Why not give the capital directly from the Budget instead of following a circuitous route, setting up new institutions and adding to administrative and overhead costs? In the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman has proposed setting up of a bad bank. Crafted as an asset reconstruction company (ARC), it will bundle up all the non-performing assets (NPAs) of banks, buy these at a negotiated (albeit discounted) price and sell them to investors such as private equity funds, alternative investment funds (AIFs) and so on, by putting a turnaround plan in place. An asset management company (AMC) will work on a detailed turnaround-cum-execution plan. The banks plan to transfer nearly Rs 2,00,000 crore of bad loans to the ARC. Every...
More
Comments are closed
Category: Money, inflation & interest rate
Bailing out banks – through backdoor
In the Union Budget for 2021-22, the Finance Minister, Nirmala Sitharaman has proposed setting up of a bad bank. Crafted as an asset reconstruction company (ARC), it will bundle up all the non-performing assets (NPAs) of banks, buy these at a negotiated (albeit discounted) price and sell them to investors such as alternate investment funds (AIFs) etc by putting a turnaround plan in place. An asset management company (AMC) will work on the details. The banks plan to transfer nearly Rs 200,000 crore of bad loans to the ARC. In return, the ARC will provide 15% upfront cash to banks, and issue security receipts (SRs) for the remaining 85%, to be guaranteed by the Government. The ARC will require a capital infusion of...
More
Comments are closed
Many a slip…
It is natural to expect an economic rebound in FY 2021-22. But it is vital to take a pragmatic view based on an objective assessment of how the situation unfolds on ground zero The green shoots seen in October, in particular the rise in the Index of Industrial Production (IIP) by 3.6 per cent, have prompted agencies to revise their growth assessment for the current financial year (FY) from the minus 9.5-10.5 per cent projected earlier to minus 7.5-8.5 per cent, now. For the FY 2021-22, when the impact of the virus is expected to subside to a large extent due to the availability of the vaccine, it is only natural to expect an economic rebound. However, it is necessary...
More
Comments are closed
On road to recovery
The growth of real Gross Domestic Product (GDP) had already started sliding from the third quarter of FY 2018-19 and continued all through the FY 2019-20 culminating in a low of 3% during its last quarter ending March 31, 2020. During the whole of 2019-20, the growth plummeted to a decade low of 4.2% down from an average of 7.5% recorded in the previous 5 years i.e. 2014-15 to 2018-19. A nation-wide lockdown announced by the Prime Minister, Narendra Modi on March 24, 2020 dwelt a body blow by bringing most of the economic activities to a grinding halt. As a result, there was precipitous decline in GDP growth by 24% during the first quarter of current FY ending June...
More
Comments are closed
Nix priority sector lending
The policy — a legacy of the socialist era — has led to blatant misuse and misappropriation of funds and is far from helping those for whom it is intended On September 4, the Reserve Bank of India (RBI) introduced changes in the norms for priority sector lending (PSL) with the stated objective of “enabling better credit penetration to credit-deficient areas, increase in lending to small and marginal farmers and boosting credit to renewable energy and health infrastructure.” Under PSL, the RBI mandates a certain percentage of a bank’s lendable resources to specified areas. The policy — a legacy of the socialist era — has led to blatant misuse and misappropriation of funds and is far from helping the most vulnerable groups...
More
Comments are closed
A step in the right direction
It is good that the RBI has kept the repo and reverse repo rates unchanged or else in the current economic scenario any further cut would have been infructuous In the last bi-monthly Monetary Policy Committee’s (MPC) review announced by its Governor Shaktikanta Das on August 6, the Reserve Bank of India (RBI) had kept the policy repo rate unchanged at four per cent. It had also kept the reverse repo rate or the interest rate the banks get on their surplus funds parked with the RBI unchanged at 3.35 per cent. It continued with the “accommodative” stance of the monetary policy as long as necessary to revive growth and mitigate the impact of Covid-19, while ensuring that inflation remains within the...
More
Comments are closed
Monetary stimulus – does it matter
In the last bi-monthly monetary policy review announced by the Governor, Shaktikanta Das on August 6, 2020, the Reserve Bank of India (RBI) had kept the policy repo rate — the interest rate charged by the RBI on loans it gives to banks — unchanged at 4%. It had also kept the reverse repo rate or the interest rate the banks get on their surplus funds parked with the RBI unchanged at 3.35%. It also continued with the “accommodative” stance of the monetary policy as long as necessary to revive growth and mitigate the impact of Covid-19, while ensuring that inflation remains within the target. In the build-up to the next bi-monthly review (originally scheduled for October 1, 2020, this...
More
Comments are closed
Don’t bank on banks
There’s no pressing need for a firm hit by the crisis to rush to banks for relief. To enjoy the fruits when the going is good and come to the bank or Govt for help when in crisis is unacceptable On March 27 the Reserve Bank of India (RBI) Governor, Shaktikanta Das, announced a comprehensive action plan to resuscitate the economy devastated by the Coronavirus. Apart from measures to increase availability of credit and reduction in the cost of capital, the plan sought to ease the stress of loan repayments on businesses and individuals. Among others, this included a three-month moratorium on payment of instalments in respect of all term loans outstanding on March 31. On May 22, Das announced extension of...
More
Comments are closed
Banking on banks for bail-out
On March 27, 2020, the Reserve Bank of India (RBI) governor, Shaktikanta Das announced a comprehensive action plan to resuscitate the economy devastated by the Corona virus. Apart from measures to increase availability of credit and reduction in the cost of capital, the plan sought to ease the stress of loan repayments on businesses and individuals. Amongst others, this included 3-month moratorium on payment of installments in respect of all term loans outstanding on March 31, 2020. On May 22, 2020, Das announced extension of the moratorium for three months till August 31, 2020. To ease the burden of payment on those who availed of working capital facilities, the governor allowed them to convert accumulated interest for the deferment period...
More
Comments are closed
Scrap priority sector lending
Faced with contraction in GDP (gross domestic product) growth by a whopping 23.9% and credit growth at a low of 6.7% during the first quarter of current financial year (FY), on September 4, 2020, the Reserve Bank of India (RBI) has brought about changes in the norms for priority sector lending (PSL). The commercial banks, including foreign banks, are required to mandatorily earmark 40% of the adjusted net bank credit for PSL. Regional rural banks (RRBs) and small finance banks (SFBs) are required to allocate 75% of adjusted net bank credit (ANBC) to PSL. Within the over 40% limit for PSL, there are sub-limits; for instance, agriculture gets 18% of the ANBC. Although, PSL guidelines do not lay down any...
More
Comments are closed