Tag Archives: RBI

COVID -19 Pandemic: Pressure mounts from different sectors on GoI and RBI on OTR of all loans

Lalit Shastri

The One-Time Restructuring, (OTR), was intended to provide relief to industry and help overcome the economic crisis due to COVID-19. To provide relief, it is imperative to first understand the concerns, as all industries have their own nuances, which has not been done by the Kamath Committee. This Committee only met with representatives of 3 industries, but prescribed remedies for 26 industries, without taking any representation from them in effect. Through this, it is clear that the entire exercise has been a mere eyewash and seemingly ineffective, which was not the intention.

The gold industry is a subset of the gems and jewellery sector. While the gems and jewellery industry has been included in the list of industries entitled for the OTR, it seems the gold industry has been excluded from the same, as the ratios prescribed are bizarre and unrealistic.

Prithviraj Kothari, National President, India Bullion and Jwellers Association (IBJA)

When the nation is at war and all are fighting a huge battle to contain the Corona Virus; when the number of COVID+ cases are surging each day after a second wave of COVID-19 has swept the entire country; when the States and Union Territories are being forced to impose lockdowns, go for containment zones and restricted attendance in office; when hospitals are gasping for oxygen and essential medicines; when casualty figures are rising; when we are struggling to vaccinate the population across all categories of people, it beats imagination that the Reserve Bank of India and the Government of India have chosen to go ahead with the One Time Restricturing (OTR) of loan ratios etc. – a process that has been put in place without accepting representations from all the different sectors and providing them the expected relief.

In order to help the industry and business during the hour of crisis, the RBI had announced the formation of the Kamath Committee that formulated the norms to permit One Time Restructuring, (OTR) of all loans.

While the OTR was announced for a total of 26 sectors, the Kamath Committee only accepted representation from 3 of the sectors. Meaning thereby that remedy has been offered to 23 sectors without bothering to diagnose their ailment. Investigation regarding steps taken by the Kamath Committee to arrive at what should have been a fair and objective assessment of problems being faced by all different sectors, has exposed the sad state of affairs. In fact only 3 sectors had made representation to this Committee (as per a list of the meetings printed on the last page of the Kamath Committee Report). Unfortunately RBI has even refused to share any information about the meetings of the Kamath Committee with different sectors in response to an RTI application (copy of RBI reply is available with Newsroom24x7).

According to an unimpeachable source, in a virtual meeting with the RBI Governor, “an RBI official mentioned that this may be so due to a lack of time, which is absolutely incorrect. The meetings held by the Expert, (Kamath), Committee were over a period of 25-30 days and the meetings were initially held with gaps of 7 days, clearly showing no sense of urgency. Mr. Sunil Mehta, CEO-IBA has co-Chaired this committee and being an ex-banker, did not apply common sense to reach out to the various industries to know their problem first-hand. Sadly, it is industry that shall suffer for this oversight and irresponsible actions of these two stalwarts.”

After the first wave of COVID-19 had hit India early 2020, the RBI had announced in August 2020, a special Resolution Framework for COVID-19-related Stress. The RBI and Government had taken this step as COVID related stress had the potential to impact the long-term viability of many firms that were having a good track record under the existing promoters,as their debt burden was becoming disproportionate to their cash flow generation abilities.

RBI decided to provide a window under the Prudential Framework to enable the lenders to implement a resolution plan in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as Standard, subject to specified conditions.

Confederation of Indian Industry has demanded that the time of 180 days from the date of invocation of the OTR needs to be increased by a minimum of 90 days, if not longer, as COVID has slowed down the OTR process. Staff of borrowers are falling sick, lockdowns are not permitting valuers to visit premises, bank officials are falling sick; all of which has led to a slowdown in the working efficiencies.

The K V Kamath Expert Committee submitted the report on Resolution Framework for COVID-19 related Stress on 4 September. It has identified 26 stressed sectors with eligibility criteria related to specific financial parameters. The sectors identified for severe COVID-19 related stress and listed as eligible for the Resolution Framework for COVID-19 related stress are – Power; Construction; Iron & Steel Manufacturing; Roads; Real Estate; Trading-Wholesale; Textiles; Chemicals; Consumer Durables/FMCG; Non-ferrous Metals; Pharmaceuticals; Manufacturing; Logistics; Gems & Jewellery; Cement; Auto Components; Hotel, Restaurants, Tourism; Mining; Plastic Products Manufacturing; Automobile Manufacturing; Auto Dealership; Aviation; Sugar; Port & Port services; Shipping; Building Materials; Corporate Retail Outlets.

CII members have pointed out that some issues had been underscored by them before implementation of OTR. The Kamath committee’s recommendations submitted on 4th September state that in addition to other financial factors the defined sector specific parameters may be considered, however, RBI’s final recommendation announcement on 7 September 2020 has made it a mandatory condition that the sector-specific thresholds (ceilings or floors, as the case may be) for each of key ratios should be considered by the lending institutions.

Additionally, as per the recommendations of the Kamath Committee, the threshold TOL/Adjusted TNW and Debt/ EBIDTA ratios should be met by FY 2023 and the balance three threshold ratios should be met for each year of the projections starting from FY 2022. This has also been modified by RBI stating that all the defined 5 key ratios shall have to be maintained as per the resolution plan by March 31, 2022 as against end March 2023 as recommended by the Kamath Committee.

CII has pointed out that the timelines modified by RBI directly conflict with RBI’s September 6 Circular wherein all the ratios have to be complied with by end March 2022. Therefore, and in view of the prevailing situation, CII has asked the RBI and Government of India to extend the date of invocation to 30 June 2021 (in line with ECLGS 3.0). Also, the time period for implementation of RP be more than the allocated time of 180 days from the date of invocation of the OTR.

CLICK here for points raised with the Reserve Bank of India by the India Bullion and Jewellers Association Limited

RBI Springs a Shocker Keeps the Repo Rate Unchanged at 5.15 percent

Niranjan Hiranandani

Mumbai: The Indian Government has been coming up with measures to boost GDP figures, and a lowering of the repo rate was expected over concerns that growth momentum is slowing down; as also it being necessary to boost liquidity in the economy.

In a challenging scenario – and no better term to describe the Indian economy vis-à-vis GDP growth in the past few months. Given this, it would be expected that policy reforms and changes would all be focused on enhancing GDP growth.

The Indian Government has been coming up with measures to boost GDP figures, and a lowering of the repo rate was expected over concerns that growth momentum is slowing down; as also it being necessary to boost liquidity in the economy.

So, it was disappointing to see the Reserve Bank of India (RBI) Governor change his perspective, and has been positive about reduced interest rates impacting the demand side of the economy in his previous monetary policy reviews, this time he has opted to ‘maintain the accommodative stance while keeping repo rates unchanged’.

This is disappointing; India Inc. was expecting a rate cut of 1.0 instead of small tinkering such as a rate cut of 0.25 bps, which would have provided a boost to the Government’s recent initiatives to kick-start GDP growth.

Instead, we have a situation where the RBI Governor said that ‘the upcoming Budget would set stance for further economic policies’. Banks have not yet passed on the complete advantage of previous rate cuts to customers; this time we were hopeful that things would be different and we would see moves aimed at boosting the demand side.

The resulting situation brings back memories of what had been done in 2008, when following the Lehman Brothers crisis, a one-time roll-over had been allowed – in the present scenario, it becomes even more necessary.

Given that the RBI has also lowered its GDP growth forecast to 5 percent, it leaves one wondering why the logical step of a rate cut has eluded the Indian economy. Globally, one finds most banks are interest negative, and one wonders why we are not in sync with the global banking scenario.

In response to the fall in GDP growth rate, the Indian Government has come up with a slew of new fiscal policy measures, including a large reduction in the base corporate tax rate to boost private sector investment; last-mile funding for stalled and delayed real estate projects should be functional in the next couple of months. Given these aspects, one would have expected the RBI to reduce interest rates as part of the moves to support growth revival. Hopefully, in the near future, we should see remedial measures in the form of rate cuts.

Click here for RBI Statement


Dr. Niranjan Hiranandani is co-founder and MD, Hiranandani Group. He is President (National), NAREDCO and President-Designate, ASSOCHAM

Fitch Ratings: RBI Governor resignation highlights risks to policy priorities

Newsroom24x7 Network

Hong Kong/Singapore: The resignation of the Reserve Bank of India (RBI) governor on 11 December follows a period of government pressure on the central bank to spur economic growth, and highlights risks to the RBI’s policy priorities, says Fitch Ratings. The RBI’s efforts to address bad loan problems have the potential to improve banking-sector health over the long term and its commitment to inflation targeting has supported a more stable macroeconomic environment in recent years. Increased government influence on the central bank could undermine this progress.

The full implications of Urjit Patel’s resignation will only become clearer once there is some indication of the RBI’s policy approach under his replacement, Shaktikanta Das, an experienced government bureaucrat. The central bank’s stance may still remain unchanged. Mr Patel cited personal reasons for leaving the RBI, rather than government interference. Moreover, there was no obvious break in policy continuity after the last governor, Raghuram Rajan, decided not to seek a second term in 2016, which also sparked market concerns.

Nevertheless, Mr Patel’s decision comes after months of escalating government pressure on the RBI to ease some of the strains created by its clean-up of the banking sector. Increased bad loan recognition has led to large credit costs – particularly for state banks – and weaker capitalisation in recent years. Capital constraints have, in turn, held back lending, while 11 state banks have fallen under the RBI’s “prompt corrective action” (PCA) framework, which allows the central bank to directly restrict their lending. Problems in the non-bank financial sector following the recent default of Infrastructure Leasing & Financial Services (IL&FS) have further reduced credit availability.

The government has unsuccessfully pushed the RBI to relax the PCA thresholds to allow some troubled banks to step up lending. Calls to dilute provisions in a new regulatory NPL framework that has accelerated bad loan recognition this year and to provide emergency liquidity to non-bank financial institutions (NBFIs) have also been dismissed. The introduction of a 0.625% counter-cyclical buffer (CCB) that was set to kick in from April 2019 has been delayed, but the RBI has so far resisted pressure to push back the implementation of other Basel III minimum capital requirements.

A roll-back of measures that address long-standing bad-loan problems and restrict the growth of weakly capitalised banks could have a negative impact on the credit profiles of affected banks and increase risks in the financial system. Most state banks are in a poor position to ramp up lending, with their common equity Tier 1 ratios well below the 7.375% that will apply from April 2019 under Basel III implementation. Some banks are also likely to continue reporting losses, further adding to capitalisation challenges.

In terms of monetary policy, the establishment of a Monetary Policy Committee (MPC) in October 2016 and recent introduction of inflation targeting has underpinned our view that the RBI’s macroeconomic policy framework is credible and effective. However, that assessment could change if government influence pushes the RBI away from its mandate. We affirmed India’s ‘BBB-‘ sovereign rating with a Stable Outlook in November.

General elections due by May 2019 will create a political incentive for the government to push for more supportive RBI policies. India’s economy remains one the fastest-growing in the world, but GDP growth slowed to 7.1% yoy in 3Q18 (calendar year), from 8.2% in the previous quarter. We recently lowered our growth forecast for the fiscal year ending March 2019 to 7.2% from 7.8%, due to the weak data, higher financing cost and reduced credit availability.

RBI discusses restructuring scheme for stressed MSMEs

Newsroom24x7 Network

Mumbai: The Reserve Bank of India’s (RBI) Central Board met today in Mumbai and discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the Economic Capital Framework (ECF) of RBI.

The Board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI.

The Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to 250 million, subject to such conditions as are necessary for ensuring financial stability.

The Board, while deciding to retain the CRAR at 9%, agreed to extend the transition period for implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020.

With regard to banks under
PCA, it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of RBI.