Covid-19 crisis: Banking credit shrinks 1.7% in May as lockdown bites

Bank credit covering all portions — horticulture, industry, administrations, retail, and need — contracted by 1.7 percent in May, contrasted with March. May was the second entire month of the across the country lockdown.
As per Reserve Bank of India (RBI) information, net bank credit was down to Rs 91.08 trillion in May, from Rs 92.63 trillion in March.
On a year-on-year (YoY) premise, net bank credit development decelerated to 7 percent in May 2020, from 11.5 percent in May 2019, the RBI said in an announcement.
Credits to industry — enormous, medium, little and small scale — declined by 1.5 percent in the two months to Rs 28.61 trillion in May. The miniaturized scale and little fragment demonstrated a 7.6 percent droop, medium size a decrease of 5.4 percent, and huge portion a fall of 0.4 percent.
Likewise READ: April-May monetary shortage at 58.6% of financial year focus as income droops
The retail fragment, covering classifications like lodging, Visas, and vehicle advances, contracted 2.9 percent (Rs 74,790 crore) in the two months. The exceptional retail credit remained at Rs 24.78 trillion. Mastercard extraordinary — a key section of the retail classification — declined by 14.1 percent to Rs 96,978 crore in May, contrasted with Rs 1.08 trillion in March.
The lodging advance portfolio likewise contracted by 0.7 percent to Rs 13.29 trillion in May, from Rs 13.38 trillion in March.

Financiers said the June quarter is generally lean, and this year the lockdown has just added to interest (for credit) troubles. There has been some footing in credit following resumption in monetary action in certain belts, though on a lower scale. Interest for working capital from the crisis credit line, notwithstanding, has improved in June.

Reserve Bank tries to reduce NPA burden for lenders in coronavirus crisis

The Reserve Bank of India (RBI) on Friday announced additional set of regulatory measures to reduce the burden of debt servicing due to disruptions caused by the coronavirus (Covid-19) pandemic, including an asset classification standstill for accounts that avail a moratorium between March 1 and May 31.
Such accounts will, therefore, be classified as non-performing assets from 180 days of overdue, rather than the current norm of 90 days, according to a set of measures announced by RBI Governor Shaktikanta Das on Friday.
“Economic activity has come to a standstill during the period of the lockdown, with consequential lingering effects which have unambiguously affected the cash flows of households and businesses,” the RBI said.
On March 27, the RBI had permitted lending institutions in India to grant a moratorium of three months on payment of current dues falling between March 1 and May 31, 2020.
It is recognised that the onset of Covid-19 has also exacerbated the challenges for such borrowers even to honour their commitments fallen due on or before February 29, 2020 in standard accounts, the RBI governor said.
“Therefore, it has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA-norm shall exclude the moratorium period, i.e., there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020,” the RBI said.
But the banks will have to make additional provisioning for such accounts to ensure banks maintain sufficient buffers and remain adequately prepared to take a hit in case the loans go bad. “They will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e. March 2020 and June 2020. These provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts,” the RBI said.

The RBI will further issue a detailed circular revising its framework on resolution of stressed assets dated June 7, 2019. The RBI has decided to grant additional 90 days for banks to come up with resolution plan. Under the existing guidelines, all lenders are required to hold an additional provision of 20 per cent if a resolution plan has not been implemented within 210 days from the date of such default.

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