The RBI has moved the NCLAT against its order which barred financial institutions from classifying their debt exposure to group companies of IL&FS as non-performing assets (NPAs). The NCLAT had in February ordered that no financial institution will declare any account of IL&FS group entities as NPA without its prior permission. The total debt of the IL&FS group is around Rs 91,000 crore. The counsel for RBI argued that the circular on recognition of assets applies across the board and had been upheld by the Supreme Court.
The RBI has moved the National Company Law Appellate Tribunal (NCLAT) seeking modification of the latter's order regarding classification of debt of IL&FS group companies as non-performing assets (NPAs). The tribunal had provided a moratorium on repayment of loans regarding the accounts of IL&FS and its over 300 group companies. During the proceedings, RBI's counsel said there was a overlap of power on the issue.
On March 13, the RBI introduced a new liquidity management tool in the form of dollar-rupee swap to inject rupee liquidity. At the auction to be held on March 26, RBI will buy dollars worth $5 billion from market participants at a market-determined premium and inject rupee liquidity amounting to Rs 35,000 crore into the Indian banking system. The tenure of the swap has been fixed at three years. Once the auction window is closed, all the bids would be arranged in descending order of the swap premium quoted. The move is expected to benefit corporate borrowers.
The RBI is pushing banks to tighten the process of monitoring the end use of funds through increased surveillance to ensure that they are not being diverted or siphoned off by the corporate borrowers. RBI circular in December required companies, having an aggregate fund-based working capital limit of Rs 150 crore and above from banks, to borrow a minimum of 40% of the sanctioned loans through working capital route. Cash credit which by its nature is perpetual can be given only after this limit has been used. The circular is effective from April 1.
RBI Governor Shaktikanta Das will hold a meeting with MDs/CEOs of Small Finance Banks (SFBs) on March 15 to discuss their participation in priority sector lending and financial inclusion. There are 10 SFBs operating in India currently with an objective to ensure credit flow to small businesses, small and marginal farmers, and micro and small industries.
The RBI has categorized IDBI Bank as a private lender for regulatory purposes with effect from January 21, 2019. The decision of the central bank follows the acquisition of a majority stake by the Life Insurance Corporation (LIC) in January this year. LIC had acquired a controlling stake of 51% in IDBI Bank. In April 2005, IDBI Bank was categorised under a new sub-group, ‘other public sector banks,’ by the RBI.
The RBI on Wednesday said it will inject long-term rupee liquidity worth $5 billion into the system through foreign exchange swap arrangement with banks for three years. Under the swap, a bank would sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.
The RBI raised the trade credits (TCs) limit to $150 million from the earlier $20 million under the automatic route for imports of capital and non-capital goods by raising TCs refer to the credits extended by the overseas supplier, banks, financial institutions and other permitted recognized lenders for imports of permissible capital and non-capital goods. Now, TCs up to $150 million or equivalent per import transaction for oil and gas refining & marketing, airline and shipping companies can be availed under the automatic route. For others, the limit is up to $50 million or equivalent per import transaction.
The RBI would infuse Rs 12,500 crore into the system through open market operations on Thursday. Based on the assessment of the current liquidity situation in the system, RBI has decided to purchase government securities under open market operations (OMOs) for Rs 12,500 crore on March 14. OMOs are money market tools to infuse or withdraw liquidity from the system. Where there is liquidity surplus, it sells securities to pull out money, while the reverse happens when there is a liquidity crunch in the system.
India’s retail inflation picked up in February but remained within the comfort zone of RBI. Data released by the statistics office showed retail inflation rose to 2.57% in February from 2.05% a month ago. In the last meeting of the Monetary Policy Committee (MPC), all members agreed that food inflation will remain moderate for the next 12 months, even though they expected prices of vegetables to bounce back.
The RBI has advised banks against giving loans to or subscribing to the debt securities of Infrastructure Investment Funds (InvITs). Banks and insurance companies invest in units of InvITs but are not able to lend to InvITs. The RBI’s decision will make it nearly impossible for these trusts to refinance projects. InvITs are mutual fund like institutions that pool small sums of money from individual investors against allotment of units. The corpus is directly invested in infrastructure projects. The InvITs return a portion of the income to its unit holders.
The RBI may look to cut down its support for the Indian bond market. It may buy Rs 1.7 lakh crore ($24 billion) of debt in the next fiscal according to a Bloomberg News survey of traders and economists. The central bank bought a record Rs 3 lakh crore worth bonds this fiscal to inject liquidity in the cash-crunched banking system. A majority for the ruling party in the upcoming general elections is also likely to boost foreign inflows into the Indian debt market thereby reducing dependence on RBI’s bond-buying programme.
A reply to an RTI query has revealed that the board of RBI had met PM Narendra Modi just two-and-a-half hours before the announcement of the demonetization decision. The board, which included the present governor Shaktikanta Das as a director, had warned the prime minister of short-term negative impact of demonetisation on Indian economy and said that the unprecedented move will not have any material impact on tackling black money. The then RBi governor Urjit Patel and the then economic affairs secretary Shaktikanta Das were present in the crucial board meeting which approved the government's request for demonetisation.
The RBI in consultation with the SEBI may disallow credit rating agencies from acting as advisors to their clients. The move aims to prevent such entities from making biased assessments about the financial condition of their clients and restrict conflict of interest. Credit rating agencies are jointly regulated by both SEBI and RBI.
The RBI in reply to an RTI query said it has no data on the old 500 and 1,000 rupee notes used for payment of utility bills during the demonetization period. The government had announced demonetization of old Rs 500 and 1,000 notes on November 8, 2016. However it had allowed the demonetized currency for payment of utility bills for 23 services including railway ticketing, airline ticketing at airports, petrol pumps, metro rail tickets, purchase of medicines, LPG gas cylinders, and electricity and water bills.