Tag: RBI

Covid surge sparks demand for Insolvency and Bankruptcy Code suspension yet again, BFSI News, ET BFSI

Banking & Finance

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With the Reserve Bank of India unveiling a rescue package that stops short of offering loan moratoriums, lenders now want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks are planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Industry body Assocham has also urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

Virtual hearings

With Maharashtra in partial lockdown to curb Covid-19 infections, experts have said that some high-stake bankruptcy cases in Mumbai could be affected by virtual hearings.

The disposal rate in virtual trials is quite low and could add to the pendency of cases if the state’s restrictions persist for a longerduration. While there has been no official notification, all case hearings in the state have shifted to the virtual platform.

There were more than 20,000 cases pending with the National Company Law Tribunal as of December 2020 and a bulk of them are with the Mumbai NCLT.

With the IBC suspension having been lifted, the number of applications is bound to increase rapidly. Online hearings could add to the existing pressure on the tribunals, which may lead to a further slowdown of resolutions through the IBC process.

The government recently issued an ordinance to provide a pre-packaged scheme – an efficient alternative insolvency resolution framework – for micro, small and medium enterprises (MSMEs). This is set to quicken the resolution process and reduce litigation.

The status of IBC cases

Out of the total 3,774 cases or corporate insolvency resolution processes (CIRPs) filed since the Insolvency and Bankruptcy Code (IBC) came into existence in 2016, 1,604 cases, or 43 percent have closed, by way of resolution, liquidation or other means. The rest 57 percent are ongoing with many overshooting the 330-day maximum time limit.

Of the 1,604 closed cases, only 14 percent have found a resolution, whereas 57 percent have ended in the liquidation of the companies.

Interestingly, the 72% cases of CIRPs ending in liquidation were already defunct and under the Board for Industrial and Financial Reconstruction.

About 312 cases have been closed on appeal or review or settled, 157 have been withdrawn; 914 ordered for liquidation and 221, saw approval of resolution plans.

The recovery rate for resolved cases under IBC is 44% with Rs 1.84 lakh crore recovered so far of the Rs 4.13 lakh crore admitted claims.

In case of the 12 large defaulters identified by RBI, the creditors recovered Rs 1.36 lakh crore from eight cases that have been resolved so far, with recoveries ranging from as low as 17 percent of claims in the case of Alok Industries, to almost 100 percent for Jaypee Infratech.



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Nine ways banks will benefit from the RBI’s Covid rescue package, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India governor Shaktikanta Das has announced a slew of measures for the economy to fight Covid. These will help banks face pandemic distress better.

RBI has announced debt recast schemes to small businesses and MSMEs which had not participated in the resolution last year. This will enable banks to offer help to the sound borrowers who are facing trouble during the second Covid wave.

The new recast scheme offers more flexibility to banks as for a borrower whose debt was recast under the resolution framework last year, that moratorium period can be increased or the residual tenure can be stretched for up to two years.

Banks are also allowed to reassess the working capital limits for small units and MSMEs whose debt has been recast earlier, giving room to lenders to help borrowers.

RBI India has not announced a moratorium on loan and interest payments during the ongoing wave, giving much relief to banks. Moratoriums affect credit discipline, and with banks likely to take a hit on the ‘interest on interest’ burden for over Rs 2 crore loans offered during the last moratorium, they may be less inclined to fresh moratoriums.

Through the Rs 10,000 crore special three-year long-term repo operations, or SLTRO, Small Finance Banks can support small business units, micro as also other unorganised-sector ones, as it allows fresh credit of up to Rs 10 lakh per borrower. SFBs can also categorise fresh loans to smaller microfinance institutions that have assets of up to Rs 500 crore as priority sector loans.

The RBI has also extended the period for the relief given earlier this year, allowing banks relief from CRR on exposures of up to Rs 25 lakh to micro, small and medium enterprises.

The central bank has allowed lenders to use 100% of their floating and counter-cyclical provisions to make specific provisions for non-performing assets (NPAs). This will help them gear up for loan losses that may arise due to severe hit to several economic segments.

With banks reluctant to lend despite Rs 6 lakh crore surplus liquidity in the system, the RBI has incentivised banks by offering extra 60 basis points for surpluses parked in the reverse repo against the loans extended by banks. These loans will be classified as priority sector lending also and the banks need not take direct exposure but can pass on through another intermediary such as NBFC.

The RBI has relieved pressure on prices of bonds held by banks as it has announced another round of the GSAP-1 for Rs 35,000 crore. The central bank will buy back bonds from the market, leading to a rise in their demand and prices. This has led to a rally in bond prices with the benchmark yield slipping below 6%.



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RBI allows lenders to revamp MSME accounts under Covid-19 related stress

Banking & Finance

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The Reserve Bank of India (RBI) has allowed lenders to extend the facility for restructuring existing loans of micro, small and medium enterprises (MSMEs) without a downgrade in the asset classification under the “Resolution Framework 2.0” given the uncertainties created by the resurgence of the Covid-19 pandemic.

Among the conditions specified by the central bank for restructuring existing MSME loans include: the aggregate exposure, including non-fund based facilities, of all lenders to the borrower should not exceed ₹25 crore as on March 31, 2021; and the borrower’s account should have been a ‘standard asset’ as on March 31, 2021. Further, the borrower’s account should not have been restructured earlier.

RBI said the restructuring of the borrower account has to be invoked by September 30, 2021.

The decisions on applications received by the lenders from their customers for invoking restructuring under this facility should be communicated in writing to the applicant by the lending institutions within 30 days of receipt of such applications.

Further, the restructuring of the borrower account has to be implemented within 90 days from the date of invocation.

Upon implementing the restructuring plan, lenders have to keep the provision of 10 per cent of the borrower’s residual debt.

RBI asked lending institutions to put in place a Board approved policy on the restructuring of MSME advances at the earliest, and in any case, not later than a month.

In respect of accounts of borrowers, which were restructured in terms of the MSME restructuring circulars, lending institutions have been permitted, as a one-time measure, to review the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring.

The decision with regard to above should be taken by lending institutions by September 30, 2021.

RBI said accounts provided relief under these instructions will be subject to subsequent supervisory review about their justifiability on account of the economic fallout from Covid-19.

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No freezing a/c for KYC, digital proof can be final, BFSI News, ET BFSI

Banking & Finance

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The RBI on Wednesday relaxed KYC (know-your-customer) norms to enable the process to be completed remotely and prevent banks from freezing accounts in which such data has not been updated.

“In respect of customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/ enforcement agency/ court of law,” the RBI said in a circular. Earlier, SBI had given similar instructions to its branches after a directive from the finance minister through a tweet.

While the central bank’s directive gives relief to customers of all RBI-regulated entities, a larger reform is the enabling of digital KYC. Currently, banks are completing the KYC process for individuals remotely using video-based customer identification (V-CIP). This process has been extended for businesses including proprietorship firms, authorised signatories and beneficial owners of legal entities.

Earlier, accounts opened using Aadhaar-based e-KYC were treated as ‘limited KYC’ accounts. These will now be treated as fully compliant accounts. Entities looking to complete the KYC process can now use KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP.



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Loan recasts: Small borrowers get fresh relief from RBI

Personal Finance

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The resolution framework 2.0 may be an acknowledgement that its predecessor may not have fully addressed the stress emerging from Covid, as suggested by the limited number of retail accounts restructured. Bankers have also acknowledged this.

The Reserve Bank of India (RBI) on Wednesday allowed lenders to carry out a fresh round of restructuring of small borrower accounts which had not availed of the benefit of the recast scheme for Covid-related stress last year.

Individuals and small businesses with loans of up to Rs 25 crore who have never undergone restructuring before and who were classified as standard as on March 31, 2021, shall be eligible under the new scheme, titled resolution framework 2.0.

“The resurgence of Covid-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. In this environment the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs,” RBI governor Shaktikanta Das said in an unscheduled morning address.

Further relief was offered to borrowers whose accounts have already been restructured under the August 6, 2020, framework. Retail and micro, small and medium enterprises (MSME) loans where the resolution plan permitted a moratorium of less than two years will now be eligible for an increase in the period of moratorium. Alternatively, lenders could extend the residual tenor up to a total of two years. In the specific case of MSMEs restructured earlier, lending institutions were also permitted as a one-time measure, to review working capital sanctioned limits, based on a reassessment of the working capital cycle and margins.

Lenders said a fresh restructuring scheme was expected. There was also a sense of relief that the scheme on offer was not a blanket one, like the moratorium.

Suresh Khatanhar, DMD, IDBI Bank, said the framework is a timely one which will ensure comfort to those impacted by the renewed surge in Covid cases. “This will be a structured, monitored scheme where specific gaps will be addressed,” Khatanhar said. He explained that restructuring is a more flexible option as compared to the credit guarantee-backed liquidity support offered last year. “Here the support is not limited to 20%. They have also allowed reassessment of working capital limits. So the problems here can be addressed in a more comprehensive manner,” he said.

SS Mallikarjuna Rao, MD and CEO, Punjab National Bank (PNB), said allowing a reassessment of the working capital cycle for MSMEs restructured earlier shall help align the working capital cycle to the present business environment.

Some industry players wondered whether two years would be time enough for the worst-hit sectors to get back on their feet. Jyoti Prakash Gadia, managing partner, Resurgent India, said entities which extend their moratorium period under the recast scheme will be expected to revive their operations by 2022 and start paying their instalments after two years. “However, it is still uncertain that the revival of adversely affected sectors such as hospitality, travel and tourism and leisure will take place within the span of two years,” he said.

The resolution framework 2.0 may be an acknowledgement that its predecessor may not have fully addressed the stress emerging from Covid, as suggested by the limited number of retail accounts restructured. Bankers have also acknowledged this.

In January, Sanjiv Chadha, MD and CEO, Bank of Baroda (BoB), had said retail borrowers accounted for a very small proportion of the bank’s restructured book. “Therefore, we have not been able to address whatever stress might be there at least through the restructuring mode — which means that either people will either actually start paying up on time [or]there is a fair possibility that some stress will come through NPAs (non-performing assets),” he had said.

Analysts described the latest measures as more moderate compared with last year’s moratorium. Srikanth Vadlamani, vice-president – senior credit officer, financial institutions group, Moody’s Investors Service, said, “This measure (resolution framework 2.0) is much milder than the blanket loan moratorium given last year and the proportion of restructured loans will be lower. Nevertheless, the need for this measure highlights the re-emergence of downside risks to banks’ asset quality.”

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RBI opens ₹50,000-cr liquidity tap for banks to on-lend to healthcare sector

Banking & Finance

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To cushion the economic impact of the second wave of Covid-19, the Reserve Bank of India swung into action on Wednesday, announcing a slew of measures aimed at easing the financing constraints being faced by vaccine manufacturers and importers of life-saving equipment, besides small/medium businesses and individuals.

The central bank announced a special on-tap liquidity of ₹50,000 crore with tenor up to three years at repo rate (4 per cent) for lending to emergency healthcare required to fight Covid crisis. The macro impact of the scheme can be gauged from the fact that ₹50,000 crore is roughly 9 per cent of India’s total health expenditure of ₹6-lakh crore under private final consumption expenditure in 2019-20. Unveiling these measures, Governor Shaktikanta Das emphasised that the central bank is committed to go unconventional and devise new responses as and when the situation demands.

“Major beneficiaries of the announced healthcare liquidity scheme would be pharmaceutical manufacturers, vaccine-makers, healthcare equipment manufacturers, hospitals and diagnostic players. Penetration of hospitals/dispensaries may increase as players can now opt for capex funding. Also, diagnostic chains can use this opportunity to penetrate into Tier-II cities and beyond,” said Rahul Prithiani, Director, Crisil.

Markets rise

The stock markets gave a thumbs-up to the RBI moves. The Sensex, which was trading just around 40-50 points higher in the morning, closed with gains of 424 points, or 0.88 per cent, at 48,677. The Nifty closed higher by 0.84 per cent or 121 points at 14,671.

To provide support to small businesses, micro and small units, and unorganised sector entities affected by the Covid second wave, the RBI said it will conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at repo rate for small finance banks (SFBs), to be deployed for fresh lending of up to ₹10 lakh per borrower. This will be available till October 31, 2021.

To address liquidity issues of smaller microfinance institutions, SFBs have been permitted to consider fresh lending to the MFIs (with asset size of up to ₹500 crore) for on-lending to individual borrowers as PSL.

Individuals, small businesses and MSMEs, which did not resort to any of the earlier restructuring frameworks, having an aggregate exposure of up to ₹25 crore and were classified as ‘Standard’ as on March 31, 2021, will be eligible to be considered for restructuring under Resolution Framework 2.0 for Covid-related stressed assets.

Resolution Framework

This restructuring is open up to September 30, 2021 and will have to be implemented within 90 days of invocation. In respect of individual borrowers and small businesses that availed themselves of loan restructuring under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, the RBI said lending institutions can modify such plans to increase the period of moratorium and/or extend the residual tenor up to a total of two years. For small businesses and MSMEs restructured earlier, lending institutions can, as a one-time measure, review the working capital sanctioned limits.

To further incentivise inclusion of unbanked MSMEs into the banking system, the current incentive to deduct credit disbursed to new borrowers from banks’ deposits for calculation of the cash reserve ratio (CRR) has been extended further. This exemption, currently available for exposures up to ₹25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, has been extended till December 31, 2021.

INTO THE BREACH, AGAIN

  • ₹10,000-cr special long-term repo operations for SFBs to lend to individuals and small biz
  • Restructuring of Covid-related stressed assets of individuals, small biz and MSMEs
  • Rationalisation of compliance to KYC requirements
  • Utilisation of floating provisions and countercyclical provisioning buffer for banks
  • Relaxation in overdraft facility for State governments

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IDBI Bank: Divestment, transfer of management control approved

Banking & Finance

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The Cabinet Committee on Economic Affairs (CCEA) on Wednesday gave its in-principle approval for strategic disinvestment along with the transfer of the management control in the IDBI Bank Ltd.

“The extent of respective shareholding to be divested by the Central government and the LIC would be decided at the time of structuring of transaction in consultation with the RBI,” an official release said.

‘Perfect timing’

The Central government and Life Insurance Corporation (LIC) together own more than 94 per cent of equity of the IDBI bank. While the Central government owns 45.48 per cent stake, the shareholding of LIC in the IDBI Bank is 49.24 per cent. LIC is currently the promoter of the IDBI bank with management control, while the Central government is the co-promoter.

Capital market observers noted that the timing of the CCEA decision was quite perfect with the IDBI bank now coming into black after a gap of five years. For the financial year ended March 31, 2021, IDBI Bank has reported a full year standalone net profit of ₹1,359 crore against net loss of ₹12,887 crore in the previous year. The bank had also come out of the RBI’s Prompt Corrective Action (PCA) framework on March 10. “This could boost the valuation of the lender when the government goes in for the strategic disinvestment,” they said.

Speaking to BusinessLine soon after the announcement of the CCEA decision, Rakesh Sharma, Managing Director & CEO, IDBI Bank said, “The bank has seen a turnaround and balance sheet has improved. It is for the owners – the government and the LIC – to decide on the quantum of stake sale, timing and price etc. Now that bank has turned around, it may help them in attracting investors at right valuation.”

It is still not clear whether the management control and majority equity holding will pass on to a foreign bank or any domestic acquirer. One thing is for sure is that the LIC would tag along with the Central government, which is looking to exit, when the transaction is put through – so that the valuation is maximised for both the selling shareholders.

“It is expected that the strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of the IDBI bank,” the release added.

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Fino Payments Bank goes live with enhanced deposit limit of Rs 2 lakh for MSMEs, small traders, others

Banking & Finance

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Fino Payments Bank has 410 branches and more than 25,000 banking points. (Image: Fino Payments Bank)

Fino Payments Bank on Wednesday announced increasing its end-of-the-day account balance limit to Rs 2 lakh for customers including MSMEs, small traders, and retail customers. The bank, which became profitable in the fourth quarter of FY20, went live with the enhanced limit effective May 1, 2021. The move was in line with the Reserve Bank of India’s (RBI) announcement last month to increase the maximum balance limit at the end of the day for payments banks to Rs 2 lakh from Rs 1 lakh earlier in order to boost financial inclusion. “After reviewing the performance of payments banks and to encourage their efforts for financial inclusion it was decided to enhance the limit of maximum balance at end of the day from Rs 1 lakh to Rs 2 lakh per individual customer,” a notification by RBI on April 7 had said.

“The increased deposit limit allows our customers to save more money in their account. Further, our existing sweep account mechanism continues with our partner bank wherein customers can save funds in excess of Rs 2 lakh,” said Ashish Ahuja, COO, Fino Payments Bank. Up to Rs 2 lakh in the Fino account, the existing savings interest rate will be applicable while funds in the sweep account will get interest rates as set by its partner bank Suryoday Small Finance Bank.

Also read: RBI’s relief measures for MSMEs: 4 key takeaways from Shaktikanta Das speech; experts opine mixed bag

Fino Payments Bank’s micro ATM and AePS enabled financial services distribution network including 410 branches and more than 25,000 banking points allow people to open a new bank account, get debit cards, do deposit, withdrawal, or money transfer transactions, pay utility bills, loan EMIs, and buy health, life and motor insurance. Unlike regular banks, payments banks are not allowed to lend money to their customers, they can’t open Fixed deposits or recurring deposits, and also can’t allow a balance of more than Rs 1 lakh in any account. Currently there are five other RBI-approved payments banks operating in the country viz., Airtel Payments Bank, India Post Payments Bank, Paytm Payments Bank, Jio Payments Bank, and NSDL Payments Bank.

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RBI announces rationalisation of compliance to KYC norms

Banking & Finance

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The Reserve Bank of India on Wednesday announced the rationalisation of compliance to Know Your Customer (KYC) norms.

The measures include extending the scope of video KYC for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC as well as the introduction of more customer-friendly options, including the use of digital channels for periodic updation of KYC details of customers.

It has also announced the conversion of limited KYC accounts opened based on Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts as well as enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for video-based customer identification process and submission of electronic documents (including identity documents issued through DigiLocker) as identity proof.

“Keeping in view the Covid related restrictions in various parts of the country, Regulated Entities are being advised that for the customer accounts where periodic KYC updating is due or pending, no punitive restriction on operations of customer accounts shall be imposed till December 31, 2021 unless warranted due to any other reason or under instructions of any regulator/enforcement agency or court of law, etc,” RBI Governor Shaktikanta Das said.

However, account holders are requested to update their KYC during this period.

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Breather for borrowers and small businesses as RBI allows Restructuring 2.0, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has brought back the restructuring scheme for retail and small business borrowers allowing the lenders and borrower to brace the impact of the ongoing severe second wave of Covid-19 across the country.

RBI Governor, Shaktikanta Das said, “Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections.”

He added, “The resurgence of COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. In this environment the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs.”

Under the Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses and MSMEs, borrowers who have aggregate exposure upto Rs 25 crore and have not availed restructuring in previous framework and who are classified as standard as of March 31, 2021 will be eligible for restructuring. The proposal has to be invoked up to September 30, 2021 and shall be implemented within 90 days after invocation.

Borrowers who have availed restructuring in the earlier framework where the resolution plan is permitted for less than two years are being permitted to use this window to modify their plans to extend the period of moratorium or tenor of the loan up to a total of 2 years.

For small businesses and MSMEs restructured earlier the central bank has allowed lending institutions as a one-time measure to review the working capital sanctioned limits based on a reassessment of working capital cycle, margins and other parameters.

Aashit Shah, Partner at J Sagar Associates said, “Restructuring guidelines for MSMEs, small businesses and individuals will assist them tide over the uncertainties caused due to the second wave. These guidelines as well as the recently introduced pre-arranged insolvency resolution process will enable MSMEs to restructure their debts without the looming fear of losing or liquidating their businesses.”

“Opening a one-time restructuring window for individuals and MSME till September 2021 will give an impetus to scale up their business without worrying about financial destitution,” said Rajesh Sharma, MD at Capri Global Capital Ltd.



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