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Banking

RBI Governor makes key announcement: Policy Repo rate unchanged at 4 per cent

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Mumbai: The Monetary Policy Committee of Reserve Bank of India met for three days from 4th August for it second meeting of 2020-21, the 24th under its aegis, completing four years of its operation under the new monetary policy framework and the MPC voted unanimously to leave the policy repo rate unchanged at 4 per cent and continue with the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.

Other Decisions

  • The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent. The reverse repo rate stands unchanged at 3.35 per cent.
  • global economic activity has remained fragile and in retrenchment in the first half of 2020. A renewed surge in COVID-19 infections in major economies in July has subdued some early signs of revival that had appeared in May and June.
  • The World Trade Organisation (WTO) has estimated that the volume of merchandise trade shrank by 3.0 per cent year-on-year in Q1 and early estimates suggest a fall of 18.5 per cent in Q2.
  • In India too, economic activity had started to recover from the lows of April-May; however, surges of fresh infections have forced re-clamping of lockdowns in several cities and states. Consequently, several high frequency indicators have levelled off.
  • The agriculture sector’s prospects are strengthened by the progress of the south-west monsoon and expansion in the total area sown under kharif crops by 13.9 per cent up to July 31 over last year.
  • Industrial production remained in contraction albeit at a moderated pace in May. The manufacturing purchasing managers’ index (PMI) shrank in July for the fourth consecutive month.
  • India’s merchandise exports contracted for the fourth successive month in June 2020, although the pace of fall moderated.
  • Imports fell sharply in June in a broad-based manner, reflecting weak domestic demand and low international crude oil prices.
  • The merchandise trade balance recorded a surplus in June (US$ 0.8 billion), after a gap of over 18 years.
  • Net foreign direct investment moderated to US$ 4.4 billion in April-May 2020 from US$ 7.2 billion a year ago. In 2020-21 (April-July), net foreign portfolio investment (FPI) in equities at US$ 5.3 billion was higher than US$ 1.2 billion a year ago.
  • In the debt segment, there were outflows of US$ 4.4 billion during the same period as against inflows of US$ 2.0 billion a year ago. Net investment under the voluntary retention route increased by US$ 0.9 billion during the same period.
  • India’s foreign exchange reserves have increased by US$ 56.8 billion in 2020-21 so far (April-July) to US$ 534.6 billion (as on July 31, 2020) – equivalent to 13.4 months of imports. The ratio of foreign exchange reserves to external debt has gone up from 76.0 per cent at the March 2019 to 85.5 per cent at the end of March 2020.

Outlook

  • Supply chain disruptions on account of COVID-19 persist, with implications for both food and non-food prices. A more favourable food inflation outlook may emerge as the bumper rabi harvest eases prices of cereals, especially if open market sales and public distribution offtake are expanded on the back of significantly higher procurement.
  • Nevertheless, upside risks to food prices remain.
  • The recovery of the rural economy is expected to be robust, buoyed by the progress in kharif sowing.
  • Manufacturing firms expect domestic demand to recover gradually from Q2 and to sustain through Q1:2021-22. On the other hand, consumer confidence turned more pessimistic in July relative to the preceding round of the Reserve Bank’s survey.
  • External demand is expected to remain anaemic under the weight of the global recession and contraction in global trade.
  • Taking into consideration the above factors, real GDP growth in the first half of the year is estimated to remain in the contraction zone. For the year 2020-21 as a whole, real GDP growth is also estimated to be negative.

Impact of the Monetary and Liquidity Measures taken by the RBI

  • Lower borrowing costs have led to record primary issuance of corporate bonds of ₹2.09 lakh crore in the first quarter of (April-June) 2020-21. In particular, market financing conditions for NBFCs, which had become challenging, have largely stabilised in the wake of targeted policy measures.
  • Abundant liquidity has supported other segments of financial markets too. In particular, MFs have stabilised since the Franklin Templeton episode. Assets under management of Debt MFs, which fell to ₹12.20 lakh crore as on April 29, 2020, recovered and improved to ₹13.89 lakh crore as on July 31, 2020.
  • Non-food bank credit has slowed to 5.6 per cent (As on 8 July 17), credit to NBFCs is growing at 25.7 per cent in June, loans to services at 10.7 per cent, and to housing at 12.5 per cent. Monetary transmission has also improved considerably.

Additional Special Liquidity Facility (ASLF)

  • Additional special liquidity facility of ₹10,000 crore will be provided at the policy repo rate consisting of: ₹5,000 crore to the National Housing Bank (NHB) to shield the housing sector from liquidity disruptions and augment the flow of finance to the sector through housing finance companies (HFCs); and ₹5,000 crore to the National Bank for Agriculture and Rural Development (NABARD) to ameliorate the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions in obtaining access to liquidity.
  • Keeping in view the disruptions caused by COVID-19 have led to heightened financial stress for borrowers across the board, it has been decided to provide a window under the June 7th Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures – without change in ownership – as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions.

Restructuring of MSME Debt

A restructuring framework for MSMEs that were in default but ‘standard’ as on January 1, 2020 is already in place. The scheme has provided relief to a large number of MSMEs. With COVID-19 continuing to disrupt normal functioning and cash flows, the stress in the MSME sector has got accentuated, warranting further support. Accordingly, it has been decided that stressed MSME borrowers will be made eligible for
restructuring their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. This restructuring will have to be implemented by March 31, 2021.

Advances against Gold Ornaments and Jewellery

As per extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery. With a
view to mitigating the impact of COVID-19 on households, it has been decided to increase the permissible loan to value ratio (LTV) for such loans to 90 per cent. This relaxation shall be available till March 31, 2021.

Other Measures

  • Introduction of an automated mechanism in e-Kuber system to provide banks more flexibility/discretion in managing their liquidity and maintenance of cash reserve requirements.
  • To enhance safety of cheque payments, it has been decided to introduce a mechanism of Positive Pay for all cheques of value ₹50,000 and above. This will cover approximately 20 per cent and 80 per cent of total cheques by volume and value, respectively.
  • A scheme of retail payments in offline mode using cards and mobile devices, and a system of on online dispute resolution (ODR) mechanism for digital payments is also being introduced.

Click here for RBI Governor’s statement

Banking, India

Finance Minister holds review meeting for stressed Residential Projects

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  • Rs 8767 crore approved for 81 projects
  • Focus on boosting investment in the Real Estate Sector
  • 60,000 homes will be completed across India
  • Activation of construction sites by the Special Window would provide employment opportunities for skilled and semi-skilled labour

New Delhi: Union Minister for Finance & Corporate Affairs Nirmala Sitharaman, on Thursday 23 July reviewed the performance of Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund with Secretaries of Ministries of Finance and senior management team of the State Bank of India, SBI Capital Markets Limited and SBICAPS Ventures Limited (SVL). So far 81 projects have been approved with an investment of Rs 8767 crore.

The SWAMIH Investment Fund-1 has progressed from a policy announcement to an operational initiative on the ground. It has approved 81 projects that will enable the completion of almost 60,000 homes across India.These projects are spread across a mix of markets including large cities such as NCR, MMR, Bengaluru, Chennai, Pune and also Tier 2 locations, including Karnal, Panipat, Lucknow, Surat, Dehradun, Kota, Nagpur, Jaipur, Nashik, Vizag, and Chandigarh. In these projects, investments in 18 projects have been given final clearance and disbursement is at various stages across 7 residential projects.

Applications from 353 stressed projects are under examination for provision of assistance. During review, it was also highlighted that activation of these construction sites by the Special Window would provide employment opportunities for skilled and semi-skilled labourers. Additionally, the Fund is actively evaluating options to provide relief to 15,000 home buyers in certain long-stalled projects that are pending before the Supreme Court for resolution.

The recent initiative by the Fund to reduce the cost of capital to 12% has resulted in an increase in the number of projects that meet the funding criteria laid out under the Special Window. While acknowledging the steps taken by the Special Window to expedite participation from existing lenders, the Minister suggested that both private and public Banks, NBFCs and HFCs should see the Special Window as a stakeholder and increase support to ensure early completion of stressed projects.

The Finance Minister asked the Department of Economic Affairs to closely monitor the performance of the SWAMIH Investment Fund-1 in order to ensure that the capital raised by the Fund is rapidly committed towards resolving stressed projects and remove any impediments that could arise in this process.

Banking, economy, India

RBI announces nine additional measures for strengthening the Economy

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  • Cuts interest rates, extends moratorium by another 3 months
  • Exporters and Importers get More Liquidity
  • Domestic Economy to contract in 2020-21, revive gradually in the second half: RBI Governor

Mumbai: “It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue.”

With these words RBI Governor Shaktikanta Das drew hope and inspiration from the 1929 statement of Mahatma Gandhi, as he announced yet another set of nine measures to smoothen the flow of finance and preserve financial stability in the turbulent and uncertain times ushered in by the COVID-19 pandemic. This follows the earlier sets of measures announced by RBI on April 17, 2020 and on March 27, 2020.

Making the announcements through an online address, the Governor stated that we must have faith in India’s resilience and capacity to overcome all odds. Expressing the confidence that we will together triumph over today’s traumatic trials, the Governor spoke with a sense of calling. He noted that the situation warrants that “central banks have to answer the call to the frontline in defence of the economy”.

Repo rate reduced by 40 basis points

The Governor has announced a reduction in major policy rates, in order to revive growth and mitigate the impact of COVID-19, while ensuring that inflation remains within the target. The repo rate has been reduced by 40 basis points from 4.4% to 4.0%. The Marginal Standing Facility rate and the Bank rate have been reduced from 4.65% to 4.25%. The reverse repo rate has been reduced from 3.75% to 3.35%.

“Judging that the risks to growth are acute, while the risks to inflation are likely to be short-lived, the Monetary Policy Committee believes that it is essential now to instil confidence and ease financial conditions further. This will facilitate the flow of funds at affordable rates and rekindle investment impulses. It is in this context that the MPC voted to reduce the policy repo rate by 40 basis points from 4.4 per cent to 4.0 per cent” the Governor said.

Das also announced a set of regulatory and developmental measures which he said complement the reduction in the policy rate and also strengthen each other.

He reiterated that the goals of the measures being announced are:

  • to keep the financial system and financial markets sound, liquid and smoothly functioning
  • to ensure access to finance to all, especially those that tend to get excluded by financial markets
  • to preserve financial stability


Measures to Improve the Functioning of Markets

Refinance Facility to SIDBI extended for another 90 days
In order to enable increased supply of affordable credit to small industries, the RBI had, on April 17, 2020, announced a special refinance facility of ₹15,000 crore to SIDBI at RBI’s policy repo rate for a period of 90 days. This facility has now been extended by another 90 days.

Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route
The VRR is an investment window provided by RBI to Foreign Portfolio Investors, which provides easier rules in return for a commitment to make higher investments. The rules stipulate that at least 75% of the allotted investment limit be invested within three months; considering the difficulties being faced by investors and their custodians, the time limit has now been revised to six months.

Measures to Support Exports and Imports

Exporters can now Avail Bank Loans for Higher Period
The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months, for disbursements made up to July 31, 2020.

Loan facility to EXIM Bank
The Governor has announced a line of credit of ₹15,000 crore to the EXIM Bank, for financing, facilitating and promoting India’s foreign trade. The loan facility has been given for a period of 90 days, with a provision to extend it by one year. The loan is being given in order to enable the bank to meet its foreign currency resource requirements, especially in availing a US dollar swap facility.

More time for Importers to Pay for Imports
The time period for import payments against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India has been extended from six months to twelve months from the date of shipment. This will be applicable for imports made on or before July 31, 2020.

Measures to Ease Financial Stress

Extension of Regulatory Measures by another 3 Months
The RBI has extended the applicability of certain regulatory measures announced earlier, by another three months from June 1, 2020 till August 31, 2020. These measures will now be applicable for a total period of six months (i.e. from March 1, 2020 to August 31, 2020). The aforesaid regulatory measures are: (a) 3-month moratorium on term loan installments; (b) 3-month deferment of interest on working capital facilities; (c) easing of working capital financing requirements by reducing margins or reassessment of working capital cycle; (d) exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies; (e) extension of resolution timelines for stressed assets; and (f) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions. The lending institutions have been permitted to restore the margins for working capital to their original levels by March 31, 2021. Similarly, the measures pertaining to reassessment of working capital cycle are being extended up to March 31, 2021.

Provision to convert Interest on Working Capital into Interest Term Loan
Lending institutions have been allowed to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan, to be fully repaid during the course of the current financial year, ending March 31, 2021.

Increase of Group Exposure Limit to Increase Fund Flow to Corporates
The maximum credit which banks can extend to a particular corporate group has been increased from 25% to 30% of the bank’s eligible capital base. This has been done in order to enable corporates to meet their funding requirements from banks, in view of the current difficulties being faced by corporates in raising money from the markets. The increased limit will be applicable up to June 30, 2021.

Measures to ease financial constraints faced by State Governments

States allowed to borrow more from Consolidated Sinking Fund
The Consolidated Sinking Fund is being maintained by state governments as a buffer for repayment of their liabilities. The rules governing withdrawal from this Fund have now been relaxed, in order to enable states to enable them to repay their borrowings from the market, which become due in 2020-21. The change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021. The Governor added that the relaxation is being done, while ensuring that depletion of the Fund balance is done prudently.

Assessment of Economy

Presenting an assessment of the global economy, the Governor said that the macroeconomic and financial conditions are austere by all counts. He stated that the global economy is headed inexorably into a recession.

The domestic economy too has been severely impacted by the two-month lockdown, said the Governor. “The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones.” Demand has collapsed, production has come down, taking a toll on fiscal revenues. Private consumption has been dealt a severe blow.

The Governor said that agriculture and allied activities have provided a beacon of hope, amidst this encircling gloom. A ray of hope also comes from the forecast of a normal southwest monsoon in 2020 by the India Meteorological Department.

The Governor recalled that based on the incomplete data made available, food inflation, which had come down from its January 2020 peak for the second successive month in March, suddenly reversed and increased to 8.6% in April as supply disruptions took their toll, despite the current reduction in demand. India’s merchandise exports and imports suffered their worst slump in the last 30 years as COVID-19 paralysed world production and demand.

The Governor informed that the Monetary Policy Committee assessed that the inflation outlook is highly uncertain. The supply shock to food prices in April may persist for the next few months, depending upon the state of lockdown and the time taken to restore supply chains after relaxation. The elevated level of pulses inflation is worrisome, and warrants timely and swift supply management interventions, including a reappraisal of import duties.

Speaking of the road ahead for the economy, the Governor noted that the combined impact of demand compression and supply disruption will depress economic activity in the first half of the year. Assuming that economic activity gets restored in a phased manner, especially in the second half of this year, and taking into consideration favourable base effects, it is expected that the combination of fiscal, monetary and administrative measures being currently undertaken would create conditions for a gradual revival in activity in the second half of 2020-21.

Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards. Much will depend on how quickly the COVID curve flattens and begins to moderate.

Banking, Law and order

Rs. 62.67 million fraudulent bank transaction: Delhi EOW registers FIR on complaint by Amity University

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The Economic Offences Wing of Delhi Police this past Friday (10 January 2019) registered an FIR on a complaint originally lodged with the Connaught Place Police station by Amity University on 4 September 2019 alleging that money to the tune of Rs. 62.67 million (Rs. 6,26,75,003) had been withdrawn fraudulently and illegally from its account through forged and fake cheques.

Since the amount involved exceeded Rs. 20 million, the case was handed over to the EOW, which has conducted preliminary investigation and arrived at the conclusion that prima facie a case is made out.

An FIR has been lodged in this case by the EOW, Delhi Police, under Sections 420, 467 466, 120B and 34 IPC.

It is important to note that it took four months for Delhi Police and it’s EOW to conduct preliminary investigation and register an FIR in this case. Does the delay in registering an FIR also makes out a case of abetting money laundering or helping the kingpins of the crime to cover their tracks?

The accused in this case are:

(1) N.S. Infrastructure, Address Unknown, having account beanng no. 085505000862 cheque presented through Regional Processing Centre (RPC) of ICICI Bank. A-4, Rani Jhansi Road, Jhandewalan Extn. New Delhi

(2) Maa Tapit Manav Sewa Sansthan, Address Unknown, having account beanng no. 259101000431 cheque presented through Regional Processing Centre (RPC) of ICICI Bank, A4. Rani Jhansi Road, Jhandewalan Extn. New Delhi

(3) Bhavishyahub Extra World Pre Ltd. Address Unknown, having account bearing no. 201003047935 cheque presented through Indusand Bank Ltd. Noida Sec-51 Branch, U.P.

(4) Other unknown persons.

The Complainant Bank is Allahabad Bank. The complaint has been directed against the offences committed by the accused through the Asstt General Manager heading the Parliament Street branch of Allahabad Bank.

The Complainant Bank maintains that a saving bank account no. 20519034454 in the name of Amity University, Utter Pradesh, was being maintained at their branch at Sector 125 Noida, Uttar Pradesh.

In the normal course of Banking transaction, an amount of Rs. 2,50,30,600 (Rupees Two Crore Fifty Lacs Thirty Thousand Six Hundred) was transferred in the account of “N.S. Infrastructure” (account no. 085505000862 maintained with ICICI Bank). This was against a cheque presented through ICICI Bank that was cleared in the cheque truncation system (CTS System). This cheque (number 281995 dated 22.08.2019 and presented on 31.08.2019) was cleared by the service branch of Alahabad Bank at Parliament Street, New Delhi. The beneficiary of this instrument is N.S. Infrastructure.

As part of Banking transaction, an amount of Rs. 2,70,30,400/- (Rupees Two Crore Seventy Lacs Thirty Thousand Four Hundred Only) was transferred against another cheque in the account of “Maa Tapit Manav Sewa Sansthan” (account no. 259101000431 maintained with ICICI Bank). This cheque was presented through ICICI Bank and was cleared in the cheque truncation system (CTS System). On being presented this cheque bearing number 281990 dated 21.08.2019 on 31.08.2019, was also cleared by the service branch of Allahabad Bank at Parliament Street.

The beneficiary of this Instrument Is Maa Tapit Manav Sewa Sansthan

Similarly, an amount of Rs. 1,06,14,003/- (Rupees One Crore, Six Lacs Fourteen Thousand Three Only) was transferred in the account of Bhavishyahub Extro World Pvt Ltd (account no 201003047935 maintained with Indusand Bank Ltd. Noida Sec-51 Branch, U.P.) on presentation of cheque bearing number 281992 dated 30 08 2019 on 04.09 2019. Even this cheque was cleared by the Parliament Street branch of Allahabad Bank. The beneficiary of this instrument is Bhavishyahub Extro World Pvt Ltd.

The authorised representative of Amity University, Uttar Pradesh, had visited the Allahabad Bank branch to collect the monthly account statement on 4 September 2019 and the bank was informed that day that they had not issued the cheques that had led to the transfer of huge sums of money into the accounts of the accused persons. A complaint was then lodged with the bank about the fraudulent transactions from its bank account by Amity University and it was claimed that the transactions were carried out without their knowledge and information and the University orally sought the refund of money.

Thereafter, the Allahabad Bank officials raised the matter with the concerned branches of ICICI Bank & IndusInd Bank Ltd to hold on to the said amount and to refund the same. Allahabad Bank also requested the other banks to disclose the details of the beneficiaries linked to the accounts in question.

Further investigation in this case is continuing.