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The finance ministry on Thursday said public sector banks (PSBs) have extended support of Rs 2.56 lakh crore to NBFCs by way of credit and pooled buyout since September 2018 as part of efforts to provide much-needed liquidity to the sector. Further, under the partial guarantee scheme, PSBs have been accorded sanction to purchase Rs 21,580 crore worth of pooled assets as on October 16, the ministry said in a status report of various stimulus measures announced since August 23 to boost sagging economic growth which hit a six-year low of 5 per cent during the first quarter of the current fiscal. To address the stress in the sector, Finance Minister <keyword id="129243" type="PERSON" weightage="20" keywordseo="Nirmala-Sitharaman">Nirmala Sitharaman</keyword> in the Budget proposed that public sector banks would purchase high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore, during the current financial year. For this, the government will provide a one-time six months' partial credit guarantee to PSBs for first loss of up to 10 per cent. The finance minister announced several short and long-term measures to boost the economy in three phases between August 23 and September 14, it said. Out of the total 44 measures announced, 16 have been fulfilled, it said, adding the rest of the announcements are under active consideration by relevant ministries. Further, it said action on one out of three announcements made for the <keyword id="35061" type="DOMAIN" weightage="20" keywordseo="housing">housing</keyword> sector has been completed and the other two are being taken up. In respect to GST refund to MSMEs within 30 days, it said a refund drive was organised and the tax department paid Rs 10,490 crore or 97 per cent of total pending amount of Rs 10,841 crore. In order to spend Rs 100 lakh crore for developing modern infrastructure over five years, a Task Force under the chairmanship of the economic affairs secretary has been constituted. It will draw up a National Infrastructure Pipeline for each of the years from FY 2019-20 to FY 2024-25. So far, 12 meetings of the Task Force have been held and deliberations with 17 ministries/departments have been completed. The finance ministry has effected upfront release of capital to PSBs, with Rs 60,314 crore being infused in banks in September 2019 through recapitalisation bonds, including Rs 4,557 crore in <keyword id="6357560" type="DOMAIN" weightage="20" keywordseo="idbi-bank">IDBI Bank</keyword>. With regard to boosting exports, it said the RBI issued orders on September 20, 2019 for enhancing sanction limits for eligibility of export credit under priority sector lending from Rs 25 crore to Rs 40 crore per borrower and removing overall turnover limit of Rs 100 crore. The integrated refund module along with single disbursement has been deployed with effect from September 26, it said. Giving details of announcements implemented, it said e-assessment scheme has been launched, relief has been given from enhanced surcharge on long-term/short-term capital gains and angel tax provisions for startups and their investors have been withdrawn. DP ABM

Government banks are bailing out shadow banks with Rs 2.5 lakh crore

<keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword> is back. After a three-month hiatus due to a kidney transplant surgery, Jaitley was re-assigned the responsibility of the <keyword id="25455" type="ORGANIZATION" weightage="20" keywordseo="finance">finance</keyword> ministry on 23 August. While he was recovering, <keyword id="6355222" type="PERSON" weightage="20" keywordseo="piyush-goyal">Piyush Goyal</keyword>, the minister for Railways, was asked by Prime Minister Modi to step into the role of interim finance minister. Leading the finance ministry is said to be one of the busiest jobs in the Indian <keyword id="26362" type="ORGANIZATION" weightage="20" keywordseo="Government">government</keyword> and Goyal’s stint was no different. He completed a number of tasks and took a lot of important decisions over the course of the summer. Here is a rundown of what he did: Reduction of <keyword id="6354679" type="DEFINITION" weightage="20" keywordseo="gst">GST</keyword> rates on certain items In Jaitley’s absence, Goyal presided over the 21 July meeting of the GST Council. After the meeting, he announced a rate cut on a number of items such as sanitary pads, which were made fully exempted of tax, toiletries, lithium batteries, vacuum cleaners, washing machines, water heaters and hair dryers as well as raw materials like marble, wood and ethanol. The cuts were meant to benefit middle-class consumers and small business owners. Goyal added that rates on more items would be reduced as tax compliance increases in the future. In the 4 August meeting of the GST Council, he also decided to form a special sub-committee to focus on the problems of micro, small and medium-sized enterprises in the country. Withdrawal of FDRI Bill After a minor furore was caused last year over the safety of Indians’ bank <keyword id="6496248" type="UNKNOWN" weightage="20" keywordseo="deposits">deposits</keyword>, the government finally withdrew the contentious the Financial Resolution and Deposit Insurance (FRDI) Bill under Goyal’s leadership this July. The bill was introduced in the Lok Sabha in the Monsoon Session in 2017. The bill had come under criticism for its “bail-in” clause which suggested that the deposits of bank account holders could be used to capitalise banks in the event of their failure and subsequent resolution. The ensuing panic caused deposit-holders to withdraw their cash from banks in states like Andhra Pradesh and Telangana. During the Monsoon session of Parliament, Goyal wrote to the the Chairman of the Joint Parliamentary Committee and called for the bill’s withdrawal. Reacting to the move, Goyal said that the government was taking public concerns into account. Amendment to the bankruptcy law Earlier this month, the Parliament approved an amendment to the Insolvency and Bankruptcy Code (IBC) that was introduced by Goyal. The amendment comprised a clause that allowed homeowners to be classified as financial creditors and another that allowed the owners of small businesses facing bankruptcy to bid for their own firms. The amendment replaced an ordinance that was approved by India’s President Ram Nath Kovind in June. The main goal of the amendment was to empower homebuyers, who up until then, did not have a say in the resolution process of real estate developers and construction companies, as well as small-business owners. The new bill also reduced the minimum percentage of votes required to approve a resolution plan for 75% of creditors to 66%. This was done to ensure the quick resolution of cases, especially smaller ones, as opposed to liquidation. Approval of LIC’s takeover of IDBI At the beginning of August, Goyal approved a bailout of struggling public sector lender IDBI Bank by Life Insurance Company Corp (LIC), a government-owned insurer. Speaking to the press, Goyal termed LIC’s acquisition of a 51% stake in IDBI as a “<a href="https://twitter.com/PiyushGoyal/status/1024913992878313472">win-win situation</a>” for both parties. The deal, which will likely involve the deployment of policyholders funds, will see LIC pump around ₹130 billion into the bank in order to provision for <keyword id="142154" type="PERSON" weightage="20" keywordseo="bad-loans">bad loans</keyword> and support credit growth. As a result, the government’s share in IDBI will come down to around 45%. Launch of Project Sashakt to tackle bad loans After meeting with the leaders of various Indian banks in early July, Goyal announced “<a href="https://www.businessinsider.in/india-wants-to-establish-a-mega-asset-manager-to-tackle-its-bad-loan-problem/articleshow/64838159.cms">Project Sashakt</a>” - a programmed aimed at the resolution of stressed assets at public sector banks. Under the scheme, a number of independent asset management companies will be established to purchase non-performing accounts from banks, including a specialised agency to deal with accounts above ₹5 billion. It also involves an intercreditor agreement - signed by the banks - for the resolution of accounts between ₹500 million and ₹5 billion. The agreement dictates that the resolution plan prepared by the lead creditor only requires 66% approval from all creditors to be passed.

Here are the 5 major decisions that interim Finance Minister Piyush Goyal took while Arun Jaitley was away

<ul><li>As of December 2017, public sector banks accounted for 55.4% of all loans to micro-small-and-medium sized enterprises. </li><li>However, half of the country’s public sector banks are on the RBI's <keyword id="6417074" type="ORGANIZATION" weightage="20" keywordseo="prompt-corrective-action">Prompt Corrective Action</keyword> (PCA) watchlist, which involves the imposition of credit limits. </li><li>As a result, funding for small businesses is harder to come by. They will have to the turn to the private banks and non-banking financial companies in the meantime.</li></ul> Following the twin hits of demonetisation and the GST, India’s small businesses have another problem to contend with: a dearth of credit options. This is largely due to the credit limits that the <keyword id="6354335" type="ORGANIZATION" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> has placed on half of the country’s public sector banks through its Prompt Corrective Action (PCA) framework. As of December 2017, public sector banks accounted for 55.4% of all loans to micro-small-and-medium sized enterprises (MSME), according to a report by <a href="https://udyamimitra.in/Default/DownloadFile/MSME_Pulse_Report.pdf">Transunion CIBIL</a>, a credit information firm, as well as 79% of all loans less than ₹1 million to new borrowers. State-owned banks are an important source of cheap financing for these businesses, especially since the MSME segment is a priority sector under government guidelines. However, funding is harder to come by for this segment. As a result of a pileup in non-performing loans, 11 of India’s public sector banks are currently placed under the Reserve Bank of India’s PCA programme. Banks are added to the watchlist once they cross a certain risk threshold for bad loans, return on assets or capital adequacy. All the banks on the watchlist, which includes the likes of IDBI Bank, UCO Bank and Oriental Bank of Commerce, have non-performing loan ratios in excess of 15%, which means more than 15% of their outstanding loans are unlikely to be recovered. Under the <a href="https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&amp;Id=10921">PCA framework</a>, which was revised in April 2017, the major activities of banks are curtailed by the RBI. The programme imposes restrictions on lending, risk-weighted assets, branch expansion, capital expenditure and compensation of senior managers as well as higher provisions for loan losses. The restrictions are meant to discourage profligacy, encourage tighter lending standards and restore the financial health of a bank. However, being sanctioned under the framework does not necessarily translate into an improvement in performance. India Overseas Bank was put on the watchlist in October 2015. It’s non-performing ratio has swelled from 12.6% at the end of 2015 to 22% at the end of 2017. The bank’s net loss also widened to ₹34.2 bilion at the end of fiscal 2017, from ₹29 billion the previous year, partly on account of higher loan provisions. Hence, it’s quite likely that some of the banks on the PCA watchlist will have to deal with credit limits for a long time. An additional 5 public sector banks are expected to be added to the PCA watchlist soon, according to ICRA, a ratings agency.This is unfortunate. Small businesses reportedly account for 40% of India’s GDP and are a major engine of job creation. Their growth, and consequently, India’s growth depends upon access to a sufficient amount of financing from state-owned lenders. To make matters worse, they’re often perceived as a riskier bet than larger businesses, which don’t rely on banks for funds as much their smaller counterparts owing to their access to bond markets. The Indian government’s ₹2.11 trillion recapitalisation plan, which was announced in October last year, is envisioned as a solution to this problem. The first round of the plan involves the allocation of ₹523 billion to the 11 banks on the PCA watchlist. While this is a step in the right direction, it will likely be a while before small businesses benefit from the increased liquidity at these banks. The bulk of the invested funds will primarily be used to plug the holes caused by large non-performing accounts in these banks’ balance sheets. Additionally, as part of a complementary set of reforms, smaller public sector banks have been asked to reduce their <a href="http://indianexpress.com/article/business/banking-and-finance/cut-loans-to-firms-focus-on-retail-govt-to-smaller-banks-5040722/">lending to corporate clients</a>, which includes small businesses, and increase their retail lending. The private sector is looking to fill the void in the meantime. According to CIBIL, private banks have increased their share of loans to the MSME sector from 25.4% to 28.4% from December 2015 to December 2017, while non-banking financial companies (<keyword id="6354598" type="ORGANIZATION" weightage="20" keywordseo="NBFCs">NBFCs</keyword>) have increased their share from 7.9% to 10.4%. There are also a growing number of startups that are focusing on lending to SMEs such as Instamojo, Namaste Credit and Lendingkart. However, in turning to the private sources, the MSME segment has to deal with higher rates of interest and stricter norms. While this might reduce the rate of defaults, a lot of small businesses will be left behind.

India’s small businesses are suffering from a shortage of credit options

New Delhi, Feb 11 () Allahabad Bank on Tuesday reported an over two-fold jump in standalone net loss for the December quarter at Rs 1,986.26 crore on higher bad loans and provisioning. The state-owned lender had reported a net loss of Rs 732.81 crore in the corresponding October-December period of the previous fiscal. Total income (standalone) during the quarter under review grew to Rs 4,860.35 crore from Rs 4,756.88 crore in the same period of 2018-19. The bank's gross non-performing assets (NPAs) rose to 18.93 per cent of the gross advances by the end of the December quarter as against 17.81 per cent earlier. However, it was down sequentially from 19.05 per cent at the end of September 2019. In value terms, the gross NPAs or bad loans rose to Rs 32,149.92 crore from Rs 28,218.79 crore a year ago. Net NPAs, however, came down to 5.13 per cent (Rs 7,449.27 crore) from 7.70 per cent (Rs 10.865.26 crore), Allahabad Bank said. Provisions for bad loans for the quarter increased to Rs 3,002.98 crore from Rs 1,900 crore a year ago, it said. "The bank is carrying additional provision of Rs 1,801.26 crore over and above the provisions required to be made in terms of prudential norms issued by RBI, to ensure compliance with the PCA norms of net NPAs," the bank said. The losses on consolidated basis too widened to Rs 1,980.82 crore for the quarter from Rs 746.83 crore in the year ago period. Income was higher at Rs 5,009.57 crore as against Rs 4,896.75 crore. As a relief to MSME borrowers registered under GST, the Kolkata-headquartered lender said as many as 667 such accounts were restructured for an outstanding amount of Rs 348.13 crore. For the accounts covered under the Insolvency and Bankruptcy Code (IBC), the bank is holding provision of Rs 6,292.47 crore (100 per cent of total outstanding as on December 31, 2019). Non-performing loan coverage ratio of the bank stood at 82.42 per cent as on December 31, 2019, it said. The bank has reported gross and net NPA divergence of Rs 67 crore each for the last fiscal, as adjusted after the calculation done by the bank and assessment of the RBI. The divergence in provisioning was Rs 453 crore for 2018-19, which included Rs 193 crore towards provisions for standard assets and additional provision of Rs 260 crore for NPAs, which had been duly accounted for in current fiscal and would require incremental provision of only Rs 75.34 crore in Q3 FY20, it added. "Divergence in NPAs as on March '19 will not impact the gross NPAs and net NPAs during Q3 FY20 as the accounts underlying had already been marked as NPA and provided suitably in Q1FY20 itself," Allahabad Bank said. The Alternate Mechanism, as advised by the finance ministry, has accorded in-principle approval to the proposed amalgamation of Allahabad Bank with Indian Bank. "Up to nine month ended December 31, 2019; 390 operational fraud cases were reported involving a total amount of Rs 86.26 crore. Out of these accounts, the bank has recovered a total amount of Rs 19.22 crore. No provision is written back during the current quarter," it said further. The Prompt Corrective Action (PCA) norms are triggered if a bank's net NPA crosses 6 per cent or if CRAR (capital to risk weighted assets ratio) is below the regulatory requirement of 10.88 per cent as of March 2019. In FY19, RBI removed five banks -- Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank -- from the PCA framework in two phases after capital support from the government that resulted in improvement in their financial parameters. LIC-owned IDBI Bank still remains under the PCA watch. However, the bank is seeking a removal from the watch list, as per sources. Stock of Allahabad Bank closed at Rs 16.35, down 1.51 per cent from its previous close. KPM ABMABM

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Government banks are bailing out shadow banks with Rs 2.5 lakh crore

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Here are the 5 major decisions that interim Finance Minister Piyush Goyal took while Arun Jaitley was away

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India’s small businesses are suffering from a shortage of credit options

Dilsher Dhillon

Allahabad Bank Q3 net loss widens over two-fold to Rs 1,986 cr on higher provisioning for dud loans

PTI

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