Only standard loan accounts as of March 1 eligible for recast: RBI

 

The Reserve Bank of India (RBI) has clarified that loans which have remained standard without any defaults as of March 1, 2020, will be eligible for restructuring under the pandemic-related resolution framework issued in August.

In clarifications issued late last night to borrowers as well as lenders about the August 6 circular, RBI said a loan account that was due for more than 30 days as on March 1, 2020, but subsequently got regularised, will not be ineligible for resolution under the COVID-19 resolution framework.

This is because the restructuring framework is applicable only for eligible borrowers who were classified as standard as of March 1, 2020.

However, such accounts may still be resolved under the prudential framework dated June 7, 2019, the central bank said.

Similarly, the regulator said restructuring of under-implementation project loans involving deferment of date of commencement of operations (DCCO) are excluded from the scope of resolution framework and that such accounts will continue to be governed by the February 7, 2020, and the other relevant instructions as applicable to specific category of lending institutions.

Also, in case of multiple lenders to a single borrower whose resolution is undertaken, all lending institutions will have to enter into an inter-creditor agreement.

On whether loans of Rs 100 crore and above will require an independent credit evaluation by any one credit rating agency, the apex bank said, in case credit opinion is obtained from more than one rating agency, all such credit opinions must be RP4 rating or above.

The clarification also said the new definition of micro, small and medium enterprises (MSMEs) effective June 26, will not impact their eligibility for resolution but will be based on the definition that existed as of March 1, 2020.

RBI bars YES Bank from coupon payment on Upper Tier II bonds

The Reserve Bank of India has controlled private area loan specialist YES Bank to pay premium (coupon) on the Tier II bonds as its capital sufficiency proportion was beneath administrative prerequisites.
The private loan specialist had moved toward banking part controller RBI looking for endorsement to pay enthusiasm due as on June 29, 2020 for Upper Tier II Bonds. These Unsecured Non-Convertible Upper Tier II bonds convey coupon of 10.25 percent.
Its general capital sufficiency proportion remained at 8.5 percent at end of March 2020 with Common Equity level I (CET I) of 6.3 percent. Its stock was exchanging 1.8 percent lower on BSE. The capital sufficiency proportion is beneath the administrative necessities.
The bank educated trades that RBI has communicated its failure to agree to bank's solicitation for installment of Interest due, since it doesn't meet the base capital necessities right now. Along these lines, the bank would be not able to pay Interest or coupon on the said Upper Tier II Bonds.
The Interest sum due and staying unpaid will be amassed and be paid later, subject to Bank agreeing to the specified administrative necessity, it included.
Bank has plans for raising value money to improve capital ampleness proportion, bolster development and make cushions for Covid-19. Its investors' have affirmed proposition for a total capital raise of up to Rs 15,000 crore.
This capital raising from business sectors would be additionally helped by wellsprings of natural capital (inside age). It intends to do as such by goals of Stressed resource goals and resource sell-down.

The conceded charge resource of Rs 6,118 crore deducted from total assets for processing CET 1, speaking to about 2.55 percent in CET 1 might accessible to the bank after some time, as indicated by Bank introduction.

Interest rate waivers for loans during moratorium to harm depositors: AIBDA

Loan fee waivers for bank advances during ban will hurt the investors, the All India Bank Depositors' Association (AIBDA) has said including that premium waiver of any sort will imprint the credit culture and furthermore sway the monetary soundness of banks.
Bank contributors will be "seriously hit" if a waiver on financing costs is permitted, as banks would definitely look to cover their latent capacity or genuine loss of premium salary through further reductions in the store loan costs, it said.
It further included that generally, the sovereign secured the credit intrigue waivers, however in the current circumstance, a deficit in incomes both at the Center and state level won't license the equivalent.
In the mean time, on June 12, the Supreme Court had asked the Center and the Reserve Bank of India (RBI) to hold a gathering inside three days to settle on waiver of enthusiasm on enthusiasm for conceded installments of portions for credits during the ban time frame reported in wake of the coronavirus-prompted lockdown.
"Our inquiry is constrained on whether there can be waiver of enthusiasm on intrigue," a seat of Justices Ashok Bhushan, S K Kaul and M R Shahhad stated, including it will take a fair perspective on the issue.
The AIBDA said media provides details regarding the Supreme Court perceptions have been "incredibly terrifying" and included that the equivalent incited it to make the contributors' position known.

"We are significantly irritated about the feasible consequences of the credit premium waiver on the financial part, and on the prudential finan

IndusInd Bank promoters to buy more of its shares in secondary market

Private part loan specialist IndusInd Bank's advertisers – IndusInd International Holdings Ltd and IndusInd Ltd – have educated the bank the executives that they will purchase extra stake in the bank from the optional market.
In a letter to the overseeing executive and CEO of the bank, the advertisers have stated, they will purchase extra offers from open market in India, inside the general administrative recommended advertiser value holding top.
At present, the advertisers hold 14.68 percent of the settled up share capital of IndusInd Bank. According to the financial guidelines of the Reserve Bank of India (RBI), the advertisers can purchase 0.32 percent extra stake in the bank starting at now.
As per RBI standards, a bank needs to cut down its advertiser shareholding to 40 percent in the initial three years subsequent to beginning tasks. From there on, the bank needs to cut down its advertiser shareholding to 20 percent in 10 years and 15 percent in 15 years. For IndusInd Bank, the advertiser value holding in the bank, according to the RBI standards, is topped at 15 percent.

Be that as it may, as of late, the bank advertisers wanted to build their stake in the bank to 26 percent and have looked for RBI's endorsement on the equivalent. Be that as it may, the RBI has not given its thumbs up on the proposition of the bank advertisers' starting at now. The bank the board during its Q4 results had educated that they have not gotten any correspondence from the RBI on the proposition. This comes after advertisers of Kotak Mahindra Bank were allowed by the RBI to hold upto 26 percent stake in the bank.

Indian banks' asset quality pressure may last for at least 2 years: Fitch

Indian banks are taking a gander at critical resource quality difficulties for at any rate the following two years in spite of administrative measures, as indicated by Fitch Ratings.
Fitch gauges that the effect on impeded advance proportions could be anyplace between 200 to 600 premise focuses relying upon the seriousness of stress and banks' individual hazard exposures.
The most recent arrangement of measures declared by Reserve Bank of India (RBI) remembers an augmentation of the 90-day ban for acknowledgment of weakened advances to 180 days notwithstanding a few relaxations in bank loaning limits including permitting banks to support enthusiasm on working capital credits.
"These measures will put a substantial onus especially on open part saves money with (effectively debilitated accounting reports) to rescue the influenced areas because of their semi strategy job, taking into account that a significant part of the state's as of late declared improvement measures is as new credits," said Fitch in the report titled 'Significant Indian Banks Peer Review 2020.'
The across the country lockdown to contain the spread of coronavirus - which has been stretched out for the third time until May 31 - has negatively affected organizations, flexibly chains and individual wages. The effect for some smaller scale and SME parts is basic, and a significant recovery is improbable in any event, when the lockdown closes.
"We expect that both buyer request and assembling are probably going to stay lukewarm until the rising instances of coronavirus patients are managed, which are approaching 160,000 (dynamic cases 86,110) according to the most recent check. The pressure is happening across areas, yet SME and retail are probably going to rise as higher hazard because of both focused on mechanical action and rising joblessness," said the report.
Disabled advances acknowledgment will presently take longer and the more loosened up loaning standards for banks could mean rising monetary record dangers if banks submit under tension in spite of their increased hazard avoidance. State banks are more in danger because of their powerless income and restricted capital cushions.

The state banks additionally have an a lot higher level of their advance books under ban than private banks at around 33%, according to detailed information.

Covid-19 crisis: SBI to disburse Rs 700 cr to MSMEs in Mumbai by June

State Bank of India (SBI), the country's largest lender, has set a target of disbursing Rs 700 crore to MSMEs in the Mumbai circle by the end of June, to help them tide over liquidity crisis due to the Covid-19 lockdown.
Among all banks, SBI controls a market share of 22 per cent in the MSME lending.
"SBI will boost flow of credit to MSMEs (micro, small and medium enterprises) in this challenging period by reassessing their working capital limit and also by extending Covid-19 emergency loans.
"Overall, we expect to lend Rs 700 crore to MSMEs in four districts of Mumbai circle — Mumbai, Thane, Palghar and Raigad — by the end of June," the World Trade Centre said in a statement quoting Suresh Nair, deputy general manager (SMEs and financial inclusion) at SBI, as saying after a webinar.
Nair expressed hope that the pandemic will not lead to a sudden spurt in bad loans as the Reserve Bank of India has provided moratorium on all loan repayments.
"The impact of the crisis on NPAs (non-performing assets) will become clear after August depending on the evolving situation," Nair said.

Though SBI has provided sanction letter for additional loan facility to 67 per cent of all eligible borrowers, only 50 per cent of them could avail of the facility due to practical difficulties in executing documentation, he said.

Covid-19: Post paycuts, young salaried look up to P2P platforms for loans

Amidst a spate of pay cuts in the corporate sector, the demand for loans in Peer to peer (P2P) lending platforms, which mostly cater to subprime borrowers, has increased dramatically. However, with investors facing defaults, lending has significantly slowed down.
Much of this demand is coming from young salaried professionals, who have faced pay cuts in recent days.
With no upper limit, the interest rates in the platform can go as high as 35 per cent, on a reducing balance. However, even with high-interest rates, many investors are turning away the loan proposals.
“As there are a lot of delays in salaries, the demand for loans has substantially increased from salaried class, mostly younger professionals who are outside their hometown. In addition, we are also witnessing high demand from small businesses,” says Ekmmeet Singh, CEO, Lenbox. The company is able to meet only about 60 per cent of the demand, and most of the lenders in the platform are preferring giving loans to MSMEs. For salaries people, close to 50 per cent of the proposals are getting rejected.
Also, many P2P platforms have voluntarily extended the moratorium to on loans. Notably, P2P platforms only act as a marketplace, while loans are given by individual lenders.
“Queries for loans has increased dramatically. The demand on a daily basis ha increased two times. While there are investors in the market, it is the question of cash flows. For the month of March, EMIs have been partially impacted. In our system, only 20 per cent of borrowers have availed moratorium,” according to Amit More, founder, Finzy, a P2P platform offering loans for a longer tenure of 36 months.
The defaults are more in loans for shorter tenure, which require monthly or quarterly repayments.
Also, while many urban-centric P2P lenders have been witnessing more than 50 per cent default rate over the past month, the defaults for rural-focused lenders have been only about 20 per cent.

“Overall, in the industry, there is a severe decline in collections. However, for a rural centric platform like us, the scenario is much better. Our April collections are 80 per cent. In the supply side there is constraint,” said Rajiv M Ranjan, Founder and Chief Managing Director of PaisaDukan.

Rupee can depreciate another 4% despite RBI's liquidity support measures

The Reserve Bank of India (RBI) unleashed a slew of measures to help the economy tide over the current crisis. It has launched targeted long-term repo operations (TLTRO) 2.0 of Rs 50,000 crore. Banks would be required to deploy at least 50 per cent of funds availed under this facility in bonds of smaller non-bank finance companies (NBFCs) and micro-finance institutions (MFIs).
This move is intended to reduce the funds being channelised only to the top rung NBFCs and ensure more equitable distribution of liquidity. The move has had an immediate impact. Commercial Papers (CPs) and short maturity (two - three years) corporate bond yields are lower by 30-40 bais ppoints (bps) compared to Thursday.
Providing further relief to banks, the RBI has reduced the liquidity coverage ratio (LCR) that banks are required to comply with to 80 per cent from 100 per cent. With this, the banks can now divert those funds from high quality liquid assets too. Besides, it has increased the WMA limit for states to 60 per cent. This will reduce the supply of SDLs in the near term and help cool off yields. 10yr SDL yields are down almost 20 bps.
The RBI has, also, relaxed non-performing asset (NPA) classification norms for NBFCs. It has restricted banks from disbursing further dividends for FY20. It has announced funding lines for NABARD, SIDBI and NHB to the extent of Rs 25,000 crore, Rs 15,000 crore and Rs 10,000 crore, respectively at repo rates so that these institutions can also lend at more competitive rates, thereby ensuring transmission.

Another cut in reverse repo by 25 bps to 3.75 per cent is intended to disincentivise banks from parking funds with the RBI and to incentivise them to lend to the real economy instead. Combination of measures to boost liquidity, improve monetary transmission and relax repayment schedules is the need of the hour in which RBI has been proactive and repeatedly insisting that they would do whatever it takes. Of course, this provides much needed liquidity and positive message especially for NBFCs, and a much-elaborate stimulus package is awaited.

'Covid-19 hangs over future like spectre': RBI in Monetary Policy Report

The macroeconomic risks held forth by the Covid-19 outbreak would be severe for India, the Reserve Bank of India (RBI) said in its monetary policy report, released on Thursday morning.

The impact of the pandemic came at a time when the economy was just at the turn of a recovery, “but Covid-19 now “hangs over the future, like a spectre,” it said. “While efforts are being mounted on a war footing to arrest its spread, Covid-19 would impact economic activity in India directly through domestic lockdown.”

The second-round effects would operate through a severe slowdown in global trade and growth. “More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets.”

These would inevitably accentuate the growth slowdown, which started in the first quarter of the 2018-19 financial year and continued through the second half of 2019-20.

ALSO READ: PM hints at lockdown extension, says situation like 'social emergency'

The outlook for 2020-21 growth was looking up before the Covid-19 scare. There was a bumper rabi harvest, and higher food prices during 2019-20 provided conducive conditions for the strengthening of rural demand. The transmission of policy rate cuts was also improving, with favourable implications for both consumption and investment demand. Reductions in the goods and services tax (GST) rates, corporation tax rate cuts in September 2019, and measures to boost rural and infrastructure spending were to have a positive impact at boosting domestic demand. But “the Covid-19 pandemic has drastically altered this outlook”, the monetary policy report said.
The central bank now expects the global economy “to slump into recession in 2020, as post-Covid-19 projections indicate”. However, the sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade. “But the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand,” the RBI said.

RBI rate cut, government stimulus done. What are the markets eyeing now?

After the relief package by the government for the poor and the marginalized sections of society and a series of liquidity enhancing measure by the Reserve Bank of India (RBI) announced over the past few weeks, the central bank slashed rates by a 75 basis points (bps) – the most aggressive cut in the last 10 years. That apart, the RBI put a moratorium on all equated monthly installments (EMIs) on loans to ease the borrower’s pain.
On their part, the Indian markets which expected the authorities to roll out measures to stem the fall and stabilise sentiment after the over 35 per cent fall from the peak levels seen earlier this year triggered by the sudden and rampant spread of coronavirus (Covid-19) pandemic across the globe, witnessed profit booking. The S&P BSE Sensex slipped 1,310 points from the day’s high to close marginally negative on Friday post the RBI’s measures.
With these expected stimulus measures out of the way, will the markets continue on their journey south? What are the cues they will keep a tab on?
Over the next few weeks, analysts expect the markets to remain volatile and now track developments related to Covid-19 across the globe and how fast & successfully the governments are able to combat the pandemic. Back home, the 21 day lockdown imposed by the government and the possibility of an extension in the same will sway investor sentiment, they say.
As regards policies, most expect this to be an ongoing process – at least till the time the economy is up and running. They, however, caution that the government could run out of dry powder soon in its fight against Covid-19 given the fiscal situation and the fact that the Indian economy was already slowing down ahead of this pandemic.
“We expect coordinated fiscal and monetary easing to continue. We believe the next tranche of fiscal measures will address cash-flow challenges faced by SMEs and other hard-hit industries. Amid weak growth, we believe the government may temporarily suspend the FRBM legislation and the central government’s fiscal deficit is likely to rise to around 5 per cent of GDP in FY21 versus 3.5 per cent budgeted,” wrote Sonal Varma, managing director and chief India economist at Nomura in a co-authored report with Aurodeep Nandi.
They now expect a further 75 bps cut in repo rate in the second and the third quarter of 2020 (Q2-Q3/2020). On unconventional policies, they see more aggressive open market operations, further liquidity injections via targeted longer-term refinancing operations (TLTROs), including expanding its scope to target banks loans.
Those at BofA Securities, too, share a similar view and expect the RBI to remain aggressive as regards its policies. They expect the central bank to cut rates by 25bp each in June and October and peg the inflation rate at 2.5 per cent in the second half of financial year 2020-21 (H2FY21).

“We now see its 2020 rate cuts totaling 125bp up from 100bp. This, in turn, will take the RBI reverse repo rate to 3.5 per cent, close to 2009's 3.25 per cent low. We have cut down our FY21 growth forecast to 4 per cent,” wrote Indranil Sen Gupta, India economist at BofA Securities, in a co-authored report with Aastha Gudwani.

All banking services to resume from evening; ATMs have cash: YES Bank

International News
Amazon.com Inc will just get imperative supplies at its US and UK and other European stockrooms until April 5, its most recent move to let loose stock space for clinical and family unit merchandise popular because of the coronavirus flare-up.
The change doesn't imply that Amazon will quit selling insignificant things like telephone cases and toys for the present, just that items might be bound to come up short on stock in the following scarcely any weeks or dealers need to deliver the items legitimately to buyers themselves.
In a note sent to venders on Tuesday, Amazon said it is seeing expanding web based shopping request from purchasers. As its family unit staples and clinical supplies are coming up short on stock, it will organize certain classes so as to "rapidly get, restock, and transport these items to clients."
Amazon characterized a few classifications as basic items that can keep shipping, including infant items; wellbeing and family unit things; excellence and individual consideration; basic food item; modern and logical; and pet supplies. Books are incorporated also.
"We comprehend this is a change for our selling accomplices and value their understanding as we incidentally organize these items for clients," Amazon said in an announcement.

The organization said the new convention applies to both first-party merchants and outsider dealers. That proposes that the organization isn't securing its own items.…Read More

10-year bond yields rise on RBI's special open market operations

Current Affairs
The Reserve Bank of India (RBI) on Monday purchased Rs 10,000 crore of 10-year securities from the auxiliary market, while undercutting Rs 8,501 crore of term securities, in the exceptional open market tasks (OMO), held for the second time this schedule year.
Curiously, rather than the 10-year security yields descending, it expanded around 5 premise focuses to close at 6.55 percent after the OMO. The possibility of such OMO is to cut down longer term yields, while pushing up transient yields. The ascent in yields is regardless of the cut-off for the 10-year coming at 6.4874 percent. The cut-off yields for the shorter development papers to between 5.39 percent and 5.51 percent for three papers. The RBI chose not to sell a specific paper, maybe due to bring down yields offered by the market.
"After the OMO, state government sell off schedule came, which demonstrated states would acquire some Rs 25,000 crore extra in the following three months. This scared the market," said the head of treasury of a bank.
A week ago, the RBI had purchased its full quantity of 10-year bonds, however sold just Rs 6,825 crore in total of momentary bonds developing in the following year. As indicated by a senior security seller, the yields rose after the OMO was done to mirror the essentials and to mirror the way that yields should have been higher when there is a reasonable dread of in any event Rs 50,000 crore of additional borrowings preceding the end of the money related.

"The OMO declarations cut down yields from 6.75 percent to 6.55 percent. You can't anticipate that the yields should go down much further thinking about that the RBI had stop in December," said the security seller....Read More

Who is Erwin Braich? Canadian who committed to Yes Bank's $2 bn pledge

International News
Truly Bank Ltd., an Indian moneylender trapped in the nation's extending shadow banking emergency, helped its objective for a capital raising to $2 billion in the wake of accepting duties from new financial specialists. The country's fourth-biggest private bank said its board approved the capital increment, which is higher than the past figure of $1.2 billion, at a gathering on Friday. Financial specialists including Canada's Erwin Singh Braich, SPGP Holdings and Citax Holdings Ltd. "separately communicated their understanding/readiness to buy in to value shares," as per a stock trade documenting.
The board will meet again on Dec. 10 to support a special assignment of offers to financial specialists, none of which will get in excess of a 25% stake in the bank. Indeed Bank needs to raise new capital in the wake of being compelled to step up provisioning against awful credits, including to a portion of the non-bank moneylenders got up to speed in the nation's shadow banking emergency. The loan specialist's center value capital is 8.70%, scarcely over the administrative least of about 8%. There was some failure about the absence of a heavyweight worldwide speculator among the organizations and people reported. Indeed Bank's offers were down about 4% as of 9:24 a.m. in Mumbai on Monday.

"The market was expecting solid and marquee worldwide names and they are for the most part absent," said Siddharth Purohit an examiner with SMC Global Securities. Braich and SPGP Holdings together dedicated $1.2 billion to the capital increment, the biggest single sum, trailed by Citax with $500 million, the recording said. The bank will this week uncover the name of a "top level U.S. finance house" which submitted $120 million, it included. The new offers will be valued at around 78 rupees ($1.09) each dependent on the normal in the course of recent months, Chief Executive Officer Ravneet Gill said in a meeting with CNBC-TV18 on Sunday. That would speak to a 14% premium to Yes Bank's end cost of 68.30 rupees on Friday....Read More

India International Exchange plans to waive fee to lure rupee trade home

International News
As India works to bring some of the burgeoning offshore rupee trading back home, the exchange that will likely spearhead the move says it’s prepared to cut trading fees to zero to take on overseas rivals.
The India International Exchange (IFSC) Ltd., also known as India INX, plans to waive commissions initially, a strategy it used to bolster liquidity in its equity and gold derivatives contracts.“We will compete with lowest-cost access,” V. Balasubramaniam, chief executive at the bourse based in the tax-incentive zone in the GIFT City, said in an interview. “For us, the cost of running a market is much lower as manpower and infrastructure costs at the IFSC are small.”
Trading charges at the Dubai Gold & Commodities Exchange range from $0.03 to $0.1 per contract, per side on various rupee-related contracts, according to its website. The Singapore Stock Exchange charges 0.0075% of traded value as fees that exclude clearing costs.
Rupee trading onshore has been shrinking at the expense of offshore market, with volumes in London topping those in India’s financial capital Mumbai. In a bid to boost local volumes, the Reserve Bank of India this month allowed trading in rupee on venues like the IFSC and permitted banks to freely share forex rates with non-residents. Further regulatory approvals are awaited before trading starts.The GIFT City, located in the western state of Gujarat -- the home state of Prime Minister Narendra Modi -- has been conceived as a financial hub to rival centers like Singapore and Dubai. Investors based there are exempted from levies on buying and selling of securities and capital gains tax for non-residents.

 INX India, a unit of the BSE Ltd., is currently the biggest exchange in GIFT City. The National Stock Exchange of India Ltd., the nation’s top equities bourse, also has a unit in the zone....READ MORE

Monetary policy: Here's how low interest rates can go after 5 cuts in a row

International News
How much lower can India’s central bank drive interest rates after delivering five back-to-back cuts? By as much as 65 basis points, say some economists.
The Monetary Policy Committee can possibly cut rates by another 40-65 basis points, which will take the benchmark repurchase rate below the 4.75 per cent level seen during the global financial crisis, according to economists, including Anand Rathi Financial Services Ltd.s’ Sujan Hajra. So entrenched is India’s growth slowdown that it may require the rate to be cut to as low as 4.5 per cent for any meaningful impact.
“We now expect that rather than 5 per cent, the repo rate in this cycle would bottom out at 4.5 per cent,” said Hajra, chief economist at Anand Rathi and an ex-central banker himself.
The Reserve Bank of India Friday slashed the full-year growth forecast to 6.1 per cent — which would be a seven-year low — from 6.9 per cent previously. Governor Shaktikanta Das, echoing Mario Draghi, vowed to keep the policy stance dovish for “as long as it is necessary to revive growth.”Das was less forthcoming on how low rates can drop, after having cut rates by a cumulative 135 basis points so far this year.
“On a potential policy rate lower bound we have not said anything,” he told reporters on Friday. “This is a kind of forward guidance that as long as growth momentum remains as it is and till growth is revived, the RBI will remain in an accommodative mode.”
Monetary policy: Here's how low interest rates can go after 5 cuts in a row

 Rahul Bajoria, senior India economist with Barclays Bank Plc, said Das’s guidance was “unambiguously dovish.” He expects the RBI to reduce the repo rate by another 25 basis points in December and by a further 15 basis points in February....Read More

A bank's race against crisis has served a warning to Indian banking

International News
India’s fragile financial system is swinging between despair and hope. Two separate incidents — both featuring the lender YES Bank Ltd — recently underscored the drag of past underwriting follies as well as the lift from a digital reset. It will take time, but good things will come to Indian banking as a result of the present crisis.
Start with the sudden default by financier Altico Capital India Ltd. on a 199.7-million-rupee ($2.8-million) interest payment to Abu Dhabi-based Mashreqbank PSC. Clearwater Capital Partners-backed Altico, which borrows money from banks and mutual funds to make loans to property developers, called the situation a “liquidity crisis.” And that made YES Bank investors gloomy.
Based on January data, the midsize Indian bank had a 4.5-billion-rupee exposure to Altico, the third-highest after Mashreq and HDFC Bank Ltd.
While HDFC Bank, the country’s most valuable lender, has the capital — and current profit — to take the occasional credit hit, YES’s capital cushion is already frayed by dodgy loans to beleaguered shadow banks and troubled tycoons. Both these borrower groups have found it hard to refinance debt since the collapse last year of IL&FS Group, a large Indian infrastructure financier and operator. Altico’s unraveling shows that an end to credit woes is not yet in sight.

 At more than $200 billion, India’s world-beating pile of bad loans is bigger than Italy’s. State-run Indian banks are carrying the bulk of the burden, but at least they’re getting dollops of taxpayers’ money and being merged into fewer banking groups. A private-sector lender like YES doesn’t have a formal public backstop. If it can’t fend for itself, the central bank could step in and force an arranged match with a better-run bank. The terms won’t be favorable to Yes shareholders...Read More

Rate cuts not enough to boost liquidity-starved housing market: Poll

Current Affairs

India's liquidity-starved economy will restrain housing market activity and price rises in coming months and into 2020, according to a Reuters poll of property market experts who were skeptical aggressive interest rate cuts will revive it.
House prices are expected to rise just 1 per cent on average this year and 2 per cent in 2020, the lowest median predictions since polling began for the two years, and well below the current 3.15 per cent rate of consumer price inflation.A majority of respondents in the Aug. 13-27 survey said risks to those already-modest predictions were skewed more to the downside.
That comes despite the Reserve Bank of India having slashed its repo rate by 110 basis points so far this year, to 5.40 per cent. It is also expected to cut it further to 5.15 per cent over the coming months to revive a slowing economy.However, much of that easing has not reached borrowers as banking and non-banking financial companies (NBFCs) are still grappling with very large bad loans on their balance sheets, which has led to a liquidity crunch.
The government's own assessment is that the lack of available credit is the worst in over 70 years.
"It is my expectation that we will continue to see more defaults over the next few years as developers are still facing liquidity issues due to slow sales and lack of refinancing options," said Siddhart Goel, principal consultant and founder at ARAIS Consulting.

 "Even the recent rate cuts will not have a positive impact on the situation as easing by the Reserve Bank of India (is) seldom passed on by the banks to the loan seekers and never in the same quantum...Read More

RBI faces calls to do more than just one rate cut amid economic slowdown

International News

India's central bank is poised to deliver its fourth successive quarter-point interest rate cut on Wednesday, amid calls from investors and the government for further easing as a slowdown gripping the economy becomes more pervasive.
The Reserve Bank of India will lower the benchmark repurchase rate by 25 basis points to 5.5 per cent, according to almost all of the 36 economists surveyed by Bloomberg. Swap markets are pricing in at least another 50 basis points of reductions before the end of 2019.
Finance Minister Nirmala Sitharaman has ratcheted up pressure on the six-member monetary policy committee for a "significant cut" to lift economic growth from a five-year low. Inflation that's stayed below the central bank's 4 per cent medium-term target for 11 months in a row and the Federal Reserve's first rate cut since the financial crisis allows room to retain the policy makers' easing bias.
A quarter-point cut will take the benchmark rate to the lowest since April 2010. With price pressures anchored, the central bank may have the leeway to keep rates lower for longer.
"We expect 75 basis points of additional rate cuts spread over August, the fourth quarter of 2019 and the first quarter of 2020, taking the repo rate to 5 per cent by March 2020," said Pranjul Bhandari, chief India economist at HSBC Holdings Plc in Mumbai. The headline inflation will stay below the RBI's medium-term target for the "foreseeable future" due to a lack of underlying price pressures across sectors, she said.
Data dependent

 Policy action will be data-dependent, RBI Governor Shaktikanta Das said in an interview last month, while suggesting that the MPC has already delivered 100 basis points worth of easing as...Read More

RBI allows domestic banks to sell NPAs abroad as one-time settlement

International News

The Reserve Bank of India (RBI) on Tuesday allowed domestic banks to directly sell their bad loans in manufacturing and infrastructure sectors to investors abroad as part of one-time settlement (OTS) exercises. The move will allow overseas investors to take direct loan exposure to Indian corporates.
The defaulters, or stressed borrowers, can sell their assets in accordance with the OTS scheme, in order to raise external commercial borrowing (ECB) from abroad to repay domestic loans, the RBI said in a statement.
At the same time, Indian corporates can raise long-term loans for working capital, ‘general corporate purposes’ and repaying domestic rupee loans, the statement said.
Apart from easing the non-performing asset (NPA) pressure on domestic banks, the RBI’s move can allow companies to raise cheap, long-term loans easily now. Part or all of that can be used to retire domestic loans.
The RBI notification said corporate borrowers can avail of ECB “for repayment of rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector and classified as SMA-2 or NPA, under any one-time settlement arrangement with lenders”. SMA is special mention account, in which SMA-2 is the loan not serviced between 60 days and 90 days.
If the loan is not serviced on the 91st day, it becomes NPA.

 “Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches/overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework,” the notification said...Read More

RBI slaps Rs 7-crore penalty on SBI for violating various regulatory norms

International News

The Reserve Bank of India (RBI) has imposed a penalty of Rs 7 crore on State Bank of India (SBI) for non-compliance with regulatory norms such as income recognition and asset classification (IRAC) and sharing information. This is one of the highest penalty amounts on any bank in the recent past.
SBI, the country’s biggest bank, also failed to comply with directions on opening and operating current accounts, reporting of data to the Central Repository of Information on Large Credits (CRILC), and reporting of frauds. The RBI had carried out the statutory inspection to assess SBI’s financial position on March 31, 2017.
The inspection revealed non-compliance with directions on IRAC norms, sharing of information about
customers with other banks, reporting of data, fraud risk management, and classification and reporting of frauds.
Following the inspection, the RBI issued a show-cause notice.
After considering the bank’s reply and oral submissions, the RBI came to the conclusion that charges of non-compliance were substantiated and warranted imposition of monetary penalty.
The RBI said the penalty has been imposed in exercise of powers vested under various sections of the Banking Regulation Act, 1949. This action is based on deficiencies in regulatory compliance. It is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers, the RBI said.
Rs 10-lakh fine on Union Bank
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 The Reserve Bank of India(RBI) has imposed a penalty of Rs 10 lakh on Union Bank of India for non-compliancewith the directions on cyber security framework.