset classification and loan-loss provisioning also went away.
That shock therapy made corporate lobbyists more livid. Facing an all-round assault on the central bank’s capacity for independent action, Patel abruptly left last month before completing his tenure. The new RBI Governor Shaktikanta Das has begun his term by bringing back forbearance in a small but significant way. It’s small because India’s 101 trillion rupee credit market is overwhelmingly skewed toward large borrowers. Non-farm business loans of less than 250 million rupees account for only 22 percent of the pie; remove individual borrowers, and the share shrinks to 13 percent.
ALSO READ: PNB invites bids for two dozen bad loan accounts to recover Rs 11.79 bn
Yet it’s a significant step politically. Small business loans have been under elevated stress since Prime Minister Narendra Modi’s disastrous November 2016 move to outlaw 86 percent of the country’s cash, a policy blunder followed up by a goods and services tax that raised compliance costs for a large number of tiny firms. The nonperforming asset ratio for the larger of the MSME borrowers – ticket size between 100 million and 250 million rupees – was 14.5 percent in June, up from 12.8 percent two years ago.
The banks don't want this pile to grow any further. That much is obvious. It’s also clear that the Modi government wants to ease the tax compliance burden on small businesses ahead of general elections that will be held by May. However, it’s not the job of the banking regulator to join the government as a sentiment booster.
N.S. Vishwanathan, an RBI deputy governor, said last April that “shorn of all forbearances” India’s new regulatory framework for stressed assets was finally on par with international norms, and that giving up on it would amount to “letting go waste” India’s landmark bankruptcy regulation.
That’s the risk now. Small business owners – as well as distressed farmers – have clout only before elections; billionaires wield their power indefinitely. Getting politicians to promise farm-debt waivers and 59-minute SME loans is easy. But now that the RBI has started flip-flopping, it’ll become that much easier for the tycoons to rewind the credit culture – back to the debtor-friendly show it always was.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.

RBI says haste in easing norms for banks harmful to economy

Rebuffing demands for easing regulatory norms for banks, the Reserve Bank of India on Friday warned that haste to relax rules for capital adequacy and risk weights when defaults are high and provision are low to cover losses is harmful for economy.
The Basel III norms recommend risk weights for various credit exposures, based on cumulative default rates (CDR) and recovery rates observed internationally. However, the CDRs and Loss Given defaults (LGD) rates observed in India are much higher than observed internationally. Therefore, applying Basel specific risk weights would understate the true risk of loans carried on the books of the Indian banks, the banking regulator said in its annual report on trends and progress of banking in India (2017-18).

Moreover, the current levels of the provisions maintained by banks may not be enough to cover the expected losses. In particular, the adequacy of buffers becomes an important issue in order to absorb the expected losses which have not been provided for, if and when they materialise.
RBI said it also needs to be recognised that the Indian banking system has high proportion of un-provided bad loans vis-à-vis the capital levels although after the IBC and revised framework for the resolution of assets, there are signs of improvement in the defaults rates and recovery rates. Citing this there have been calls for reducing the regulatory capital requirements.
Against the foregoing however, the case for recalibration of risk weights or minimum capital requirements would need to be carefully assessed – frontloading of regulatory relaxations before the structural reforms fully set in and conclusive evidence on CDRs and LGDs is observed – could be detrimental to the interests of the economy, RBI asserted.
The government has infused capital in Public Sector Banks intermittently. In the last three years (2015-18), however, more than 70 per cent of the infused capital was absorbed into losses incurred by them. This suggests that only if the recapitalisation amount was large enough relative to the total capital base, can it make a perceptible impact on credit growth, it added.

New RBI Governor Shaktikanta Das buys time as worries on autonomy linger

The Reserve Bank of India’s board on Friday bought more time to review the government’s demand for a greater say in the central bank’s functioning, one of the issues that had fostered hostilities between the two sides.
“The board deliberated on the governance framework of the Reserve Bank and it was decided that the matter required further examination,” the central bank said in a statement after the meeting in Mumbai.

The status quo will for now reassure investors about the central bank’s autonomy, as the new Governor Shaktikanta Das was seen as someone more amenable to the government’s requests. Prime Minister Narendra Modi named Das to the post a day after Urjit Patel abruptly resigned as governor after clashing with the government over its demands to ease lending curbs on state-run banks and hand over more of the RBI’s capital to the state.
Yielding to the government’s demands may raise questions on the central bank’s autonomy and have a bearing on the credit rating of one of the world’s fastest-growing major economies.
The “meeting failed to shed any new light on Governor Das’s stance on banking regulation and other issues,” said Priyanka Kishore, head of India and South East Asia Economics at Oxford Economics, Singapore. “RBI is clearly trying to let matters cool before making any further decisions on these fronts.”
The 18-member board, which includes monetary policy makers, finance ministry representatives and industrialists, also reviewed matters relating to liquidity and credit delivery to the economy, besides discussing the current economic situation, global and domestic challenges, according to the statement.
Ahead of the meeting, Piyush Goyal, a top minister in Modi’s government, took to Twitter to accuse the central bank of wielding power without accountability and acting unilaterally in dealing with banks burdened by bad loans.
That prompted some to see this as a “frightening” peek into what’s in store for Das as he settles into the new role.
“It’s frightening because it’s very important to show respect for the process,” said Abhijit Banerjee, a professor of economics at Massachusetts Institute of Technology. “Das is going to worry he got chosen because he’s not the best person for the job but because he is someone who the government favored.”
“He will feel he doesn’t have independent authority,” Banerjee said.
Still, some see Das’s appointment as an end to hostilities that came to mark the relations between the RBI and the government in the Patel-era.
Swaminathan Gurumurthy, a Hindu nationalist and journalist appointed by the Modi government as an independent board member in August, backed the new governor’s conciliatory approach to the government. He was referring to Das’s first media briefing on Wednesday when the governor said the government deserves to be consulted.
“I don’t know if the relationship is good or not, but we have to have stakeholders consultation,” said Das, who was Modi’s key lieutenant when he unveiled his controversial plan to invalidate 86 percent of the currency notes in late 2016.. “The government is not just a stakeholder but also runs the country, economy and manages major policy decisions.”
The central bank has so far kept a tight leash on liquidity, restricted some weak banks from lending and refused to bailout the shadow banking sector. The latter had been at the forefront of new lending in the past three years, which in turn fueled domestic consumption and economic growth.
Modi is keen to keep growth going ahead of a national election early next year and as recent data showed the economy’s expansion may be under threat. Gross domestic product growth in the three months to September slowed to 7.1 percent from the 8.2 percent pace seen in the previous quarter.
The new governor has said supporting growth is very much part of the RBI’s mandate, a sharp contrast from his predecessor who stuck to the central bank’s inflation-targeting mandate. Das’s comments had stoked a rally in sovereign bonds, which extended gains for a third day Thursday on speculation the RBI will shift to a neutral policy stance from the current hawkish bias. They dropped Friday after crude prices regained some ground.
“With Das at the helm, we now think the RBI will call a halt to the tightening cycle,” Shilan Shah and Mark Williams, economists at Capital Economics, wrote in a note. “We no longer expect a rate increase at the next meeting in February.”

Governance framework of RBI needs further examination: RBI Board

The Reserve Bank of India's board deliberated on the central bank's governance framework and has decided that the matter required further examination, the central bank said on Friday.
The statement released after the central bank's board meeting, which was headed by the new RBI Governor Shaktikanta Das, said they reviewed the current economic situation and various domestic and global challenges.

The board also looked into matters relating to liquidity, credit delivery to the economy, issues of currency management, financial literacy and discussed the draft report on trends and the progress of banking in India, the statement said.
This is the first board meeting after the RBI's former chief Urjit Patel's resignation earlier this week following widening differences between the government and the central bank.
The RBI's board meetings have come under the spotlight in recent months since the government started putting pressure on the central bank to ease lending curbs and hand over more of its reserves to fund India's fiscal deficit.