Tag: Nirmala Sitharaman

Experts believe prepacks will expedite insolvency resolution as govt readies move, BFSI News, ET BFSI

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The government is finalising a pre-packaged insolvency resolution process in anticipation of the rise in bankruptcies due to the pandemic.

According to reports, the government is likely to start with micro, small and medium enterprises as it sees a rise in bad loan cases with the lifting of suspension on insolvency proceedings against Covid-related defaults last month.

“Govt is working with regulators to bring out pre-pack and other resolutions of MSME and other sectors. A lot of work in progress has been already achieved, it is only when some part of implementation issues has been watched closely, so once the whole mechanism is in the market, it is well accepted by the market, Pawan Kumar, Deputy MD, IIFCL, said.

As bad loans are feared to top 13.5% of total advances due to the pandemic such a move has become urgent, experts said.

Under the pre-packaged process, main stakeholders like creditors, shareholders and the existing management or promoter can come together to identify a prospective buyer and negotiate terms of a resolution plan, before submitting it to NCLT for formal approval.

In the Budget for 2021-22, Finance Minister Nirmala Sitharaman said the government will introduce alternative methods of debt resolution and a special framework for micro, small and medium enterprises.

What experts say

Experts say it will help expedite the resolution process for stressed assets as well as reduce the number of insolvency-related cases before the National Company Law Tribunal (NCLT).

“It’s time for the prepack. Prepack is the way to go if you want to preserve the asset (value). If you want to create a very effective remedy outside NCLT…,” Nishant Singh, Partner at Indus Law, said.

Pre-pack has to be at the forefront and also with some other mechanism on the forefront of the resolution of the insolvency and bankruptcy cases, said Ashok Haldia, Chairman, Governing Board Indian Institute of Insolvency Professional of ICAI.

“IBC has been the main law for the resolution of insolvency. Any forward-looking economy, any forward-looking industry or business scenario would see IBC is a matter of last resort, rather than the first legislator or framework to address there has to be an alternative mechanism rather than what we have been discussing all along be pre-pack as an alternative mechanism,” he said.

Lack of buyers

Nishant Singh of Indus Law said that the availability of resolution buyers could be a challenge in today’s stressed market situation, emphasising that the government needs to further encourage foreign players in view of their participation.

“Right now they (foreign players) have limited access through ARC (Asset Reconstruction Company) or FPI (Foreign portfolio investment) to actually participate…We have a massive debt which is under default or going to be the default and foreign investors are not able to participate (much), we are blocking massive liquidity coming into the Indian market which can really help to resolve these assets,” Singh said.

NCLT Infrastructure

Another challenge for the resolution under the IBC framework could be the lack of infrastructure, Singh said. Already, India is witnessing a pile of litigation cases at its courts, he said, adding “The courts will need to figure out how they will increase the capacity in the stipulated amount of time.”

“There has to be a process to make sure when there is a flood of these cases then we should prioritise the admission process so that the corporate debtor who needs immediate protection, gets that protection and the process gets jump-started,” he said.



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Centre pulls back interest rate cuts on small savings schemes, calling it oversight, BFSI News, ET BFSI

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The central government has pulled back the interest rate cu on small saving schemes like public provident fund and national savings certification (NSC) terming it oversight.

The rates on these saving schemes will continue to remain as they were in the January – March quarter.

Finance Minister Nirmala Sitharaman on twitter said, “”Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021. Orders issued by oversight shall be withdrawn.”

PPF and NSC will continue to offer interest of 7.1% and 6.8% for the coming three months.

The government had last cut interest rates a year ago by a sharper 140 basis points for the first quarter of 2020-21.

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Govt’s Rs 12 lakh crore borrowing programme a tightrope walk for RBI, BFSI News, ET BFSI

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The central government’s plan to borrow a massive Rs 12 lakh crore in 2021-22 and additional Rs 80,000 crore in fiscal 2021 from the market has spooked the bond market.

Bond investors are seeking higher yields as with the rise in demand the prices should rise.

They see RBI winding back its accommodative measures as the economy recovers from the pandemic. Traders, therefore, see few incentives to buy bonds.

Borrowing costs

However, RBI, the manager of government borrowing, has to keep costs low for the government and is therefore looking at pumping liquidity to ensure yields are capped.

To support the programme, the RBI will seek to buy more than Rs 3 lakh crore of debt while capping the benchmark yield at 6%.

However, the benchmark 10-year bond as its yield keeps breaching 6%, a level that’s seen as a line in the sand for the Reserve Bank of India.

The central bank typically raises funds from banks, financial institutions, mutual funds and foreign institutions. It recently allowed retail investors also in the bond market.

Inflation woes

With the rising inflation, RBI, which operates the monetary policy, is mandated to raise rates to tame inflation. This brings in conflict with its role to keep borrowing costs low for the government.

Experts this conflict rising in the coming years as the government has guided that the fiscal deficit will higher for the next few years.

So how is RBI managing?

As long as inflation is low, the RBI steps in and purchases bonds, but when interest rates start rising, it will have to increase liquidity in the system and push down rates.

The central bank is already resorting to measures such as Operation Twist, or simultaneous buying and selling of bonds via open market operations (OMOs).

It has already conducted Rs 3 lakh crore of bond purchases under OMOs this year.

In Operation Twist, the central bank buys longer maturity papers and sells shorter maturity papers to keep liquidity neutral.

However, as corporates raise money at shorter yield, Operation Twist is crowding them out of the market.

The central bank has also undertaken measures such as long-term repo operations and targeted long-term repo operations to infuse liquidity into the system.

The hitch

However, the market is jittery over such a huge borrowing plan and it also sees certain RBI measures veering from the accommodative stance as inflation rises.

Already, the borrowing programme of the central government for this financial year till date has been of around Rs 13.17 lakh crore and those of state governments around Rs 7.17 lakh crore. All these purchases are reflecting losses on investor balance sheets.

The RBI which had cut cash reserve ratio (CRR) by 100 bps in March 2020 for a period of one year, has recently announced a phased restoration of CRR to 4 per cent from March 27, which is being seen as a move towards reversal of accommodative stance.

The RBI’s strategy of pursuing multiple objectives such as exchange rate management to stop the rupee from appreciation, inflation control and liquidity management has led to confusion in the market.

Due to this the yields remain elevated. The spread of 10-year government bond over the repo rate has remained widened as also the spread of 10-year bonds over 1 year T-bills has also widened.

Some relief

The recent rise in international oil prices may reduce upward pressure on the rupee, which may give RBI elbowroom to reduce dollar purchases and step up bond buys to ensure adequate liquidity in the local market, and help the government borrowing programme.

While the market remains unconvinced over RBI’s ability to manage the government’s borrowing programme, in February, RBI governor Shaktikanta Das had exuded confidence that it will able to manage the high quantum of government borrowings at Rs 12 lakh crore for the next fiscal in a “nondisruptive” manner.



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Shaktikanta Das: No difference of opinion between RBI and government on cryptocurrencies

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RBI had virtually banned cryptos back in 2018. (File image)

Reserve Bank of India (RBI) Governor ShaktiKanta Das on Thursday said that there is no difference of opinion between the central bank and the government on cryptocurrencies in India. Comments from the RBI Governor have come against the backdrop of prevailing uncertainty around the future of cryptocurrencies like bitcoin India. While the RBI has retained its tough stance on alleged cryptocurrencies or crypto-related risks to financial stability and the credit system so far and had, in fact, virtually banned cryptos back in 2018, the government has seemed to be open to experiments around cryptos instead of an outright ban.

“I do not think there is any difference of opinion between the RBI and the Central government on cryptocurrencies,” Shaktikanta Das said at the India Economic Conclave. The Governor also said that both the RBI and the government are committed to financial stability and that RBI has flagged some ‘major concerns’ to the government on cryptocurrencies. However, “it is still under examination, the government will come out with a decision on it.” In February this as well, Das had told CNBC-TV18 that “we have major concerns from the financial stability angle” even as the RBI has been looking to launch a digital currency.

Also read: Bitcoin ban might trigger crypto firms to shift abroad, investors to transact on foreign exchanges: Expert

While the government is likely to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the ongoing Parliament session to ban all ‘private’ cryptocurrencies, Finance Minister Nirmala Sitharaman’s at the recently held India Today Conclave had said that “while the RBI may take a call on official cryptocurrency but from our side, we are very clear that we are not shutting off all options.” Even as crypto startups had welcomed Sitharaman’s statement, a Reuters report days later, citing a senior government official, said that India will propose a law to ban cryptocurrencies and fine anyone trading in the country or even holding such digital assets.

Amid the confusion over the crypto ban, Aadhaar architect Nandan Nilekani on Monday had backed the use of crypto among people. “We should think of crypto as an asset class and allow people to have some crypto. Crypto as a transaction medium will not work as fast as UPI, which is targeting a billion transactions a day. However, crypto has enormous capital,” Nilekani had said in a Clubhouse session on Monday with Silicon Valley angel investor Balaji Srinivasan and Blume Ventures’ Managing Partner Karthik Reddy.

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Compound interest relief may cost banks 2% of their operational profits, BFSI News, ET BFSI

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The Supreme Court has allowed compound interest relief for borrowers with loans over Rs 2 crore. While the government has picked the tab for such payment for small borrowers, banks may have to pony for relief to larger ones.

Banks may have to take a hit of Rs 7,500 crore after the Supreme court extended the compound interest relief to loans above Rs 2 crore.

“All the borrowers irrespective of moratorium status and loan size will be eligible for compounded interest benefit for six-month moratorium period.

No compound or penal interest will be charged during the six-month loan moratorium period announced last year amid the COVID-19 pandemic and the amount already charged shall be refunded, credited or adjusted, SC said in its order.

The math

As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The government had already announced relief for borrowers having loan up to Rs 2 crore which was estimated to cost about Rs 6,500 crore to the exchequer.

SC said compound interest should be charged on deliberate or wilful defaulters, in the nature of penal interest. The government’s March 27, 2020 notification had provided for deferment of installments due and payable during the moratorium period.

“Once the payment of installment is deferred…non-payment of installment during the moratorium period cannot be said to be willful and therefore there is no justification to charge interest on interest/compound interest/penal interest for the period during moratorium.

“Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded,” the apex court said.

It said there was no rationale to restrict such relief to loans up to Rs 2 crore only.

“As a result, borrowers excluded earlier may get additional relief of Rs 7,000-7,500 crore in the form of compound interest benefit,” Anil Gupta, Vice President – Financial Sector Ratings, ICRA Ltd said.

Who will pick the tab?

On who will bear the additional burden of refunding compound interest or penal interest already collected during the moratorium period, Gupta said it is premature to assume the hit will be on the government.

On whether the banks should pay from their pocket, he said, “We don’t know”, adding the amount is not very large.

To give a perspective, Gupta said the banks, accounting for 70 per cent of the loan market, have operating profits of over Rs 3 lakh crore.

“So, that way Rs 7,000 crore on Rs 3 lakh crore will be like 2 per cent of their operating profits,” he added.

Clarity to banks

Finance minister Nirmala Sitharaman said the judgement brings much-needed clarity to lenders on these issues, adding that it also clears the way for lenders to recognise non-performing assets, which they had not been able to do since the end of the moratorium period in August 2020. Reported gross non-performing assets of the banking system are estimated to be around 7% as of Dec 31. These would have been 100 basis points higher at 8%, if not for the apex court’s standstill order on recognition of such loans. “Standstill on recognition of NPAs had tied the hand of lenders and consequently impacted the credit discipline of borrowers. Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” Sitaraman said.



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Cabinet approves setting-up of DFI to fund infrastructure, BFSI News, ET BFSI

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The Union Cabinet has approved setting up of development financial institutions (DFI) to fund infrastructure.

The institution will have an initial capital infusion of Rs 20,000 crore.

Finance Minister Nirmala Sitharaman said, “Past attempts to have alternative investment funds were taken up, but for various reasons, we ended up with no bank which could take up long-term risk (which is very high) and fund development.”

She added, “The DFI will help raise long-term funds; Budget2021 will provide initial amount and Capital infusion will be of about Rs. 20,000 Cr this year; initial grant will be Rs. 5,000 Cr, additional increments of grant will be made within the limit of Rs. 5,000 Cr.”

On the constitution of the board of DFI, FM Sitharaman said, “Professional board and 50% of them will be non-official Directors. The Chairperson will be an eminent personality and professional standards will be the ground for the directors recruitment. The board will have a power to appoint WTDs. We will attract best of talents’ and we are looking for longer terms and higher tenures for directors.”

To raise further funds, the DFI could be tapping pension funds, large insurance companies and soverign funds. She said, “Development Finance Institution will also have some tax benefits, being given for a 10-year long period and the Indian Stamp Act too is being amended. With this, we hope to be able to attract big pension funds and sovereign funds.”

On the ownership of the DFI, she said, it will start entirely with government ownership and gradually come down but not less than 26%.

FM in her budget 2021 announcement had said, “Infrastructure needs long term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI. I have provided a sum of `20,000 crores to capitalise this institution. The ambition is to have a lending portfolio of at least `5 lakh crores for this DFI in three years time.”



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India to propose cryptocurrency ban: senior official

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India will propose a law banning cryptocurrencies, fining anyone trading in the country or even holding such digital assets, a senior government official told Reuters, in a potential blow to millions of investors piling into the red-hot asset class.

The Bill, one of the world’s strictest policies against cryptocurrencies, would criminalise possession, issuance, mining, trading and transferring crypto-assets, said the official, who has direct knowledge of the plan.

The measure is in line with a January government agenda that called for banning private virtual currencies such as bitcoin while building a framework for an official digital currency. But recent government comments had raised investors’ hopes that the authorities might go easier on the booming market.

Bitcoin jumps to all-time high as cryptocurrency fever continues

Instead, the Bill would give holders of cryptocurrencies up to six months to liquidate, after which penalties will be levied, said the official, who asked not to be named as the contents of the Bill are not public.

Officials are confident of getting the Bill enacted into law as Prime Minister Narendra Modi’s government holds a comfortable majority in Parliament.

If the ban becomes law, India would be the first major economy to make holding cryptocurrency illegal. Even China,which has banned mining and trading, does not penalise possession.

The Finance Ministry did not immediately respond to an email seeking comment.

‘Greed over panic’

Bitcoin, the world’s biggest cryptocurrency, hit a record high $60,000 on Saturday, nearly doubling in value this year as its acceptance for payments has increased with support from such high-profile backers as Tesla Inc CEO Elon Musk.

Cryptocurrency surge may continue, but regulatory uncertainties create bottlenecks

In India, despite government threats of a ban, transaction volumes are swelling and 8 million investors now hold 100 billion rupees ($1.4 billion) in crypto-investments, according to industry estimates. No official data is available.

“The money is multiplying rapidly every month and you don’t want to be sitting on the sidelines,” said Sumnesh Salodkar, a crypto-investor. “Even though people are panicking due to the potential ban, greed is driving these choices.”

User registrations and money inflows at local crypto-exchange Bitbns are up 30-fold from a year ago, said Gaurav Dahake, its chief executive. Unocoin, one of India’s oldest exchanges, added 20,000 users in January and February, despite worries of a ban.

ZebPay “did as much volume per day in February 2021 as we did in all of February 2020,” said Vikram Rangala, the exchange’s chief marketing officer.

Promoting blockchain

Top Indian officials have called cryptocurrency a “Ponzi scheme”, but Finance Minister Nirmala Sitharaman this month eased some investor concerns.

“I can only give you this clue that we are not closing our minds, we are looking at ways in which experiments can happen in the digital world and cryptocurrency,” she told CNBC-TV18. “There will be a very calibrated position taken.”

The senior official told Reuters, however, that the plan is to ban private crypto-assets while promoting blockchain — a secure database technology that is the backbone for virtual currencies but also a system that experts say could revolutionise international transactions.

“We don’t have a problem with technology. There’s no harm in harnessing the technology,” said the official, adding the government’s moves would be “calibrated” in the extent of the penalties on those who did not liquidate crypto-assets within the law’s grace period.

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Banking services to be hit as over 10 lakh employees to go on strike on March 15, 16, BFSI News, ET BFSI

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The United Forum of Bank Union (UFBU), an umbrella body of nine bank unions, has called for a two-day nationwide strike on March 15 and 16 against the privatisation of Public Sector Banks and retrograde banking reforms.

Over 10 lakh bank employees and officers will participate in the strike.

All nine banks unions – All India Bank Officers’ Confederation (AIBOC), All India Bank Employees Association (AIBEA), National Confederation of Bank Employees (NCBE), All India Bank Officers’ Confederation (AIBOC), Bank Employees Federation of India (BEFI), Indian National Bank Employees Federation (INBEF), Indian National Bank Officers’ Congress (INBOC) and National Organisation of Bank Officers (NOBO) and the National Organisation of Bank Workers (NOBW) will take part in the strike called by the UFBU.

Services such as deposits and withdrawal at branches, cheque clearance, and loan approvals would be affected due to the strike. However, ATMs are likely to remain functional.

Banks were already closed on March 13 (second Saturday) and March 14 (Sunday), leading to a four-day break in regular banking operations. Services such as deposits and withdrawal at branches, cheque clearance and loan approvals would be affected due to the strike.

The strike comes after Union Finance Minister Nirmala Sitharaman‘s Budget announcement where she announced the privatisation of two public sector banks (apart from IDBI Bank) as part of the government’s disinvestment drive to generate Rs 1.75 lakh crore.

Apart from bank unions, all the unions in four General Insurance Companies will be on strike on March 17. All the unions in LIC are on strike on March 18, while unions of four insurance companies have called for a strike against the privatisation of public companies.



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As Covid-led bankruptcies loom, govt readies pre-packaged insolvencies, BFSI News, ET BFSI

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The government is likely to bring a pre-packaged insolvency resolution process across the board in light of an anticipated rise in bankruptcies due to the pandemic.

According to reports, the government is likely to start with micro, small and medium enterprises.

As bad loans are feared to top 13.5% of total advances due to the pandemic such a move has become urgent, experts said.

The government has been mulling the introduction of the provision for pre-packaged (pre-pack) corporate insolvency resolution plan wherein a restructuring plan would be agreed upon in advance between the company and its creditors.

In the Budget for 2021-22, Finance Minister Nirmala Sitharaman said the government will introduce alternative methods of debt resolution and a special framework for micro, small and medium enterprises.

What is pre-packaged insolvency?

Under the pre-packaged process, main stakeholders like creditors, shareholders and the existing management or promoter can come together to identify a prospective buyer and negotiate terms of a resolution plan, before submitting it to NCLT for formal approval.

Experts say it will help expedite the resolution process for stressed assets as well as reduce the number of insolvency-related cases before the National Company Law Tribunal (NCLT).

Last year, the corporate affairs ministry sought comments on pre-packaged resolution plans.

The pre-pack process will cut short time spent at the NCLT, and the consequent delay in implementation of a workable resolution plan.

Help for MSMEs

A sub-committee of the insolvency law panel had recommended making available pre-pack for all corporate debtors in a phased manner. It had highlighted its need for micro, small and medium enterprises, which have simpler structures and fewer liabilities than the large corporates.

Cut load, timelines

A pre-packaged insolvency resolution scheme would drastically reduce the timeline for the corporate insolvency resolution process thereby saving time, money and resources.

It would also cut the workload of overburdened NCLT significantly as there would be a reduction in unnecessary pleas from stakeholders during proceedings.

It will, in turn, have a positive effect on the value maximisation for the creditors.

Mounting cases

From December 1, 2016, till the end of September last year, total 4,008 CIRPs (Corporate Insolvency Resolution Processes) have commenced under the IBC.

Out of the total, 473 CIRPs have been closed on appeal or review or settled, 291 have been withdrawn, 1,025 have ended in orders for liquidation and 277 have ended in approval of resolution plans, as per data compiled by the IBBI.

Post the pandemic, there will be an urge to close the pending cases and there will be a significant increase in new stressed cases and introducing the pre-packaged IBC at this time will boost the economy and allow quick closure of the pending and upcoming cases.



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RBI Guv, BFSI News, ET BFSI

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The proposed asset reconstruction company (ARC) for management of non-performing assets (NPAs) announced in Budget 2021 will not ‘jeopardise’ the activities of existing players in the space, Reserve Bank Governor Shaktikanta Das said on Thursday. While presenting the Union Budget 2021, Finance Minister Nirmala Sitharaman proposed to set up an asset reconstruction company and asset management company to consolidate and take over existing stressed debts and manage them.

“(In) no way will it (proposed ARC) jeopardise the activities of the existing ARCs. I think there is scope to have one more strong ARC…,” the governor said at an event organised by the Bombay Chamber of Commerce.

There are close to 28 asset reconstruction companies operating in the country at present.

Das said the proposal for setting up an ARC was given by public sector lenders to the government, which accepted it and announced it in the Budget.

The proposed entity will take over stressed assets from the books of public sector banks, and try to resolve them like any other ARCs are doing, he noted.

Das also said strengthening of regulatory architecture for existing ARCs is very much on the central bank’s agenda.

“Refining and further upgrading the regulatory architecture in respect of ARCs to ensure that they have a skin in the game and they are very much in business, is one aspect which is receiving a lot of attention from us,” he said, adding last year he had interacted with a group of ARCs but COVID-19 slowed progress on that front.

Speaking about stressed assets, the governor said there is growing awareness and realisation among banks in dealing with NPAs.

Even during the period when the Supreme Court ordered an asset classification standstill, banks proactively provisioned for stressed assets, he said.

The governor said RBI has also sharpened and deepened its supervisory methods and is now going to deep dive into areas of banking that were unexplored earlier.

With the help of the Central Repository of Information on Large Credits (CRILC) data coming in from banks on a regular basis, RBI has an idea on the quantum of stressed assets in various default buckets, he said.

“We have a precise idea of the build up of stressed assets in banks and as soon as we see a sign of stress, we immediately enter into a discussion with banks and proactively deal with the problems,” he emphasised.

The governor said apart from RBI’s supervisory and regulatory initiatives, the key to all issues is improving the governance in both public and private sector banks.

One area which requires focus of the bank management is on improving their credit appraisal skills and taking measures to see whether evergreening of loans, which was happening at some point, is suitable or not, Das said.

He also said the country’s financial sector currently is in a much better place than it was earlier. HV ABM ABM



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