“How much debt the government raises and how they raise that debt, are a political issue and once central bank starts entering into that area, there is a risk not only that they might fail, but also crossing that line between apolitical central bank and a political function of raising debt,” RBI governor D Subbarao said
Mumbai: Reserve Bank of India (RBI) governor D Subbarao on Tuesday said sovereign debt is primarily a political issue and not that of the central bank whose remit is to ensure price and financial stability in the economy, reports PTI.
“Sovereign debt sustainability is not like price stability. It is a political issue. How much debt the government raises and how they raise that debt, are a political issue and once central bank starts entering into that area, there is a risk not only that they might fail, but also crossing that line between apolitical central bank and a political function of raising debt,” Mr Subbarao said.
He was speaking at the ninth convocation ceremony of the Indira Gandhi Institute for Development Research here.
Talking in the context of the lingering European sovereign debt crisis, he said the European Central Bank (ECB) is now asked to go beyond its usual mandate of maintaining price stability and financial stability.
“Now, the ECB has been told that you must bend and stretch your mandate... not only to look after price stability, not only to look after financial stability, but also it must be mindful of the sovereign debt concerns,” he noted.
The governor also said the role of central banks has become challenging in the last 18 months due to the ongoing debt crisis in Europe.
“There is big enough challenge for central banks to balance price stability, growth and financial stability. This challenge becomes bigger because of sovereign debt crisis in Europe,” Mr Subbarao said.
The 17-nation Eurozone is currently reeling under sovereign debt crisis, with many of the nation countries having more than 100% debt to gross domestic product (GDP).
While some of the countries like Greece are at the verge of a sovereign debt default due to lack of a political consensus within the member-states to provide a big enough rescue fund, the ECB is being asked to go beyond its usual mandate and work towards sovereign debt sustainability.
Basix or Bhartiya Samruddhi Finance has sought Rs800 crore of CDR from its principal lender Sidbi. Out of this, Rs500 crore will be in the form of equity infusion and restructuring of Rs300 crore into long-term debt
Mumbai: Leading microfinance firm Basix, which has failed to rope in foreign investors so far as it is neck-deep in debt, on Tuesday said that it has formally approached its principal lender Small Industries Development Bank (Sidbi) with an Rs800-crore debt recast proposal and expects the plan to be ready early next month, reports PTI.
“In the second week of January, we have formally sought an Rs800 crore corporate debt restructuring (CDR) from our lenders led by Sidbi.
Out of this, we are looking at Rs500 crore equity infusion and restructuring of Rs300 crore into long-term debt,” Basix or Bhartiya Samruddhi Finance chief executive Vijay Mahajan told PTI here on the sidelines of an event organised by Edelweiss Capital.
When asked whether the proposal has crossed the RBI hurdle, he said this does not require an RBI approval as the company is not seeking any special dispensation from the regulator under the proposed CDR.
“Apart from that, we are also seeking fresh working capital funding of around Rs500 crore from the lenders. The proposal is being thrashed out at the CDR Cell of Sidbi and I expect a positive response by next month,” he added.
Early last year, Basix had opted out of an industry-wide CDR where many a lender came together and revamped around Rs6,000 crore of MFI debts. And when he sought fresh loans, banks had sought personal guarantee from Mr Mahajan as a perquisite for extending fresh loans to his company.
Leading players like Trident Microfin, Share Microfin, Asmitha Microfin and Spandana Sphoorty Financial and Future Financial Services had recast their loans worth Rs6,000 crore to the banks mid last year.
Under a CDR, banks typically extend the repayment term, cut loan rates and offer a moratorium on repayment among other things.
Sidbi has an exposure of Rs250 crore to the company, apart from a Rs75 crore worth NCD it subscribed from Basix, and Axis Bank, its second largest lender, has around Rs80 crore exposure to the company. The remaining 18 lenders such as Corporation Bank, IDBI Bank, Indian Overseas Bank, etc have under Rs50 crore each exposure to the company, Mr Mahajan said.
As per existing ECB norms, requests for reduction in the amount of ECB, changes in the drawdown schedule and reduction in the all-in-cost of the ECB after obtaining the loan registration number is required to be referred by the bank concerned to the RBI for necessary approval
Mumbai: Simplifying norms for overseas borrowers, the Reserve Bank of India (RBI) on Tuesday said they will no longer require its approval to raise an amount lesser than sanctioned external commercial borrowing (ECB) as the power to authorise the same has been delegated to banks, reports PTI.
As per existing ECB norms, requests for reduction in the amount of ECB, changes in the drawdown schedule and reduction in the all-in-cost of the ECB after obtaining the loan registration number (LRN) is required to be referred by the bank concerned to the RBI for necessary approval.
“As a measure of simplification of existing procedures, it has been decided to delegate powers to the designated AD category-I banks to approve... requests from ECB borrowers for reduction in loan amount in respect of ECBs availed under the automatic route,” the RBI said in a circular.
The step comes at that time when more and more companies are resorting to external borrowings amid high interest rates in the domestic economy,
India Inc raised over $4.46 billion from overseas markets in December 2011, the latest month for which data is available, through ECBs and foreign currency convertible bonds (FCCB) compared to $1.58 billion in November.
The RBI circular said the reduction in loan amount can be sanctioned if the consent of the lender for such a step been obtained. Besides, the average maturity period of the ECB has to be maintained and there has to be no change in the other terms and conditions of the ECB.
The apex bank also said that the drawdown schedule, or the estimate of the gradual transfer of the committed investment funds, can be modified or changed by the banks provided there are there are no changes in the repayment schedule of the ECB and the average maturity period of borrowing is reduced as against the original average maturity period stated at the time of obtaining the LRN.
The bank must also ensure that the reduced average maturity period complies with the stipulated minimum average as ECB guidelines.
“Any elongation/rollover in the repayment, on expiry of the original maturity, of the ECB, would however, continue to require the prior approval of the RBI,” it said.
The circular further said: “The designated AD Category-I bank may approve requests from ECB borrowers for reduction in all-in-cost, in respect of ECBs availed both under the automatic and approval routes.”
The all-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian rupees.
The modifications will come into immediate effect, the RBI said.