Mumbai, Feb 7 () Within days of hiking the deposit insurance five-folds to Rs 5 lakh per account, Finance Minister Nirmala Sitharaman on Friday said her ministry is working on the controversial Financial Resolution &amp; Deposit Insurance (FRDI) Bill, but added she is not sure when it will be tabled in the House. The government was forced to withdraw the FRDI Bill from the House after Opposition members objected to it, especially the bail-in clause to banks, which many fear is detrimental to depositors. Late finance minister Arun Jaitley in August 2017 introduced the FRDI Bill in the Lok Sabha, which had proposed a comprehensive resolution framework for revival/closure of financial institutions, including banks, insurers, NBFCs, and cooperative banks. But could not go ahead with the same. A year later in August 2018, the then finance minister Piyush Goyal was forced to withdraw the Bill, following concerns raised by the public on the 'bail-in' clause and also due to conflict of opinions with various regulators, including the Reserve Bank. The government then proposed to set up an independent resolution corporation to carry out a speedy and efficient resolution of financial firms in distress. The Bill was then referred to a joint House committee. According to the bail-in clause, proposed for the first time in the country, customers of a failing financial institution would bear a part of the cost of resolution by reducing their claims. Despite government clarifying that the bail-in clause will be sparingly used, concerns persisted among the public, and the government believed that it was one the main reasons for the spurt in cash withdrawals seen that year. The finance minister's comments assume importance given the massive five-fold hike in deposit insurance and the recent changes in the insolvency laws to include insolvency provisions for financial institutions, following which leading mortgage player DHLF was sent to NCLT last November. "We are working on the FRDI Bill; but not sure when it can get through the House," the minister told reporters here without elaborating. The minister's comment also comes a day after the Reserve Bank had clarified that the spike in deposit insurance will not hit the balance-sheets of banks as the insurance premium will go up by just 2 paise from 10 paise now. The move also comes at a time when many financial institutions, especially NBFCs and cooperative banks, are showing signs of deep stress. The bankruptcy code takes care of resolution for ailing non-financial firms, but doesn't cover deposit-taking financial companies. While DHFL became the first NBFC to be sent to NCLT last November, IL&amp;FS, much larger than the former was been taken over by the government in October 2018. There were string failures among the cooperative banks with the largest being the bankruptcy of PMC Bank with over Rs 11,800 crore of public deposits. That apart more than two dozen cooperative bank managements were superseded by the RBI in 2019 from Maharashtra alone. Many analysts argue that financial sector companies need a special resolution regime as the main purpose is to safeguard the interests of depositors and prevent prudential risks from spilling over into a systematic concern. Commenting on the impact of the deposit insurance hike on banks' bottomline, Reserve Bank deputy governor B P Kanungo on Thursday said the five-fold hike would not have much impact on bank balance-sheets. The budget had permitted the Deposit Insurance and Credit Guarantee Corporation (DICGC) to raise deposit insurance coverage to Rs 5 lakh from Rs 1 lakh. The DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits. At present, the DICGC provides Rs 1 lakh insurance to a depositor regardless of the deposit amount, in case the lender fails or gets liquidated. "The premium is something, which we consider, will increase from 10 paise to 12 paise per Rs 100 for the time being. So, the impact on bank balance sheets is not likely to be much," Kanungo told reporters. According to analysts, the premium burden on banks following the insurance cover hike will go up by 20 per cent. AA BEN MRMR

Days after hiking deposit insurance, FM says working on contentious FRDI Bill

Mumbai, Dec 17 () Noted banker Uday Kotak on Tuesday said the country's financial system is currently in a Darwinian mode as only the fittest lenders are able to survive.
 The Managing Director and Chief Executive Officer of Kotak Mahindra Bank also that historically, whenever there has been a problem with a private sector lender, it has been merged with a state-run bank.
"India is in massive Darwinian mode of what I call as the survival of the fittest. 
"Sector after sector has seen that it is going to be more consolidated than ever before. Consolidation in the Indian economy is happening more out of mortality and less out of combinations," Kotak said.
 He also noted that historically, whenever there has been a problem with a private sector lender, it has been merged with a state-run bank.
According to him, the government has to "rework" the Financial Resolution Deposit Insurance (FRDI) Bill since an exit route is essential for troubled lenders.
 FRDI Bill, which had raised concerns over protection for depositors, has lapsed and the government is yet to introduce a new bill.
 "As you are allowing entry in banking, we should be thinking more about exit policy. And one of the earlier bill that was planned earlier was the FRDI Bill. We need to rework on that," Kotak said, speaking at the Times Network organised India Economic Conclave here.
 The comments come at a time when multiple lenders, especially non-banks and also cooperatives like PMC Bank are sailing through choppy waters, which has highlighted the need for a legislation to take care of exits by financial sector participants.
 Kotak also welcomed rules introduced under the Insolvency and Bankruptcy Code (IBC) wherein troubled DHFL has been referred for resolution.
 Regarding infra-lender IL&amp;FS, whose over RS 94,600-crore debt resolution process he heads, Kotak reiterated the company is confident of recovering over 50 per cent of its dues.
 He said the biggest challenge in the IL&amp;FS resolution was the distribution mechanism, which has been overcome after the Supreme Court judgement in the Essar Steel case.
 Kotak said there has been a complex web of over 340 companies in the IL&amp;FS group created over two decades which resulted in a lot of time taken by its new board.
 He said the time has come to "dramatically increase" the flow of domestic savings going into risk averse assets like fixed deposits and gold, into risk capital which can help the economy better.
 Further, Kotak said the government should choose a set of six core state-run lenders, and mark out three others where its stake would go down below 50 per cent through sales in the market and have the remaining three run as "public private partnerships". AA RAM

Indian financial system in Darwinian mode, only fittest lenders survive: Uday Kotak

(Eds: Combining related stories) Mumbai, Mar 5 () In a rare move, capital-starved Yes Bank was on Thursday placed under a moratorium, with the RBI capping deposit withdrawals at Rs 50,000 per account for a month and superseding its board. Yes Bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment. However, it will be able to pay salaries to its over 20,000 employees, the central bank said. The regulatory actions, undertaken by the RBI and the government, came hours after finance ministry sources confirmed that SBI was directed to bail out the troubled lender. For the next month, Yes Bank will led by the RBI-appointed administrator Prashant Kumar, an ex-chief financial officer of SBI. The country's financial sector is already reeling under a spate of setbacks, starting with the high quantum of dud assets at over Rs 10 lakh crore, their slow-paced resolutions despite legal teeth through bankruptcy laws, scandals at non-bank lenders like IL&amp;FS and DHFL, and also fraud at cooperative lender PMC Bank. The last lender to be placed under a similar action was PMC Bank in September last year. While the withdrawal limits have been increased over time to Rs 1 lakh now, many PMC Bank depositors are still in the lurch. There is no provision to handle insolvencies of commercial banks, and the raft of actions come even as the government is working on the FRDI (financial resolution and deposit insurance) Bill. Just like PMC and DHFL, the RBI superseded the board of Yes Bank for a period of 30 days "owing to serious deterioration in the financial position of the bank". The government took the decision of placing the bank under moratorium on an application made by the RBI, a gazette notification signed by Amit Agarwal, joint secretary in the finance ministry, said. The RBI had appointed former deputy governor R Gandhi to the bank's board last year amid the leadership turmoil, caused by the central bank's August 2018 action asking co-founder and chief executive Rana Kapoor to step down by January 2019 on corporate governance concerns. The developments come exactly a year and four days after Ravneet Gill joined the lender, after leaving German bank Deutsche Bank's India operations. Immediately on joining, Gill identified hidden stress of over Rs 10,000 crore, providing for which eroded capital buffers. The bank has been struggling to execute a capital raising plan for the last six months and had been repeatedly assuring all that it sees some hope of funds flowing in. It had also named ace investor Rakesh Jhunjunwala, GMR Group and Citax Holdings as being interested in the bank. Yes Bank's core equity tier-I ratio had slipped to 8.7 per cent as of September. The bank had pushed its December quarter results announcement to March 14, citing hindrances it may pose to the capital raising plan. "The Reserve Bank came to the conclusion that in the absence of a credible revival plan, and in public interest and the interest of the bank's depositors, it had no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949," an RBI statement said late Thursday evening. It said the bank management had indicated that it was in talks with various investors and was also engaged with a few private equity firms for exploring opportunities to infuse capital. "These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital. "Since a bank and market-led revival is a preferred option over a regulatory restructuring, the Reserve Bank made all efforts to facilitate such a process and gave adequate opportunity to the bank's management to draw up a credible revival plan, which did not materialise," the central bank said. In the meantime, Yes Bank was facing regular outflow of liquidity, the apex bank said, justifying its actions. As part of the moratorium directions, Yes Bank will not be able to grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment, the RBI said. However, it will be able to pay salaries to its over 20,000 employees and also rents, it clarified. The actions come hours after reports of the government directing a consortium of largest lender SBI and life insurance behemoth LIC to bail out the bank emerged. If successful, this will be the first major instance in many years where a private sector lender will be bailed out using public money, with the first instance being Global Trust Bank's amalgamation with Oriental Bank of Commerce in 2003, which was followed with IDBI Bank's takeover of United Western Bank in 2010. The news of a bailout packaged had sent the Yes Bank stock soaring. It closed 25.77 per cent up at Rs 36.85 apiece on the BSE. However, brokerages were not enthused, and couple of them pegged the value of each stock at Re 1 if such a bailout were to happen. Terming it as a "quasi sovereign bailout", J P Morgan said, "we believe forced bailout investors will likely want the bank to be acquired at near zero value to account for risks associated with the stress book and likely loss of deposits". Earlier this year, SBI Chairman Rajnish Kumar had said the troubled bank will "not be allowed to fail". He had also suggested that rival Kotak Mahindra Bank is best suited to take over Yes Bank. AA BEN ABMABM

Yes Bank placed under moratorium; RBI supersedes board

Indians could think of nothing other than <keyword id="1754604" type="PERSON" weightage="20" keywordseo="coronavirus">Coronavirus</keyword> be it watching important government announcements or frantically looking for updates and the latest number of infected and deaths. While few did take time off to see drama over government fall in Madhya Pradesh unfold, or even read a few tidbits on Nirbhaya convicts hanging - these are not the only things that happened last week. We collated a few important updates that would have otherwise made headlines: Anil Ambani asked to pay $100 million to Chinese Banks The head of ADA group Anil Ambani is currently embroiled in a legal battle with three state-controlled Chinese banks over a $925 million loan of to <a href="https://www.businessinsider.in/business/news/the-rise-and-fall-of-anil-ambanis-reliance-communications/articleshow/74596156.cms">Reliance Communications</a> which filed for bankruptcy last year. As per the banks, Ambani provided personal guarantee for the debt, a claim which he contested. A UK court order directed him to pay $100 million to the Chinese banks by Friday. However, he has failed to meet the deadline, and this may result in seizure of his assets. 19-year-old gangraped in Maharashtra Even in times of a pandemic, anti-social elements have been ultra active. A 19-year-old girl was allegedly gangraped by five persons in a forest area in Nagpur, Maharashtra. She had gone to Khairi Village along with her boyfriend and their bike broke down. The accused came to the spot and took the woman to an isolated area and sexually assaulted her. The woman later managed to escape with her boyfriend. She filed a complaint after four days and all five accused have been arrested. Peter Mukerjea released from jail After spending more than four years behind the bars, former media baron Peter Mukerjea was released from the Arthur Road Jail on Friday. He was arrested on November 25, 2015 by the CBI in relation to the murder of his wife Indrani Mukerjea’s daughter, Sheena Bora. The Bombay High Court granted Mukerjea bail in February but stayed the order for six weeks so the Central Bureau of Investigation could file an appeal. The stay ended on Thursday and the CBI did not file an appeal in the Supreme Court. Rana Kapoor sent to judicial custody The founder of the now-troubled Yes Bank Rana Kapoor was sent to judicial custody by the Mumbai High Court in connection with the Dewan Housing Finance Ltd (DHFL) scam, on Friday. The Enforcement Directorate (ED) claims that Yes Bank gave loans of ₹30,000 crore out of which loans worth ₹20,000 crore became bad, during Kapoor’s tenure. The ED accuses that Kapoor and his family received ₹4,300 crore as kickbacks for granting these loans. Kapoor has been sent to judicial custody to Taloja jail in Navi Mumbai, till April 2. The CBI is also in the process of seeking his custody, so he might end up behind the bars for longer. Tamil actor, writer and director Visu passes away Popular Tamil actor and director M.R. Viswanathan, fondly known as Visu, passed away in Chennai on Sunday. The 75-year-old actor had a cardiac arrest, following which he was rushed to a hospital. Visu’s daughter, Lavanya said, “He passed away shortly after. The funeral will be held on Monday.” He was reportedly suffering from kidney-related ailments for the past couple of years. His mortal remains have been brought to his residence in Thoraipakkam. The final rites will take place at Besant Nagar crematorium at 4PM today. See also: <a href="https://www.businessinsider.in/india/news/indian-coronavirus-cases-rise-to-396-after-seven-dead-and-24-cured/articleshow/74767933.cms">Indian Coronavirus cases rise to 415, after seven dead and 23 cured</a> <a href="https://www.businessinsider.in/india/news/coronavirus-lockdown-in-india-list-of-states-and-districts-under-lockdown-in-india/articleshow/74760913.cms">List of states and districts under lockdown in India</a> <a href="https://www.businessinsider.in/business/startups/news/checkout-uber-and-ola-services-status-till-march-31-in-delhi/articleshow/74768034.cms">Coronavirus lockdown: Uber suspends services till March 31 in Delhi — but you can still book an Ola in Delhi</a>

Important news that you may have missed amidst Coronavirus chaos

The Department <keyword id="6310265" type="COMPANY" weightage="20" keywordseo="of-economic-affairs">of Economic Affairs</keyword> had earlier raised red signals over the likely collapse of IL&amp;FS in a confidential note on September 30, 2018 and expressed concerns over its impact on the Indian economy, according to a latest affidavit filed by the <keyword id="153101" type="COMPANY" weightage="20" keywordseo="Corporate-Affairs">corporate affairs</keyword> <keyword id="8787526" type="COMPANY" weightage="20" keywordseo="ministry-the-ministry">ministry.The Ministry</keyword> of Corporate Affairs (MCA) in the affidavit said the DEA had opined that if IL&amp;FS group collapses, the Indian economy may have to face repercussions as redemption pressure would continue, debt market sell-off expected, may create liquidity crunch and NBFC licenses could be cancelled. "DEA had raised red signals of the likely collapse of IL&amp;FS and had expressed its deep concern of such a collapse on the Indian economy," said MCA in the affidavit filed before the National Company Law Appellate Tribunal (NCLAT). Immediately after that, the MCA had moved the National Company Law Tribunal to take over the management of IL&amp;FS, which had a debt exposure of over Rs 91,000 crore. According to DEA, "AMCs having exposure of Rs 2,800 crores to IL&amp;FS bonds would get redemption pressure from Corporate Clients". It further added that it was impossible for such mutual fund schemes to get the redemption amounts in a short period of time. "Further, illiquid Corporate Debt Market and DHFL saga may force AMCs to sell government securities. Hence, the government securities would face a huge selling pressure so either Bond Yield will shoot up to 8.30-8.50 per cent levels or the RBI has to do OMO (open market operations). "If RBI opts for OMO, then the government's spending capacity will reduce by an equal amount," it had said. DEA said that NBFC licenses could be cancelled also. "In the wake of the IL&amp;FS crisis, as many as 1,500 smaller NBFCs may have their license cancelled because they do not have adequate capital," it had said. Moreover, there also could be liquidity crunch and recent events hitting market sentiments will lead to cost of fund for NBFCs increasing, impacting profitability. The RBI's liquidity inducing measures and announcements have helped government bond yields to drop to 8.05-8.08 levels, but corporate bond yields have risen further by about 40-50 bps post IL&amp;FS crisis. "Primary market in Corporate bonds has completely dried up as no one is willing to bar currently in expectation of further redemption from MF's," it added. Though IL&amp;FS group is not inconsequential, but exposure of the banks to the NBFC sector is about 16 per cent. "Therefore, there is a substantial public interest in ensuring financial solvency and good governance and management of this group," it added. According to the affidavit, IL&amp;FS has an aggregate debt of Rs 94,215 crore as of January 2020, in which Rs 10,173 crore (around 10.79 per cent) is collectively from public fund creditors as pension funds, provident funds, employee welfare funds, gratuity funds and army group insurance funds etc. Rs 44,075 crore debt, which is 47 per cent, is collectively from the commercial banks, the affidavit said. Moreover, the aggregate debt of its four key holding companies -- Infrastructure Leasing &amp; Financial Services (IL&amp;FS), IL&amp;FS Financial Services, IL&amp;FS <keyword id="5054155" type="DOMAIN" weightage="20" keywordseo="Transportation-Networks-Ltd">Transportation Networks Ltd</keyword> (ITNL) and IL&amp;FS <keyword id="719770" type="DOMAIN" weightage="20" keywordseo="Energy-Development-Company-Ltd">Energy Development Company Ltd</keyword> (IEDCL) - is almost 51 per cent, which is Rs 48,000 crore. IL&amp;FS group comprised of 302 entities, of which 169 entities are incorporated in India and 133 entities abroad. The new board has classified the 169 companies into different categories and has asked to release 55 companies from its protection shield of order dated October 15, 2018. In the affidavit, it has also asked the NCLAT to release nine other companies from the scope and operation of the October 2018 order so that they can discharge their debt obligations. While for rest 105 IL&amp;FS group companies, it has sought additional 270 days to complete their resolution process. Passing an interim order on October 15, 2018, the NCLAT had stayed all proceedings against IL&amp;FS group companies, whose total debt is Rs 94,215 crore. The government is conducting resolution process of IL&amp;FS based on the principles enunciated in the Insolvency and Bankruptcy Code. It has appointed retired Supreme Court judge Justice D K Jain to supervise the entire process.

IL&FS crisis was red-flagged in 2018 'confidential' note by the DEA

Mumbai, Feb 4 () Rating agency Crisil on Tuesday warned of potentially high stress in non-banking lenders' wholesale book well above the reported bad loan numbers by March, indicating rising risks to their retail books.
It can be noted that almost all the NBFCs have been under severe liquidity stress since the fall of industry major IL&amp;FS in September 2018. The crisis has been so bad that the third largest home finance player DHFL has been sent to bankruptcy courts, also because of the large fraud alleged to have committed by its management.
The spike in bad loans is being driven by the realty books, which has almost trebled as of the September 2019 quarter to 10 per cent, says the Crisil report.
"But it is not the traditional segments-retail books -- where the material concerns lie. It is the wholesale loan book where more significant slippages are expected to manifest as portfolios come out of moratorium," Crisil said in a note without quantifying how much will be the spike.
The crisis in the wholesale books will be led more by real estate and structured credit, which comprise only 16 per cent of the total assets of NBFCs at Rs 3.8 lakh crore as of March 2019.
These segments are experiencing heightened headwinds as financial flexibility of many underlying operating companies in this space and realtors have been impacted due to the overall slowdown. Moreover, a major chunk of the loan book is under moratorium. That means NPAs could jump when loans come out of it.
The reported NPAs in the realty segment is estimated to have risen to 3.3 per cent as of September 2019, from 1.8 per cent as of March 2019. About 40 per cent of the book, including lease rental discounting, was still under moratorium as of September 2019.
Since the book under moratorium and the lease rental discounting books have low delinquencies, the numbers include only those under moratorium and excludes lease rental discounting books. This results in NPAs standing at 10 per cent as of September 2019 almost thrice the reported NPAs.
The report further noted that the "slowdown hasn't spared retail loans either as non-performing assets, measured as 90+ days past due for NBFCs are expected to continue to rise by another 30 to 150 bps by March 2020, depending on the asset class. This is on the back of 20 to 150 bps increase seen in the first half of fiscal 2020".
The retail loan book comprises vehicle and home loans, which constitute over half the NBFCs' assets, that witnessed NPAs inching up.
"Of the 40 per cent loan book under moratorium, around half is expected to come out of moratorium by March 2021 which will result in incremental slippages. Refinance for the segment has also slowed down further aggravating matters," the report said.
Further, loans against property book, which is around 9 per cent of the total, have been in the red for the past few years, with NPAs inching up 1.75 times to 3.3 per cent as of September 2019 from 1.9 per cent as of March 2016.
The only area where there is some sense of sanity is in the traditional retail loan portfolios, the report said, adding home loans, the largest chunk at 34 per cent or worth Rs 8 lakh crore as of March 2019, continue to demonstrate why this segment is among the safest asset classes. Home loan NPAs inched up by a mere 20 bps in the first half of FY20.
But, delinquencies are expected to rise from here for three reasons -- the deepening slowdown, a rise in self-employed portfolios, and rise in the share of affordable housing loans in the overall credit pie. That said, they would still remain comfortable and relatively lower than other asset classes.
In vehicle financing, which is the second largest segment with 21 per cent of the book at Rs 5 lakh crore as of March 2019, the 90+ dpd has increased 70 bps from March 2019 to September 2019.
Though there could still be some slippages, NPAs would still be lower than the peak witnessed around five years earlier at 10 per cent.
While home loan stress has steadily rose from 60 bps in FY17 to 70 bps in FY18 and to 90 bps FY19 to 1.2 per cent in September 2019, while the same in the vehicle finance declined from 9.7 per cent, 7.5 per cent, 4.8 per cent and to 5.8 per cent, respectively, during this period.
But, stress has been steadily increasing in the loans against property book during this period from 2.6 per cent, 2.7 per cent, 2.9 per cent and to 3.5 per cent, respectively. BEN BAL

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Days after hiking deposit insurance, FM says working on contentious FRDI Bill

PTI

Indian financial system in Darwinian mode, only fittest lenders survive: Uday Kotak

PTI

Yes Bank placed under moratorium; RBI supersedes board

PTI

Important news that you may have missed amidst Coronavirus chaos

Rounak Jain

IL&FS crisis was red-flagged in 2018 'confidential' note by the DEA

PTI

NBFCs' wholesale book under severe stress: Report

PTI