Tides of 5.08.2015

1.  Public sector banks (PSBs), saddled with bad debts, will get Rs. 70,000 crore over a period of four years, the Finance Ministry said. The first instalment of Rs. 25,000 crore has been marked for this fiscal. It is “a good beginning”, according to RBI Governor Raghuram Rajan, who told reporters here that the allocation for recapitalisation in the first year is adequate. Rajan was here for his customary meeting with Finance Minister Arun Jaitley ahead of the third bi-monthly monetary policy on August 4. Having provided Rs. 7,940 crore in this year’s Budget, the Finance Ministry has sought Parliamentary nod for an additional capital infusion of Rs. 12,010 crore through a Supplementary Demand for Grants. The remaining Rs. 5,000 crore will be provided in the second Supplementary Demand later this year. The second instalment of Rs. 25,000 crore will be in 2016-17, followed by infusion of Rs. 10,000 crore each in the third (2017-18), and fourth (2018-19) instalments. The capital infusion will take place as early as possible, said Financial Services Secretary Hasmukh Adhia. “It can happen by September after we get approval from Parliament,” he said.

2.  RBI Governor Raghuram Rajan has a simple message for those in India Inc clamouring for lower interest rates — put your house in order, repair your balance sheets and reduce the risk premium that you are paying. Arguing that the RBI has done what it could in the given circumstances, he said, if interest rates are still high, they remain so, partly because banks have not fully passed on the benefits to borrowers and also because borrowers have not done much towards bringing down their credit risk. Asked about the delay in transmission of the monetary policy signals, he said that the message he was getting from bankers was that they were not cutting rates fully as new borrowers had not started coming in sufficiently large numbers.

3.  The Reserve Bank of India is set to announce one set of differentiated bank licences — payments bank and small finance banks — this month.“Finally, a set of recommendations will be presented to the RBI board, which will decide the final list of successful applications. As I said before, I hope to announce at least one set of licences before the end of this month,” RBI Governor Raghuram Rajan said after announcing the third bi-monthly monetary policy.In all, the RBI received 41 applications for payments bank licence and 72 for small finance bank licence.Now, an internal committee of the RBI, comprising the Deputy Governors and the Governor, is going through each of these applications again, he added.Rajan confirmed that the RBI has received recommendations from the external advisory committees on payments and small finance banks. The payments bank applications were vetted by a committee chaired by former banker Nachiket Mor, while for small finance bank applications, the committee was headed by Usha Thorat, former Deputy Governor of RBI.A number of corporate houses, including Reliance Industries, Aditya Birla Nuvo, Bharti Group, Future Group Tech Mahindra and a host of payment wallet companies, have applied for payments bank licences. Many banks, including State Bank of India, Kotak Mahindra Bank, and Bank of India have formed joint ventures with the applicants.

4.  The Reserve Bank of India on Tuesday said it is monitoring stressed sectors in the economy, such as power and steel, even as it urged banks and company promoters to ensure deep and appropriate restructuring of viable projects so that they are put back on track.“There are some important areas that are stressed. The power sector is one. Steel sector is another.“We are certainly monitoring…and trying to urge that restructuring when done is deep, is appropriate so that projects are put back on track. I think that is what we need for the continuing health of not just the banking system but the economy,” said RBI Governor Raghuram Rajan.Rajan observed that there are a number of checks and balances in trying to ensure that the non-performing assets (NPAs) that are announced by banks convey the true and fair picture.“We also supervise banks and go into their portfolios to see whether they have declared the NPAs they should and we examine divergences and bank managements are hauled up where there is divergence. “And increasingly we are turning towards taking action on such divergences. So, it is not that these things get done with impunity…,” he said.The Governor pointed out that the RBI’s recent actions (on getting banks to constitute joint lenders forum and strategic debt restructuring for revitalising distressed assets in the economy) are attempts to get all players on the same platform to discuss how to put a project back on track in a significant way.This requires efforts by the banker, promoter, State Governments, Central Government, and regulators (electricity tariff, etc) for them (the actions) to really work, he added.“And that is why we have been much less keen on forbearance going forward, and saying face up to the reality, you need to do what you need to do – take the medicine, pushing it into the future is going to just create bigger problems in the future,” explained the Governor.Referring to the thin line between forbearance and flexibility, Rajan said the RBI is for flexibility when it comes to restructuring.