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Yes Bank Lists Country’s First $600m MTN Bond On IndiaINX
Yes Bank Lists Country’s First $600m MTN Bond On IndiaINX
Private sector lender, Yes Bank on announced the listing of the Bank’s debut US $600 million bond issue under its maiden US $1 billion medium-term note (MTN) bond on country’s first international exchange BSE’s IndiaINX at the International Financial Services Centre (IFSC) at GIFT City
The Yes Bank’s MTN programme — a debt note that matures or has a payback period of 5 years — on Global Securities Market (GSM) became the country’s first capital raising platform for international investors in any currency.
India International Exchange (India INX) is India’s first International Exchange set up at International Financial Services Center at Gujarat International Finance Tec-City.
The MTN bonds issuance received an overwhelming response from international investors as it was oversubscribed by more than 1.83 times from over 90 accounts and saw a final order book, at a spread of 130 basis points against 150 basis points seen at the opening of the issue.
Asian accounts received 58 per cent of the allocation, Europe-Middle East and Africa (EMEA) received 41 per cent and offshore US accounts received 1 per cent.
The split of issuance indicates, 46 per cent to asset managers, 38 per cent to banks, 11 per cent to insurance companies and 5 per cent to private banks.
YES Bank was the first International Business Unit (IBU) to have started operations in October 2015
Yes Bank MD and CEO- Rana Kapoor
PNB Fraud
Making of PNB fraud
Three Cs are considered critical in the business of lending- character, capacity and collateral coverage of the borrower.
The Punjab National Bank (PNB) has undoubtedly faltered on these banking principles while issuing the Letters of Undertaking (LoUs) to firms linked with diamantaires Nirav Modi and his uncle Mehul Choksi.
To understand the PNB fraud case involving Nirav Modi, it is important to know the operational behaviour of banks, particularly the public sector undertakings (PSUs), in India. Suppose an importer like Nirav Modi, plans to purchase diamond and other jewels from a foreign-based exporter and sell it through his own network of stores.
HOW AN IMPORTER GOES ABOUT HIS BUSINESS?
Import of diamonds and pearls by a desi jewel merchant requires a huge amount as Nirav Modi needed. Now, the importer would approach a bank. In Nirav Modi’s case, he approached the Punjab National Bank.
As per existing practices, the PNB would offer the required loan at around 10 per cent interest rate. But an importer of the scale of Nirav Modi would find the interest rate very high. And, here begins the making of a bank fraud.
The importer would find it tempting to take a foreign currency loan instead. He would anyway be paying in dollars for his imports. Foreign currency loans attract lower interest rates at LIBOR plus something.
LIBOR stands for London Interbank Offered Rate or Intercontinental Exchange London Interbank Offered Rate. It is the benchmark rate for short-term loans and serves as the base for calculating interest rates on loans throughout the world.
LIBOR is about 1.5 per cent while in Indian banking practices an additional two per cent interest rate on short-term loans may be charged. So, effectively in place of 10 per cent, Nirav Modi could actually get loan at 3.5 to 4 per cent interest rate.
THE LETTER OF UNDERTAKING
However, an importer like Nirav Modi would face difficult questions, who would give him foreign currency loan? Why would a foreign bank that does not know about the credentials of the borrower offer him a loan? Now, the importer would approach bank, the PNB in this case, once again asking it to issue an LoU instead of loan.
An LoU is a guarantee from the bank that should the borrower default on repayment, it would pay back to the original lender.
Ideally, the PNB should ask the borrower to furnish a collateral coverage worth 110 per cent of the guarantee amount, i.e. Rs 110 crore for Rs 100 crore LoU. But the bankers say that in cases of big corporate, loan or LoU guarantee can be as high as six to 10 times of the collateral coverage. This has happened in the cases of both Vijay Mallya and Nirav Modi.
The LoU operates through the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is a kind of banking message service. A SWIFT message is a guarantee that the PNB, in this case, would pay Rs 100 crore (a supposed amount) if Nirav Modi (the supposed borrower) does not pay back in 180 days.
The SWIFT is the reason why a foreign bank would trust the PNB in disbursing millions of dollars for the borrowers use.
The foreign bank would get interest at LIBOR while the PNB charge around two per cent of the loan amount as its fee towards LoUs.
WHY GIVE LoU AND NOT LOAN?
The lender bank transfers money to the PNB’s account as it trusts only this bank in lieu of the LoU through the SWIFT.
The money is deposited in what is called nostro account of the PNB. A nostro account is an account that a bank holds in a foreign currency in another bank.
It is commonly used to facilitate foreign exchange and trade transactions. The LoU issuing bank gives money to the borrower or most of the times directly to whoever the borrower is buying his diamonds and jewels from. The payment is made outside India.
Those who have worked in the forex department of some of the leading banks of the country say that in India’s case, a foreign bank usually refers to a branch of an Indian bank abroad.
Foreign banks have been suspicious of Indian banks for several years now in the matters of giving loans, primarily for not backing the LoUs by appropriate collateral coverage.
So, the foreign banks or foreign branches of Indian banks do not give money to the borrower directly and they hardly care whether the borrower is using the money for imports or for investment in stock exchanges of low to very high risks. It is assured of getting its money back because of LoU.
Why would PNB or any other bank do such risky business for an importer like Nirav Modi? The bank gets a lucrative return merely for acting as a guarantor.
A two per cent return is good for banks like PNB if they don’t have to lend a penny.
THE VICIOUS CYCLE
All is well if the borrower repays his loan within 180 days. The money comes back to the LoU issuing bank, which honours its commitment to keep its credibility intact. In Nirav Modi’s case, it did not work for the PNB.
There could be two situations. One, Nirav Modi could not earn enough through his sale of jewels and jewellery to repay his loans or secondly, a part of or the whole of the loan amount was diverted to some other destination (economic activity). The result: due date could not be honoured.
Now, the borrower has two options. One to declare bankruptcy and the bank will sell the collateral coverage to recover as much as it fetches.
Secondly, if the borrower intends to remain in the business, he would again go to the PNB and ask for another LoU opening. The new LoU will be for an amount that covers previous loan plus interest.
The money received through fresh LoU is used by the defaulting borrower to repay the previous loan. In common banking parlance, it is called rolling over of credit.
The bank may or may not agree to it depending upon its estimation of the three critical parameters of lending character, capacity and collateral coverage.
The PNB agreed to issue another LoU and several ones thereafter. The cumulative amount today stands at Rs 11,400 and is likely to go upward.
Since almost all the banks are engaged in the same practice, there is fear that the PSU banks may soon plunge into deep trouble if tight scrutiny is done and audit is conducted properly.
The PNB fraud is a telling proof that that checks and balances are not followed in banks and auditors have been sloppy in their job.
The Reserve Bank of India (RBI) and the government may have to intervene to bring some serious discipline in the banking ecosystem of the country lest the loan bubble bursts into something similar to 2008 US sub-prime lending crisis in India.
Bank Of Baroda To Exit South Africa By March-End
Bank of Baroda said it has decided to exit by March-end its South Africa operations after 21 years amid a probe into alleged compliance lapses by the bank there.
In line with the banks strategic plan for rationalisation of overseas branches, the bank is exiting from its operations in South Africa.
The branch will stop taking new/incremental deposits and disbursing loans with effect from March 1, 2018. Further, it will cease to operate and conduct the business of a bank with effect from March 31, 2018
In an earlier filing, the bank had said the South African Reserve Bank is investigating allegations regarding compliance lapses at the banks branch there and it was cooperating in the matter.
The bank was responding to clarifications sought by exchanges regarding a news report citing the banks involvement with a particular Indian origin family in South Africa extending to a political scandal there.
The news report referred to the banks dealings with one Gupta family, now settled in South Africa and follows information furnished by the bank to exchanges in August 2017 about paying Rs 5.45 crore as penalty that was imposed on its South Africa branch by the local regulator.
It had also informed about paying Rs 42.26 lakh fine in Seychelles without giving details.
As regards the news item, the Reserve Bank of South Africa is investigating the allegations against Bank of Baroda and the bank is actively cooperating and supporting these investigations,” the bank said in a regulatory filing to the exchanges.
Of the total 5,558 branches, the Baroda (Gujarat) headquartered bank has 107 overseas branches
Bank of Baroda Chairman- Ravi Venkatesan
Managing Director & CEO- P.S.Jayakumar.
RBI Relaxes Priority Sector Lending Rule For Banks
Banks unable to meet their priority sector lending targets under MSME now stand a better chance.
Removal of existing loan limits of up to ₹5 crore to micro and small units and up to ₹10 crore to medium enterprises, will help banks make good the shortfall in MSME loans that qualify as priority sector lending.
Currently, all domestic and foreign banks with at least 20 branches are required to lend a minimum of 40 per cent of their total loans (Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure (whichever is higher)) to the priority sector (agriculture, micro enterprises, education, social housing, etc).
They are also required to meet sub-targets, such as 18 per cent for agriculture (8 per cent for small and marginal farmers), 7.5 per cent for micro enterprises and 10 per cent for weaker sections.
As per the RBI’s report on ‘Trend and Progress of Banking in India, 2016-17’, while private banks on aggregate basis were able to meet their priority sector lending target under the MSME, public sector banks have fallen short of the 7.5 per cent target.
For public sector banks, the loan amount outstanding under priority sector advances to MSMEs stood at ₹3.15 lakh crore — 6.3 per cent of ANBC against the target of 7.5 per cent. The removal of loan limits under the MSME could help PSU banks meet their target better as higher-value loans to MSMEs could qualify as priority sector and earn them better returns.
Currently, banks having any shortfall in lending to priority sector have to contribute to the Rural Infrastructure Development Fund (RIDF) established with Nabard and other specified funds
While interest rates on such funds (3-5 per cent, according to few bankers) vary and are fixed by the RBI from time to time, they fetch lower interest than could be earned by deploying them for lending purposes.
SBI Wrote Off Bad Loans Worth Over Rs 20,000 Crore Last Fiscal
The country’s largest lender SBI wrote off bad loans worth ₹20,339 crore in 2016-17, the highest among all the public sector banks which had a collective write-off of ₹81,683 crore for the fiscal.
The data pertains to the period when the associate banks of State Bank of India (SBI) were not merged with it. Public sector banks’ (PSBs) write-off stood at ₹27,231 crore in 2012-13, government data showed.
The figure has jumped almost three-fold in five years.
In the current financial year, PSBs have written off loans worth ₹53,625 crore in the six months to September
As per data from the Reserve Bank, nine public sector banks, out of the total 21, had gross non-performing asset ratio of above 15% (the percentage of bad loans in terms of total loans outstanding) as of September 30, 2017.
Fourteen PSBs have gross non-performing asset ratio of over 12%
Mounting NPAs
PSBs face mounting non-performing assets (NPAs) or bad loans, putting the financial sector under stress. The government has unveiled a ₹2.11 lakh crore capital infusion plan for the PSBs, including via bonds, in the next two years
RBI to set up ombudsman for non-banking finance companies
The Reserve Bank of India announced setting up ombudsman for addressing customer grievances in the non-banking finance companies.
The rules will be laid out by the end of this month. RBI will start with deposit taking NBFCs and widen the scope to cover NBFCs with asset size of Rs 100 crore
This will be introduced in a phased manner. RBI will start with deposit taking NBFCs and include NBFC with Rs 100 crore and above
Banking ombudsman is a quasi judicial authority, created to resolve customer complaints against banks relating to certain services provided by them. The Banking Ombudsman Scheme is operational from 1995.
There are around 20 banking ombudsmen have been appointed with offices mostly in state capitals.
One can file a complaint before the banking ombudsman if the reply is not received from the bank within one month after the bank concerned has received one’s complaint, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank
RBI to link base rate with MCLR from 1 April
Reserve Bank of India will link the bank base rates with the so called marginal cost of funds based lending rate (MCLR) system to ensure that all bank loans effectively reflect the changes in the policy rates
The new MCLR regime was implemented in the fiscal year starting April 2016.
It applies to all new borrowers and is closely linked to bank deposits rates. All new floating rate loans are now linked to MCLR
The RBI had also set up an internal panel headed by principal advisor, monetary policy department Janak Raj to improve MCLR transmission which recommended linking bank lending rates to a market benchmark.
Indian Overseas Bank receives Rs173.06 crore capital infusions from government
Indian Overseas Bank (IOB) has received Rs 173.06 crore capital infusions from the government in the current fiscal.
The bank has received the said amount of Rs173.06 crore on January 31, 2018.
IOB MD & CEO- R. Subramaniakumar
Headquarters- Chennai.
Axis Bank Launches 4th Edition Of “Evolve”
Private sector Axis Bank today launched the fourth edition of ‘Evolve’, an annual multi-city knowledge series for Bank’s SME customers in Coimbatore.
The current edition of evolve, titled “Transform your Family Business into your dream company”, will empower the SMEs understand the winning strategies and best practises that have helped some of the leading family businesses in India grow into reputable enterprise.
This edition will span across 30 cities including Nagpur, Surat, Rajkot, Pune, Vishakhapatnam, Trichy, Kanpur, Ludhiana and Jamshedpur.
The series aims to equip the participating SMEs with new-age strategies, live case studies, operational know-how, regulatory and Government related knowledge skills.
CRISIL upgrades outlook on 18 PSBs from negative to stable
Rating agency CRISIL has revised its outlook on 18 public sector bank (PSBs) from “negative” to “stable” after the government announced bank-wise capital infusion and reform plans.
Nine PSBs – outlook has been retained as ‘Negative’.
The revision in outlook is primarily driven by the government’s PSB recapitalisation programme for this fiscal (2017-18).
This will improve the financial risk profile of these banks and help them meet Basel-III regulatory capital norms.
It also provides a cushion against an expected rise in provisioning for non-performing assets (NPAs), CRISIL said in a statement
On October 24, 2017, after the government announced its Rs 2.11 trillion (Rs 2.11 lakh crore) recapitalisation plan.
The government announced details of bank-wise infusion of Rs 880 billion (Rs 88,000 crore) capital this fiscal.
Small finance banks and payment banks to offer Atal Pension Yojana
Payments Banks and Small Finance Banks are now allowed to sell Atal Pension Yojana (APY)
In a statement the finance ministry said that given the strength, expertise and reach of these new age banks, they can play a pivotal role in outreach of subscribers under APY.
At present there are 11 Payment Banks and 10 Small Finance Banks
Participation in APY not only builds a pensioned society but also adds sustainable fee income to banks by way of attractive incentive for mobilizing Rs 120-150 for each APY Account
At present there are more than 84 lakh subscribers registered under the APY scheme with an asset base of more than Rs 3,194 crore.
The scheme which became operational from June 2015 is available to all Indian citizens in the age group of 18-40 years.
Under the scheme, a subscriber would receive a minimum guaranteed pension of Rs 1,000 to Rs 5,000 per month, depending upon his contribution, from the age of 60 years
Government To Infuse Over Rs. 88 Thousand Crore In 20 Public Banks
The government announced Rs. 88,139 crore capital infusion in 20 public sector banks (PSBs) during the current fiscal, with IDBI Bank getting the most — Rs. 10,610 crore
The unprecedented Rs. 2.1 lakh crore bank recapitalization plan announced in October last year was to be spread over two financial years — 2017-18 and 2018-19.
During the current fiscal, ending March 31, State Bank of India will get Rs. 8,800 crore capital and Bank of India, Rs.9,232 crore.
Loans above Rs. 250 crore will undergo special monitoring.
Eleven of India’s 21 listed government-owned banks are now under the Reserve Bank of India’s watch due to large bad loans, weak capital levels and low return on assets.
Together these banks account for over Rs 3 lakh crore in bad loans of the total Rs 8.4 lakh crore across India’s listed banks.
IOB, NHB Tie Up For Rural Housing Push
Indian Overseas Bank has signed an MoU with National Housing Bank for the Rural Housing Interest Subsidy Scheme (RHISS) of the Ministry of Rural Development.
The aim of the RHISS is to provide subsidy for housing loans taken by those living in rural areas for construction and modifications of their dwelling units.
The interest subsidy under the scheme is 3 per cent for a loan amount of ₹2 lakh for 20-year tenure.
Indian Overseas Bank has become one of the first public sector banks to implement the scheme
IOB will be able to extend the benefit of RHISS to its rural home loan customers of its 923 rural branches spread across India
MD and CEO of Indian Overseas Bank- R Subramaniakumar
Headquarters- Chennai.
MD and CEO of the National Housing Bank– Sriram Kalyanaraman
Headquarters- New Delhi.
AU Small Finance Bank inks MoU with LIC to offer PMJJBY scheme
Banking finance company AU Small Finance Bank has signed an MoU with LIC to offer Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
Under the MoU, LIC will give a life cover of ₹2 lakh in case of death to the customer at a nominal premium of ₹330 per annum.
The company will also offer loans under government’s affordable housing and subsidy schemes such as Pradhan Mantri Awas Yojana.
The customers can avail loans up to ₹1 crore.
The product will be targeted for both salaried and self- employed (professional and non-professional) customers in urban, semi-urban and rural areas which is the bank’s core market segment.
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is a one-year life insurance scheme, renewable from year to year, offering coverage for death.
The cover under PMJJBY is for death only and hence benefit will accrue only to the nominee. PMJJBY is a pure term insurance policy, which covers only mortality with no investment component
PMJJBY is available to people in the age group of 18 to 50 years ( life cover up to age 55) having a savings bank account who give their consent to join and enable auto-debit
Under PMJJBY scheme, life cover of Rs. 2 lakhs is available at a premium of Rs.330 per annum per member and is renewable every year.
In the case of a joint account, all holders of the said account can join the scheme provided they meet its eligibility criteria and pay the premium at the rate of Rs.330 per person per annum
Mr. Mannil Venugopalan (Chairman)
Mr. Sanjay Agarwal (MD & CEO)
Headquarters- Jaipur, Rajasthan.
Yes Bank Ties Up With Amplus Energy Solutions
Amplus Energy Solutions announced entering into a pact with private sector lender Yes Bank for strategic tie-up to co-finance projects in the solar energy space in India.
The memorandum of understanding (MoU) was signed at International Solar Alliance pavilion at the World Future Energy Summit, Abu Dhabi.
Under the partnership, the total projects capacity is likely to be up to 1,000 mw under the partnership, it said adding that these projects would be developed by Amplus by 2023.
Amplus Energy Managing Director and CEO : Sanjeev Aggarwal
HDFC Bank becomes first Indian bank to cross Rs 5 trillion market cap
India’s most-valued lender HDFC Bank Ltd crossed Rs5 trillion market capitalisation for the first time, making it only the third Indian company to achieve this milestone.
Tata Consultancy Services Ltd (TCS) and Reliance Industries Ltd (RIL) are the other two companies which crossed market capitalisation of Rs5 trillion.
RIL remained the most-valued company with a market cap of Rs5.82 trillion, followed by TCS with a market cap of Rs5.57 trillion.
HDFC Bank’s steady 20% profit growth quarter-after-quarter as well as its immunity to the bad loans crises has helped the stock.
The bank also reports bad loan ratio below 1%, the lowest among Indian lenders.
Bank Of Baroda Partners With Invoicemart As A TReDS Partner
Digital invoice discounting marketplace – Invoicemart has tied up with state-run lender Bank of Baroda to discount invoices for MSMEs.
Buyers and sellers registered on the marketplace will now be able to access funding from Bank of Baroda.
Invoicemart is a joint venture between Axis Bank Ltd and m-junction services ltd.
Bank of Baroda had recently announced that it was stepping up its focus on supply chain financing, to provide loans to MSMEs associated with large corporates.
TReDS is an online mechanism that helps MSMEs unlock working capital without the hassle of applying for loans
Recently Government of India advised all public sector banks and undertakings to get registered on TReDS platforms.
This move opens the way for Indian SMEs and MSMEs to obtain the much needed trade finance.
Invoicemart CEO & MD- Kalyan Basu.
Trade Receivables e-Discounting System (TReDS)
RXIL, India’s first TReDS platform, started operations in January 2017. SIDBI established the platform in partnership with NSE and three banks (SBI, ICICI Bank and YES Bank).
TReDS is an online electronic institutional mechanism which facilitates the financing of trade receivables of MSMEs through multiple financiers.
The TReDS platform enables discounting of invoices/bills of exchange of MSME sellers against large corporates, including government departments and public sector undertakings, through an auction mechanism to ensure prompt realisation of trade receivables at competitive market rates.
Jaitley launches options trading in guarseed on NCDEX
Finance Minister Arun Jaitley today launched options trading in guarseed on the commodity bourse NCDEX (National Commodity and Derivatives Exchange Ltd) and asserted that the new initiative will benefit farmers and ensure better prices in the coming days.
NCDEX is the second exchange after MCX to launch options trading in commodities. In October 2017, MCX had launched gold options.
Guarseed is the first agri-commodity options.
Options are derivatives which give a buyer the right but not the obligation to buy or sell an underlying asset or instrument at a specific price on or before a certain date.
Axis Bank opens offshore banking branch at GIFT City
Private sector lender, Axis Bank announced opening of off-shore banking unit at the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT City).
With opening of this unit, Axis Bank will be able to provide a more comprehensive range of products to its customers with access to International financial markets.
State Bank of India (SBI), ICICI Bank, IDBI Bank, Kotak Mahindra Bank, YES Bank, Federal Bank and IndusInd Bank have operations at their respective IFSC Banking Units (IBUs) at GIFT IFSC.
The total value of the transactions made by these IBUs touched US $8 billion.
Zoho ties up with ICICI Bank for integrated platform
Software company Zoho has tied up with private lender ICICI Bank to provide accounting and banking on an integrated platform.
Claiming to be the industry-first integration of accounting and any bank, the partnership will deliver a streamlined digital banking experience to customers using Zoho’s cloud accounting software, ‘Zoho Books’.
This will also help businesses eliminate data entry, automate reconciliation, provide multiple payment options to their customers, request working capital loans, and pay suppliers directly from their accounting platform, a joint statement by both the companies said.
Bank of Thailand Bans Banks From Cryptocurrency Activities
Thailand’s central bank had asked financial institutions not to get involved in cryptocurrency transactions for fear of possible problems from the unregulated trading
Banks are prohibited from investing or trading in cryptocurrency, offering cryptocurrency exchanges and creating platforms for cryptocurrency trading, the central bank’s governor, Veerathai Santiprabhob, said in a circular.
They are also banned from allowing clients to use credit cards to buy cryptocurrency, and from advising customers on investing or trading in cryptocurrency
The central bank said cryptocurrencies were not legal tender in Thailand and it was worried that they may be used in illegal activities such as money laundering or supporting terrorism.
RBI Rolls Out New Stressed Assets Framework To Tackle Bad Loan Problem
The Reserve Bank of India (RBI) scrapped numerous loan restructuring programmes, asking banks to immediately identify defaults and make disclosures every Friday to the RBI credit registry, starting from February 23.
The apex bank has also warned banks of monetary penalties and higher provisions if they are found to have violated the stringent new norms.
How will the new framework look like?
The new framework will subsume most of the existing stressed asset schemes such as the Strategic Debt Restructuring Scheme (SDR) and the Scheme for Sustainable Structuring of Stressed Assets (S4A).
It would give primacy to the Insolvency and Bankruptcy Code (IBC) of 2016
It will also disband the concept of a Joint Lenders’ Forum (JLF), which is a dedicated grouping of lender banks that is formed to speed up decisions when an asset (loan) of Rs.100 Crore or more turns out to be a stressed asset.
With the JLF out of the way, the new RBI guidelines demand that banks identify stressed accounts as soon as they go into default.
The banks are supposed to categorise them as special mention accounts, report to the RBI and start the resolution process straight away.
The extant instructions on resolution of stressed assets such as 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) stand withdrawn with immediate effect
Further, lenders shall identify incipient stress in loan accounts, immediately on default, by classifying stressed assets As Special Mention Accounts (SMA).
The SMA sub-categories are classified as principal or interest payment or any other amount wholly or partly overdue between 1-30 days as SMA-0, between 31-60 days as SMA-1 and between 61-90 days as SMA-2.
Lenders shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC) on all borrower entities having aggregate exposure of Rs 50 million (Rs 5 crore) and above with them.
The CRILC-Main Report will be required to be submitted on a monthly basis, from April 1.
In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday.
The first such weekly report shall be submitted for the week ending February 23.
However, in respect of accounts with aggregate exposure of the lenders at Rs 2,000 crore and above, on or after March 1, including accounts where resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods, the resolution professional (RP) shall implement as per following timelines
- If in default as on the reference date, then 180 days from the reference date.
- If in default after the reference date, then 180 days from the date of first such default.
- –RBI has asked all lenders to put in place board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution.
The RBI has laid clear timelines, not exceeding 180 days from March 1, for the resolution process to yield results, failing which insolvency proceeding will have to commence within 15 days.
What are the significances?
The new framework will obviously lead to short-term pain for many banks and may throw up challenges for borrowers.
For example, the strict timelines to come up with a resolution plan could mean that a larger number of accounts will go into insolvency.
The condition that a restructuring plan must be agreed upon by all banks involved in large accounts may be difficult to implement as experience shows such a thing rarely happens.
Over the long term, however, the revised framework should work well as the process still provides over one year to resolve a stressed assets problem initial 180 days to implement the resolution plan and then another 270 days under the IBC.
What is the need for new reform?
Following the RBI’s first asset quality review (AQR) in 2016, state-owned banks had reported sharp slippages.
In the same year a whopping Rs.2.7 lakh-odd crore of bad loans were added to the system.
Nearly Rs.1.7 lakh crore NPAs were added in just the first nine months of the current fiscal.
A significant portion of NPAs had been swept under by banks under the appearance of various restructuring schemes.
For this reason RBI has withdrawn the CDR, JLF, SDR, S4A or 5/25, and placed them under the new framework.
What are few practical constrains with RBI’s framework?
Banks will have to make higher provisioning 15% when an asset’s restructured and 50 per cent if referred to the IBC.
With around Rs.2 lakh crore of loans likely to come under the revised framework, capital issues could annoy PSBs yet again.
The requirement of all lenders agreeing to the resolution plan could also prove challenging.
Whether the existing infrastructure under the IBC set up will be able to deal with the expected deluge of insolvency filings is another issue.
Above all, the new framework still deals with the stock of the NPA problem and not the flow.
CDR
Corporate debt restructuring is the reorganization of a company’s outstanding obligations.
It is often achieved by reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.
SDR
Strategic Debt Restructuring was introduced by RBI to help banks recover their loans by taking control of the distressed listed companies.
The Scheme has been enacted with a view to revive stressed companies and provide lending institutions with a way to initiate change of management in companies which fail to achieve the milestones under Corporate Debt Restructuring (“CDR”).
S4A
Scheme for Sustainable Structuring of Stressed Assets was introduced by RBI as an optional framework.
The S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments.
This is expected to provide upside to the lenders when the borrower turns around.
5/25 rule
In Infra projects the project’s economic life is 20-25 years and its cash flows are beyond that, but the repayment was restricted to 10 or 15 years.
The 5:25 scheme allows banks to extend long-term loans of 20-25 years to match the cash flow of projects, while refinancing them every 5 or 7 years.
This expected to match the cash flows according to the repayment schedule and making long-term infrastructure projects viable.
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