Money & Banking
The missing gap in RBI guidelines on lending limit for large borrowers
The Reserve Bank of India (RBI) on 12 May 2016 released a discussion paper on a proposed ‘Framework for enhancing Credit Supply for Large Borrowers through the Market Mechanism’. The report says that the absence of an overarching ceiling on total bank borrowing by a corporate entity has resulted in banks collectively having very high exposures to some of the large corporates in India. The framework tries to mitigate risk posed by large borrowers to banks. However, there still is a missing gap and lingering concerns about these guidelines.
 
State Bank of India (SBI) in its Ecowrap report says, "A back of the envelope calculation suggests that the normally permitted lending limit (NPLL) of 50% will entail an annual inflow of Rs403 billion in the long term debt markets and Rs194 billion in the commercial paper (CP) market for FY2018."
 
 
The calculations have two important limitations. First, the RBI data is aggregate. Hence, the distribution of the companies is not accounted for. Second, the threshold for a ‘specified borrower’ is reducing over the next two years. This implies that the population under consideration is non-stationary. The combined effect of these is that the estimated flows are at a lower limit and actuals may be higher. This move by RBI may thus increase the size of the Indian corporate bond market by, say, only 1% of GDP from the current 17.8% of GDP and will not achieve the desired objective.
 
"We, thus, believe that this may not be the right way to develop the corporate market in India (there is no comparable rule in other countries restricting bank lending), which is at a nascent stage due to a number of issues and there may be a big funding gap for the infrastructure sector going forward," SBI added.
 
If one, now, looks at the framework for enhancing credit supply to large borrowers to mitigate the single-large borrower risk, the basic premise is to encourage such large borrowers to tap alternative funding. At present, there is no ceiling on total amount that a corporate entity can borrow from banks. Due to this, banks have high exposure to leveraged corporates in the country in sectors like infrastructure, power and steel.
 
According to the report, there are currently 57 rated entities whose total fund based rated limits aggregate Rs41.49 lakh crore. It says, "For the sake of curiosity, though not comparable, if we draw a parallel with total advances of all scheduled commercial banks (ASCBs) of Rs73.24 lakh crore (as on March 2016), these large borrowers account for 57% of total advances. Of the 57 entities, there are 22 entities that are unlisted. These entities are likely to continue to borrow into FY18 and beyond."
 
A standard asset provision of 3% is suggested on incremental exposures of banks in case it exceeds the NPLL. This will be distributed in proportion to each bank’s funded exposure. Banks can subscribe to bonds issued by specified borrowers above NPLL in the first year of framework coming into existence. However, banks will have to reduce its bonds exposure to specified borrowers during the course of next three years. Highly leveraged companies will look to tap money from the market, or may be forced to raise money overseas. If the leveraged corporates are offering bonds to banks, their ratings will take a hit. 
 
But for a meaningful deepening of the corporate bond markets, SBI feels that numerous facilitators will be required to improve the appetite of domestic institutional investors. Under the proposed norms, banks will be penalised for taking any exposure beyond 50%of the incremental requirements of specified borrowers who have significant aggregate fund-based credit limits sanctioned by banks.
 
 
The Ecowrap report says, "In a similar vein, the total requirement of debt financing for infrastructure during the 12th Plan is estimated at Rs22.6 lakh crore. Our estimates show that after funding by private and public sector banks there is already an existing gap of around Rs11 lakh crore. The question is how are we going to fund the infrastructure sector? Alternatively, does the corporate bond market have the requisite appetite? These are unresolved questions as of now, even as we debate the draft guidelines".
 
"The objective of the draft guidelines by RBI is laudable, as there is help to the banking industry in terms of reducing concentration risk. Going forward, this will help the banks to reduce their NPA levels but the issue of increased capital requirement due to higher provision and risk weights would be a big concern for the banking industry as a whole," the report concluded.

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When You Are ‘Dead’, while Still Alive
Dad collapsed at lunch. We were at home and rushed him to hospital. One of Bombay’s best doctors, son of mom’s friend, immediately examined dad, on the lobby floor. ‘Khotto sikko chey,’ he said. A ‘counterfeit coin’. He gave us two days, to make ‘preparations’. Did dad have a Will? No. Was he going to make one? No. Frankly, his love for us was worth more than the billions he could not give. We simply did not care. 
 
Should our family have been worried? A definite ‘Yes’. A big ‘YES’. We have had a lot of seminars at Moneylife, dealing with Wills. The one thing we learn from them is that we cannot foresee everything. We have to do the best we can.
 
Dad, being dad, came home a month later. But we knew better. A wooden nickel. Did we do anything then? No. A month later, we were back in hospital. This time, we knew for sure. The doctor asked us to forego all artificial resuscitation. It may then last for years, he explained. Mom agreed. No suffering.           
 
We kept vigil. Day and night. One night, while I was sleeping on the bench in the corridor, a junior doctor, uninformed, started resuscitation. By then, dad was in a coma. When I awoke, I panicked. Dad was entombed in equipment, cylinders, pipes and meters. I called our doctor. We had agreed on letting him pass silently into the night.
 
You be the judge. What should the doctor have done? He refused to withdraw the tubes. Tantamount to murder, he explained. No matter what, it could not be done.
 
This is where a ‘Living Will’ comes handy. A bit of a misnomer, the Will is not alive. It is a set of instructions drawn up, in case of an emergency, usually a medical situation. Means and methods to be set in motion when the ‘testator’ is not able to care for himself. While a Will ‘speaks from the grave’, a Living Will speaks when the deponent, while still alive, is unable to speak for himself.
 
A Living Will must be carefully drawn up. Think of everything possible. Where is the money to come from? How much is to be spent? Who will have access to it and how is it to be allocated? What of Mediclaim? Will the insurer play ball? Is your doctor in the know and has he been consulted on the medical costs and possibilities of care? Most importantly, does the Will specify, if so desired, that artificial means must not be used under any circumstance? Have you indemnified the person whom you have entrusted to ‘execute’ the Living Will? He could face a lot of flak just by following your instructions. Is there more than one agent to do your bidding? Always wiser to appoint a second line of defence, an arm’s length person. A close relative may be involved in the same accident as the deponent. 
 
Then there are religious rituals that one may need, when close to death. These need be detailed, priests named. If one has donated one’s organs, someone needs to inform the hospital or agency when the end arrives. Eyes, especially, have to be recovered immediately, to gift their sight to others.
 
There is always the possibility that the hospital, fearing legal reprisals, may not follow your instructions. Make sure that the matter is cleared beforehand with the hospital and its lawyers. Maybe leave a copy with the doctors or the hospital management.
 
Above all, consult your lawyer, especially one who understands the special and specific implications. Have you signed the document? The law is silent on the need for witnesses, but it is best to get the attestation done. Take due care. Dad was put off the ventilator when he stabilised. He passed away one night, two months later, peacefully in his sleep. 
 
For those who may want to prepare a Living Will, let us pray that it is never put to use. Also remember, it has no legal sanctity as yet, but it acts as a guide for your loved ones and your doctors on what to do, if you are no longer capable of spelling it out yourself.
 

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COMMENTS

Sunil Rebello

7 months ago

YES.. I understand..the Law is not on our side.
it is only the love of our loved ones who can take decisions for us when we are not capable to do so.
we had 2 cases in the Hospital near by.. a poor patient.. who was admitted late evening - brain dead, after a massive heart attack. the NGO who she was under wrote a letter to the Hospital management, the next morning informing them that she was a person in need and cannot afford to pay any Hospital Bills. FYG she was kept 3 days more on the ventilator and she passed away peacefully. No Doctor or Family could take the decision to take her out of the support system. No Bill yet from the Hospital.
the next case was a high ranking person admitted to the same Hospital in the same situation. He also was kept in the same situation for around 12-15 days. His hands and feet started swelling, but no Doctor or family could take a decision the man passed away and they were hit with a Hospital bill running in Lakhs.
It is a very hard decision but we as family of our near and dear ones should take difficult decision with much empathy and prayer. Looking at the best interest of the patient.
Lastly there was the case of the raped nurse at KEM who was kept under similar situation for 16 years by interested parties. But who to blame?

YOGEESH RAO V

7 months ago

can you give me a draft of a Living Will and how to go about it...

Sunil Rebello

7 months ago

Dear Money Life,
can you give us a draft of a Living Will and how to go about it..
Best Regards

REPLY

Bapoo Malcolm

In Reply to Sunil Rebello 7 months ago

No. That's not possible. Have clearly written that you need to consult a lawyer. The matter is too dicey. The article shows you a possibility, an introduction. We do understand that "everything" is available on the net. And it's FREE ! But as my father-in-law used to say,"Whatever is free is always very expensive". Please think of the possibilities, the permutations and the combinations.

The day this article was published, a newspaper article talked of doctors refusing to acknowledge Living Wills. You may try with a 'draft', yourself; most of the points are given, but, if you fortunately survive, you may face loads of troubles. Litigation, too, maybe.

Even I, who is making his own living will, am facing problems of compliance. Maybe, I could then circulate it. But it can never be copied as each will be so different.

Sorry!

S A Narayan

In Reply to Bapoo Malcolm 7 months ago

Currently in the absence of acceptability of living wills, doctors and hospitals are ever ready to put patients on ventilator or other intrusive and aggressive intervention as long as they are assured that the bills will be paid. People are seeking legitimacy of living wills more to state what they dont want doctors to do just to keep a body alive at any cost. Therefore medical costs etc issues and insurance complications etc for medicare may not arise. I presume that access to money etc during course of treatment and thereafter would be be available to jt./ac holder to discharge obligations of payment.
In anycase thwe maker of the living will must take a few near and close relatives, spouse into confidence and seek commitment to comply at the right time. But the draft bill expressly says that the living will will not be binding on doctors. that must be made to change.

Bapoo Malcolm

7 months ago

Moneylife has been bringing, to its readers, legal topics much ahead of their becoming important. The latest issue talks of the very problem that is in the Times this morning. That of euthanasia. Moneylife readers should take this opportunity to put forward their views on living wills and their mandatory implementation just as normal wills. Will try and get the agency and its address to whom one may write.

REPLY

S A Narayan

In Reply to Bapoo Malcolm 7 months ago

The address is [email protected]
If more and more people submit suggestions re legalising 'living will' govt will have to listen.
The address to send suggestions is [email protected]

Shush! Ringer Restorer
Whenever we enter a meeting or a theatre, we tend to put our phone on silent; at least, all sensible and disciplined people do! But then, such people invariably forget to switch on the volume of their phone when the meeting is over. Shush! is a great help at such times. Once you install the app on your Android device, whenever you mute the volume on your phone, up pops a friendly reminder asking you when would you like to restore the volume to normal—after a few minutes or a couple of hours? Having set the time, you need not worry about the volume of your phone getting back to normal; it will be automatically reset, once the period is over! Of course, if your meeting ends earlier, you can restore the volume to normal, manually. A very handy app for everyday use. https://goo.gl/AeUOgN

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