Tag: MSMEs

Offer a special window for large stressed companies too: Assocham to RBI

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Within a month of RBI offering a special dispensation to small businesses to defer treating their loans as stressed, industry lobby Assocham on Thursday
demanded a similar treatment for large businesses as well.

Its president Balkrishan Goenka has written to the RBI governor, pitching for stressed companies with an aggregate exposure of up to Rs 1,000 crore or more to be treated similarly and not categorised as non-performing assets.

It can be recalled that the RBI’s move to create the special dispensation for restructuring the advances to micro, small and medium enterprises had come 10 months after the central bank had officially declared an end to all
restructuring in the now famous February 12, 2018 circular.

The move, which was driven by a board decision following a major tiff between the government and RBI, was criticised as being regressive by some quarters.

“To support mid and large companies and preserving these accounts from within the banking system, it is requested that an adequate policy framework is put in place to address temporary mismatches,” Goenka said in letter.

He argued that the current economic situation and global macro factors are impacting mid and large manufacturing industries, as well as infrastructure and other companies that are a part of the core sector.

“This one-time relief to banks will allow one-time restructuring of such viable companies and will not force them to resort to extreme measures under NCLT and resultant liquidation,” he said.

The ongoing liquidity troubles faced by non-bank lenders and eight of the state-run banks being under the restrictive prompt corrective action framework has accentuated the situation, he said.

Claiming that Rs 24 lakh crore in capital is “locked”, he said banks are lending only to the well rated borrowers, resulting in many projects being kept on hold as alternative financing is not available.

The insolvency and bankruptcy code is also not helpful as bulk of these cases are yet to be resolved through the provision, he said.

Referring to the RBI discontinuing the joint lenders’ forum framework and opting for the February 12 circular instead, it admitted that a few habitual defaulters may have misused the earlier system but genuinely stressed borrowers are likely to face a rating downgrade under current system.

“To support such companies and preserving these accounts within the banking system, it is requested than an adequate policy framework is put in place to address the temporary mismatch and stressed companies with aggregate exposure of Rs 1,000 crore or more are also given protection
as is available to MSMEs and they are not categorised as bad loans.”

It will be a one-time relief which will allow restructuring of viable companies and not expose them to the threat of insolvency resolution and resultant liquidation.

The industry lobby said only those companies which have not been admitted to debt restructuring earlier through the CDR or SDR route be made eligible and pitched for a revival of the JLF framework.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI-industry meet: India Inc pitches for rate cut to prop up growth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ahead of the monetary policy review, India Inc on Thursday urged the Reserve Bank of India (RBI) to cut interest rate and reserve ratio to prop up growth.

In a meeting with RBI Governor Shaktikanta Das in Mumbai, industry chambers suggested various measures to ease tight liquidity situation and reduce high cost of credit in the light of consistently falling inflation.

The Confederation of Indian Industry (CII) suggested the policy measures required to ease the tight liquidity situation by effecting a cut in cash reserve ratio (CRR) by at least 50 basis points (bps), measures to facilitate flow of credit to industry, especially to MSMEs and the infrastructure sector, and steps to address the high cost of credit by considering a reduction of 50 bps in repo rate given that inflation has been consistently low, the chamber said in a statement.

Suggestions come ahead of the sixth bi-monthly monetary policy statement for 2018-19 scheduled to be announced on February 7.

CRR, currently at 4 percent, is the percentage of deposits kept as reserves with the RBI. Repo rate, currently at 6.5 percent, is the rate at which the central bank gives loans to the banks.

CII lauded the RBI for steps taken to ease financing challenges faced by the real sector, especially micro, small and medium enterprises (MSMEs), through various measures such as reducing Turn Around Time (TAT) and measures to boost liquidity in the economy.

On measures to address the financial challenges faced by the MSMEs, CII suggested that the RBI consider limiting the collaterals sought by banks to 133 percent of the exposure and eliminate the need for personal guarantees where sufficient collateral exists.

The chamber delegation, led by its president designate Uday Kotak, also suggested that letters of undertaking (LoUs) for buyers’ credit for the cases where MSMEs investing to expand capacity may be permitted and the RBI might consider allowing banks to sanction buyers’ credit facility to MSMEs, wherever import of raw materials is being done under letter of credit.

The Federation of Indian Chambers of Commerce and Industry (FICCI) also made a pitch for a cut in repo rate and CRR to enable lowering of lending rates by banks.

A reduction in repo rate and CRR would help in reviving the investment cycle in the country and will also boost consumption and support growth, FICCI President Sandip Somany said.

It will also help in reviving the investment cycle in the country and will also boost consumption and support growth.

“The need of the hour is to have an accommodative monetary policy, focusing on growth. The objectives of the Monetary Policy Committee should not be restricted to only price stability but also to consider growth and exchange rate stability,” he said.

On the RBI’s February 12 circular, CII highlighted that while it was aimed at improving the credit discipline and early identification of probable defaults, but it has, however, put pressure on already distressed sectors impacted due to business performance reasons and, hence, should be given sufficient time to resolve the defaults.

Among many key recommendations, CII recommended that the RBI may revisit the lending restrictions on the weak banks under prompt corrective action and consider allowing them to lend to the National Housing Bank which, in turn, can be used to finance housing projects through housing finance companies.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Working group suggests measures to achieve $5 trillion economy by 2025

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A working group of the Commerce and Industry Ministry on Wednesday came out with a blueprint suggesting a host of long and short-term measures to increase the size of India’s economy to $5 trillion by 2025.

According to its report, agriculture and manufacturing sectors can contribute $1 trillion each, while the contribution from the services sector has been pegged at $3 trillion.

The group was constituted by the Department of Industrial Policy and Promotion (DIPP) in the ministry with participation from the government and industry. It was tasked to develop a roadmap towards achieving a $5 trillion economy by 2025.

“India’s potential to achieve a $5 trillion GDP by 2024-25 is within the realm of possibility,” the report said.

The report identified specific policy recommendations for the three sectors.

For the agri sector, it has suggested encouraging public and private investments to develop infrastructure like cold chains; special attention for north-eastern, eastern and rain-fed states for augmenting scope of access to institutional credit; and rationalisation and targeting of input subsidies towards small and marginal farmers.

It has also recommended reform in land leasing laws to promote land consolidation and contract farming; and accelerating the pace of public investment in agriculture and ensure greater efficiency in capital use.

For manufacturing, the group has suggested a three-pillar strategy to achieve required expansion of output — focus on existing high impact and emerging sectors as well as MSMEs.

It said in the defence sector, there is a need to identify key components and systems and encourage global leaders to set up manufacturing base in India by offering limited period incentives; and ensure incentives result in technology/process transfer.

“Where applicable, leverage Government purchases (Offset Policy), particularly for technology transfer; and ensure high-quality anchor investors capable of spurring growth of associated suppliers (including MSMEs) and offer limited period incentives to anchors, if required,” the report said.

To boost electronics manufacturing, it said the government should consider offering additional fiscal incentives such as a limited-period tax holiday to players investing more than an identified threshold of investment.

Similarly for the auto and auto-components sector, it recommended encouragement of global leaders for the identified components to set up manufacturing bases, and incentivising players willing to invest more than a threshold in identified areas.

The report suggested measures to boost manufacturing in other areas including aeronautical, space, garments, organic/ayurvedic products besides emerging areas such as biotechnology, electric mobility,unmanned aerial vehicles, medical devices, robotics and chemicals.

For micro, small and medium enterprises, the working group said there is a need to improve access to funding by way of development of SME credit risk databases, SME credit rating, and creation of community-based funds.

Further, the group suggested that a focus on champion services sectors like IT, tourism, medical value travel and legal would be required to achieve the expansion of the services sector output and concerted efforts need to be made to increase exports.

The recommendations for services sector include improving rail connectivity and seamless connectivity to major attractions; facilitating visa regime for medical travel; allowing expatriate professional to perform surgeries in identified hospitals; and e-commerce policy and regulatory framework for logistics segment.

To promote growth of accounting and financial services, it pitched for promoting FDI in domestic accounting and auditing sector, transparent regulatory framework, and easing restriction on client base in the accounting and auditing sector.

Similarly, to push audio visual services, the report recommended measures like exploring introduction of insurance in the film industry, promoting private investments in film schools, exploring franchise business models to exploit film franchise, and promoting gaming industry value chains.

It added that the scope for expansion into advisory, arbitration and mediation services is large and unexplored.

“It is suggested that a clear roadmap for domestic reforms in the sector, liberalisation and promotion of arbitration and mediation services, is developed,” it said.

For the education sector, the report suggested allowing foreign universities to set up campuses in India, easy visa regime for students and education service providers, removing regulatory bottlenecks, providing recognition of online degrees and setting up appropriate evaluation techniques for online courses.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Assocham meets RBI governor on NBFC, HFC crisis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Industry lobby Assocham on Friday met Reserve Bank governor Shaktikanta Das and discussed the liquidity issues being faced by non-banking financial companies and housing finance players, and suggested some steps to ease the crisis.

Since taking charge on December 12, Das has met banks, both public and private sector and also NBFCs and MSMEs. This is the first meeting the governor has had with an industry lobby, though.

The delegation, which met the governor in New Delhi, told him that over-regulation of the sector is hampering the growth of the NBFC model of lending.

The players requested the governor to maintain the existing asset liability mismatch (ALM) norms till the normalcy is restored.

The industry body said NBFCs need the regulator to also play the role of facilitator.

“We reiterated our concern that while the asset side of NBFCs is subject to regulation which has been harmonised with that of banks, the liability side i.e. fund raising activity, still remains highly restricted, thereby creating a
liquidity crunch for the sector, Assocham said in a statement.

The delegation requested the governor to reduce the minimum holding period to three months for loans having maturity of two-five years.

Housing finance companies should be allowed to access National Housing Finance (NHB) refinance facility, they said.

The players have demanded that sectoral cap on mutual funds investing in NBFCs be enhanced to 35 percent, and an additional 15 percent in case of HFCs.

“Life insurance companies have a limit of 25 percent to BFSI portfolio including equity exposures; this may be increased, and government securities exposure limit may be reduced from 50 percent in line with the trend in the economy,” the delegation suggested.

Risk weightage for NBFCs should be reduced to 20 percent for AAA rated companies and 30 percent for AA rated ones in line with the weighting to asset finance companies (AFCs) and IFCs, it said.

Assocham also urged the monetary authority to restore the arrangement of treating bank funding to NBFCs & HFCs for on-lending to the priority sector as priority sector lending for banks.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

NBFC representatives discuss liquidity constraints with RBI officials, seek more avenues for capital support

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Liquidity constraints plaguing Non-Banking Financial Companies (NBFCs) sector dominated a meeting on Wednesday between the heads of these institutions and the Reserve Bank of India (RBI).

RBI officials led by the new governor, Shaktikanta Das, sought the NBFCs’ views on liquidity issue and various regulatory norms in place for the sector, in what was described as an “open discussion with no set agenda” by some of those who attended, according to sources familiar with the matter.

The head of a Mumbai-based NBFC told CNBC-TV18 on the condition of anonymity that NBFCs brought up liquidity constraints for the sector, while expressing concerns about the negative sentiment being created about NBFCs after the IL&FS crisis and sought more avenues for capital support.

RBI officials met representatives of 14 large NBFCs, following their meetings with heads of public and private banks and associations of small and medium enterprises (MSMEs), to asses the current liquidity condition.

The representatives have proposed that small and mid-sized NBFCs should get refinancing facility from Mudra Bank, added the sources.

Some of the representatives complained that banks were charging a high rate of interest from NBFCs and resorting to cherry-picking their portfolio at a time when the industry has few options for liquidity support, the source said.

In addition, they have also sought the creation of a formal platform, to function as an advisory representative body for NBFCs, to engage with the RBI regularly,  said a person in the know.

Some chiefs present at the meeting added that they have requested RBI to consider allowing more NBFCs with assets over Rs 1,000 crores to accept deposits from the public.

Sundaram Finance, Shriram Transport, Bajaj Finserv, L&T Finance, Aditya Birla Financial Services, IIFL, PFC,  Edelweiss Financial Services, Muthoot Finance and Tata Capital were among the NBFCs present in the meeting.

The liquidity problem in the NBFCs and housing finance companies (HFCs) came to the fore after series of loan defaults by IL&FS, one of the largest NBFCs in the country.

The government has superseded the board of IL&FS, and the debt-ridden company has already started the process to monetise its several assets.

On Monday, the RBI governor said the central bank will take steps if there is a liquidity shortage in the economy, though currently liquidity needs are largely met.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bank credit rises 15.11%, deposits 9.22%, shows RBI data

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The overall bank credit growth continued to remain strong and has risen by 15.11 percent to Rs 92.87 trillion in the fortnight to December 21, while deposits grew 9.22 percent to Rs 118.18 trillion, show the latest RBI data.

In the year-ago fortnight, advances stood at Rs 80.68 trillion and deposits at Rs 108.21 trillion. In the previous fortnight ending December 7, advances
showed an encouraging trend with a growth of 15.07 percent at Rs 92.03 trillion and deposits clipping at 9.66 percent at Rs 118.84 trillion.

The continuing uptrend in credit demand may growth and employment and is likely to see further fillip with the special dispensation being allowed to MSMEs.

According to the financial stability report, released by the RBI over the weekend, credit growth on a year-on-year basis improved across bank groups between March and September 2018, largely driven by the private sector banks (from 21.3 percent in March 2018 to 22.5 percent in September 2018).

The performance of the state-run banks also saw an overall improvement with credit growth increasing to 9.1 percent in September 2018 from 5.9 percent in March 2018, as per the RBI data.

Public sector banks’ deposit increased 5 percent in September 2018 from 3.2 percent in March 2018, the FSR report said. The RBI said, non-food bank credit increased by 13.8 percent in November 2018 compared to an increase of 8.8 percent in the same month last year.

The report further noted that advances to agriculture and allied activities rose 7.7 percent in November as against an increase of 8.4 percent in the year-ago month. Loans to the services sector expanded by 28.1 percent in the reporting month as compared with 14 percent in November 2017, it said.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI gives relief to MSME sector, provides for one-time restructuring of loans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a new year gift to the MSME sector, the Reserve Bank on Tuesday allowed a one-time restructuring of existing debt up to Rs 25 crore for the companies which have defaulted on payment but the loans given to them have continued to be classified as standard assets.

The decision will help the micro, small and medium enterprises (MSMEs) which are facing cash crunch in the wake of demonetisation and GST implementation.

The RBI’s board in its crucial meeting held on November 19, 2018 had advised the central bank examine a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.

To facilitate meaningful restructuring of MSME accounts that have become stressed, the RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade, the central bank said in a statement.

To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rs 25 crore as on January 1, 2019, and the restructuring has to be implemented by March 31, 2020.

Restructuring package for MSME was one of the sore points of the tussle between the RBI and the government. There was a detailed presentation by Financial Services Secretary Rajiv Kumar on the cash crunch being faced by the MSME sector at the crucial November 19 board meeting.

The government had suggested several steps to help the sector which contributes 50 percent to the manufacturing sector.

“A major step for MSMEs with a total liability up to Rs 25 crore suffering from past issues and illiquidity, though delayed. Congratulations RBI for the restructure circular,” Swadeshi ideologue and RBI board member S Gurumurthy tweeted.

Gurumurthy was pushing for a relief to the MSME sector which provides 12 crore employment, the second largest after the agriculture sector.
“MSMEs are vital for India’s economic ascension. Several initiatives including customised products and strategies as per their needs and automated loan processing have been introduced to achieve faster turnaround and accelerate MSMEs’ growth,” Kumar had said last year.

As per the notification, “A provision of 5 percent in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme. Each bank/NBFC should formulate a policy for this scheme with board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.”
The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration, it said.

According to the notification, banks and NBFCs adopting this scheme will put in place a board approved policy on restructuring of MSME advances under these instructions within a month from the date of this circular.

The policy will include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.

“It is clarified that accounts classified as NPA can be restructured; however, the extant asset classification norms governing restructuring of NPAs will continue to apply,” it said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

New RBI Governor Shaktikanta Das to steer first central board meet on Friday

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The central board of the Reserve Bank of India (RBI) under new Governor Shaktikanta Das will meet on Friday where the directors are likely to push for greater say in the decision making of the central bank.

The meeting will review the progress with respect of some of the decisions taken in the last meet on November 19. Among other things, the crucial board meeting is expected to take a stock of Micro, Small & Medium Enterprises (MSMEs), which is under stress due to demonetisation and implementation of the Goods and Services Tax (GST).

This schedule meeting comes in the backdrop of surprise resignation by Urjit Patel earlier this week citing personal reasons. However, the tussle between the Finance Ministry and RBI was attributed as reason for the sudden exit of Patel, who would have completed his 3-year term in September 2019.

According to sources, one of the key agenda for the upcoming board meeting will be governance issue — the role of central board in the decision making of the RBI.

Given the current structure, the central board plays advisory role but there is growing clamour to make it operational and have greater participation in key decisions of the central bank.

The government as one of important stakeholders also wants greater involvement in the RBI’s decision making as it feels the current practice leaves it out on many critical issues like single-day default turning a loan into an NPA, sources said.

However, former governors and other experts have pitched for the independence and autonomy of the RBI and want the board to play advisory role with given composition.

The central board of the RBI is headed by the governor and includes two government nominee directors and 11 independent directors. Currently, the central board has 18 members, with the provision of going up to 21.

Soon after taking reins of the RBI, Das said, he will try to uphold the autonomy, credibility and the integrity of the “great institution” and take every stakeholder, including the government, along in a consultative manner.

The former Economic Affairs Secretary, who took over as the 25th Governor Wednesday said, he will take measures which the economy requires in a timely manner.

On the second day, he held consultation with heads of the Mumbai-based public sector bankers to discuss issues faced by them.

It is expected that relaxation of the Prompt Corrective Action (PCA) framework for weak banks would also come up for the discussion under the new the governor.

Of the 21 state-owned banks, 11 are under the PCA framework. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The PCA framework kicks in when banks breach any of the three key regulatory trigger points — namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

With regard to economic capital framework, the new governor said as decided in the board meeting an expert committee in consultation with the government will be constituted soon to examine the issue.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Jaitely says liquidity crunch in some sectors needs to be addressed: report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Finance Minister Arun Jaitley, in an interview with The Economic Times, said that overall liquidity was not a concern, however, there was stress in some sectors which is required to be addressed.

Jaitley’s comments came ahead of a crucial board meeting of the Reserve Bank of India (RBI) on December 14.

“Overall liquidity may not be a matter of concern, but within that overall economy there may be sectors which lack liquidity. Therefore, this sectoral stress in those areas will have to be addressed,” Jaitley told ET.

The government is looking for a special refinance window for non-banking finance companies. The liquidity crunch in sectors such as real estate and micro, small and medium enterprises (MSMEs) is likely to be discussed again in the meeting, the report said.

Jaitley also told the paper that the centre was at an advanced stage of a resolution on the Aadhaar after the Supreme Court ruling.

On the upcoming elections, Jaitely said that the Modi government has done enough to make a good case for re-election in 2019 and that the state polls are usually fought on local issues. He said the agenda for the Lok Sabha election will be different this time.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI to set up panel to look into problems of MSMEs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India on Wednesday said an expert committee will be constituted to propose long-term solutions for the economic and financial sustainability of the MSME sector. The panel’s composition and its terms of reference will be finalised by the end of December, the RBI said in ‘Statement on Developmental and Regulatory Policies’.

The report of the panel will be submitted by the end of June 2019.

Micro, Small and Medium Enterprises (MSMEs) contribute significantly to employment, entrepreneurship and growth in the economy.

MSMEs remain, by their predominantly informal nature, vulnerable to structural and cyclical shocks, at times with persistent effects, the central bank said while announcing setting up the committee.

“It is important to understand the economic forces and transactions costs affecting the performance of the MSMEs, while often the rehabilitation approach to the MSMEs stress has focused on deploying favourable credit terms and regulatory forbearances,” it said.

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

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow