KV Kamath To Head RBI Committee on Setting Parameters for Loan Restructuring
The Reserve Bank of India (RBI) has decided to set up a committee under KV Kamath for looking into one-time restructuring of loans and financial parameters needed to be factored into resolution plans. RBI says the move has been announced in a bid to provide relief to stressed companies which have not been able to repay loans due to cash-flow issues amid the pandemic, and it will issue final notification in this regard after considering the Kamath committee recommendations.
 
In his video address, RBI governor Shaktikanta Das says, "The Reserve Bank is constituting an Expert Committee (chairman: KV Kamath), which shall make recommendations to the RBI on the required financial parameters, along with the sector specific benchmark ranges for such parameters, to be factored into resolution plans. The expert committee will also undertake a process validation of resolution plans for borrowal accounts above a specified threshold."
 
Mr Kamath is former chairman of BRICS Bank and ICICI Bank. 
 
The panel led by Mr Kamath has members like Diwakar Gupta, vice president of Asian Development Bank and TN Manoharan, chairman of Canara Bank, Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services LLP as strategy advisor and Indian Banks' Association (IBA)'s chief executive, who would act as member-secretary.

Mr Gupta would join the panel from 1 September 2020 after completing his term at ADB. Mr Manoharan will be on the panel from 14 August 2020, after completion of his term as Canara Bank's chairman.

At present, Sunil Mehta, former managing director (MD) and CEO of Punjab National Bank (PNB) is the chief of IBA.
 
RBI says, the economic fallout on account of the COVID-19 pandemic has led to significant financial stress for a number of borrowers across the board.
 
"The resultant stress can potentially impact the long-term viability of a large number of firms, otherwise having a good track record under the existing promoters, due to their debt burden becoming disproportionate, relative to their cash flow generation abilities. Such wide spread impact could impair the entire recovery process, posing significant financial stability risks," it added.
 
Considering this situation, Mr Das, the RBI governor says, "with the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, it has been decided to provide a window under the prudential framework to enable the lenders to implement a resolution plan in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as standard subject to specified conditions. Such conditions are considered necessary to ensure that the facility of this resolution window is available only to the COVID-19 related stressed assets. Besides, the crucial aspect of maintaining financial stability has also been suitably factored in."
 
As per RBI, necessary safeguards are being incorporated, including prudent entry norms, clearly defined boundary conditions, specific binding covenants, independent validation and strict post-implementation performance monitoring. 
 
It says, "Given the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, the framework will not be available for exposures to financial sector entities as well as central and state governments, local government bodies (e.g. municipal corporations) and anybody corporate established by an act of Parliament or state legislature."
 
Here are the key features of the resolution framework for exposures other than personal loans:
 
1. Only those borrower accounts shall be eligible for resolution under this framework which were classified as standard, but not in default for more than 30 days with any lending institution as on 1 March 2020. Further, the accounts should continue to remain standard till the date of invocation. All other accounts, as hitherto, may be considered for resolution under the 7th June Prudential Framework, or the relevant instructions as applicable to specific category of lending institutions where the Prudential Framework is not applicable.
 
2. The resolution plan may be invoked anytime till 31 December 2020 and will have to be implemented within 180 days from the date of invocation.
 
3. Lenders shall have to keep additional provisions of 10% on the post-resolution debt.
 
4. In order to enforce collective action, specific voting thresholds are being prescribed even for invocation of the resolution plan; and those lending institutions not signing the inter-creditor agreement (ICA) within 30 days from the date of invocation shall attract higher provisions of 20.
 
5. Post-implementation, the asset classification of the account shall be retained as standard, or if the account had slipped into NPA after invocation but before implementation, the asset classification shall be restored upon implementation.
 
6. RBI is constituting an expert committee (chairman:  KV Kamath) which shall make recommendations to the RBI on the required financial parameters, along with the sector-specific benchmark ranges for such parameters, to be factored into each resolution plans. The final notification in this regard shall be issued by RBI after considering the recommendations.
 
7. The expert committee shall also undertake a process validation of resolution plans for accounts above a specified threshold.
 
8. The lending institutions may allow extension of the residual tenor of the loan, with or without payment moratorium, by a period not more than two years.
 
9. Wherever the resolution plans involve conversion of a portion of debt into equity and other debt instruments, the debt instruments with terms similar to the loan shall be counted as part of the post-resolution debt, whereas the portion converted into other non-equity instruments shall be fully written down.
 
10. In respect of accounts involving consortium or multiple banking arrangements, all receipts by the borrower; all repayments by the borrower to the lending institutions; as well as all additional disbursements, if any, to the borrower by the lending institutions as part of the resolution plan, shall be routed through an escrow account maintained with one of the lending institutions.
 
For personal loans, RBI says a separate framework is being prescribed and the resolution plan for personal loans under this framework may be invoked till 31 December 2020 and will be implemented within 90 days thereafter. 
 
"The lending institutions are, however, encouraged to strive for early invocation in eligible cases. The timelines for implementation of resolution plan in case of personal loans are assessed to be adequate since, unlike larger corporate exposures, there will not be any requirement for third party validation by the expert committee, or by credit rating agencies, or need for ICA. The contours of the plan may be decided based on the board approved policies of the lenders subject to extension of the residual tenor of the loan, with or without payment moratorium, by a period not more than two years," it added.
 
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    COMMENTS

    s5rwav

    2 months ago

    RBI Not Need Any Committee of Outsiders like Mr KV Kamath. Cabinet Secretary to Govt of India Must Stop it. Fast.

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMDg4NDg0MDQxNzE5ODU0MzA1NjgBQnBPX1gtbUhDZ0FKATAuMQEBdjI&authuser=0

    s5rwav

    2 months ago

    RBI Not Need Any Committee. Ample Experienced Officers are Available at RBI. RBI Governor is Competent Authority to Stop Sale of Dwelling House by the Banks to Recover their Dues. I am Babubhai Vaghela from Ahmedabad. Thanks.

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMTQzNDM1OTcwNjA1NzczMzc5MzMBdGRBOUFycDVDZ0FKATAuMQEBdjI&authuser=0

    s5rwav

    2 months ago

    No Need for Any Committee by RBI. Let RBI Governor and RBI Officers Frame the Policy. Mr KV Kamath cannot be in Any Committee of India.

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMTcxNTQ5MjgzMTIzMDczNzkxNjUBc1FqSlVDTldDZ0FKATAuMQEBdjI&authuser=0

    REPLY

    Sanjiv.shanbhag

    In Reply to s5rwav 2 months ago

    As a Regulator, RBI has vicarious responsibility and accountability. Do not use other's shoulders to put gun. Outsiders cannot guide for adopting best practices and to achieve good governance.

    Ramesh Popat

    2 months ago

    A compulsion.... forever!

    s5rwav

    2 months ago

    Mr KV Kamath and Mrs Chanda Kochhar Headed ICICI Bank Facing Criminal Case No CR EN 219 of 2019 at Mirzapur Court at Ahmedabad for Filing Bogus Court Case RCS 445 of 2013 by the ICICI Bank Limited against me in Vadodara Civil Court and illegally Stopping me
    - Bank Investor - from Attending the Bank AGM of 2013. Judicial Order, on Affidavit Dated 9 December 2019 Filed by the Complainant, with the Magistrate of Mirzapur Court Ahmedabad, is Awaited. Mr KV Kamath cannot be Made to Head Any Committee in India. I am Babubhai Vaghela from Ahmedabad the Complainant in Criminal Complaint Case in Ahmedabad. Thanks.

    REPLY

    s5rwav

    In Reply to s5rwav 2 months ago

    In Criminal Complaint Case No CR EN 219 of 2019 against Mr KV Kamath and Mrs Chanda Kochhar and then Board of Directors of ICICI Bank Limited, Mr #HTPunjabi the Magistrate of Mirzapur Court at Ahmedabad to Pronounce the Judicial Order on Affidavit on Jurisdiction Issue Filed by the Complainant Babubhai Vaghela on 9th December 2019. I am Babubhai Vaghela from Ahmedabad. Thanks..... https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMDAwNTE4NjE5NzY0Njk4NDExODEBY0gyVjRBN0hBd0FKATAuMwEBdjI&authuser=0

    Sanjiv.shanbhag

    2 months ago

    Common citizens are thrusted and harassed with bank's requirements / compliances running into pages, influencial bigwigs ( individuals and non individual entities) are by and large intentionally left exposed to non recovery / short recovery of loans granted. Depositing Passport with bank should be made mandatory beyond specified loan thresh hold limit.

    Reverse Labour Migration To Lead to Multiple Headwinds for Manufacturing Sector: Report
    The recent surge in coronavirus (COVID-19) positive cases and subsequent lock-down imposed by various states are preventing the return of migrant labourers to their workplace, though such measures are necessary to control the outbreak. Though the labour shortage could accelerate the automation process wherever feasible, the near-term challenges in the form of low capacity utilisations, higher production cost and hence margin contraction are likely to impact the companies facing labour shortage due to reverse migration, says a research note.
     
    In the report, India Ratings and Research (Ind-Ra) says, "A prolonged disruption will even dampen migrant labourers’ sentiments. The manufacturing sector will be at the forefront of the disruption particularly micro, small & medium enterprises (MSMEs) in Maharashtra and Delhi." 
     
    The report delves into the impact of labour shortage across various sectors in the top-5 migrants receiving states, namely, Maharashtra, Delhi, Haryana, West Bengal and Gujarat. Ind-Ra has analysed the overall vulnerability of the states based on high-to-low inter-state migrant dependency in the manufacturing sector. 
     
    According to the ratings agency, manufacturing units in Delhi and Haryana are more susceptible to the reverse labour migration than those based in Maharashtra and Gujarat. The states of Delhi and Haryana are classified as highly vulnerable with their respective migrant dependency ratio (MDR) at 93.52 and 51.74, respectively, whereas Maharashtra and Gujarat are classified as moderately vulnerable with their MDRs at 29.19 and 17.12, respectively, it added. 
     
    Ind-Ra estimate shows the manufacturing sector employing close to 6 million inter-state migrant workers. Hence, it says, across different states the manufacturing sector is exposed to a higher risk with MDR at 12.86 due to labour shortages driven by pandemic. 
     
    On the other hand, the construction sector with MDR 3.72 is more dependent on the intra-state labour; hence, any operational disruption would be limited, as intra-state movement of people has been gradually relaxed, it added. 
     
    However, the ratings agency says it believes that due to the dented demand in the real estate sector, project execution could be stalled and delayed, affecting the employability of intra-state labourers. "Similarly, in case of the manufacturing sector, the unavailability of skilled labour, which have moved back to their respective states, has led to significant pressure on the output, leading to underutilised capacity. In fact, some micro, small & medium enterprises (MSEs) witnessing some demand recovery from exports are operationally challenged due to the labour shortage," it says. 
     
    In such a case, Ind-Ra says it believes that manufacturing cost is likely to increase, led by either loss of economies of scale or higher wages of workers, as demand exceeds supply. Hence, the margins for such companies could come under pressure in second quarter (Q2) of FY20-21, if not passed on to end-users. 
     
     
    According to the ratings agency, agriculture to also likely to face the challenge due to labour migration. Interestingly, it says, "Bihar which is considered to be the labour provider to the country may face labour shortage in agriculture. Agriculture contributes around 22.2% to the economic growth of the state and it employs 600,000 migrant labourers in agriculture.
     
    "Furthermore, the state employs total of 8.5 million migrant labourers from the neighbouring states. The overall impact of reverse migration on agriculture in Bihar will depend on the portability of the workers who have returned from different states to Bihar in the agricultural sector."
     
    Due to the concentration of manufacturing base in a few states, the ratings agency assessed the impact on its rated large corporates with manufacturing plants in the top-5 in-migrant states namely Maharashtra, Delhi, Haryana, West Bengal and Gujarat. These states have been classified high to low on the basis of migrant dependence for manufacturing. 
     
    Ind-Ra says, "Out of the total 198 manufacturing issuers rated A- or above, 53% have their manufacturing exposures in the top five in-migrant states. The issuers with manufacturing facility in multiple states are better hedged than the issuers with single location manufacturing facility. 36 IND A- and above rated issuers have their manufacturing facilities concentrated in only one of the top five in-migrant states, thereby, they are considered more vulnerable than the other 67 issuers with exposure in multiple states."
     
    "Additionally, the impact on revenue and cash flows of the issuers with multiple manufacturing facilities is highly contingent upon the percentage revenue share from the states with high MDR, and thus, could face headwinds in the near term due to a higher production cost than the less impacted corporates; this could significantly impact their profits in short term," Ind-Ra concludes.
     
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    SEBI Chairman Ajay Tyagi Gets 18 Month Extension till February 2022
    Ajay Tyagi, the chairman of Securities and Exchange Board of India (SEBI) has been granted an extension for next 18 months. Earlier, in February this year, he was given six months extension. 
     
    A notification issued by the secretariat of the appointments committee of the Cabinet, says, "(the) committee has approved the extension of term of appointments of Ajay Tyagi as chairman, EBI for a further period of 18 months from 1 September 2020 up to 28 February 2022 or until further orders, whichever is earlier."
     
     
    With Mr Tyagi receiving an extension for 18 months, he would have the third-longest tenure at the helm of SEBI. Two long serving chiefs of the market regulators are: DR Mehta, who was SEBI chairman during 21 February 1995 to 20 February 2002, followed by UK Sinha from 18 February 2011 to 1 March 2017.
     
    Earlier in February this year, the government has extended the tenure of Mr Tyagi by six months till August end. A gazette notification issued by the finance ministry in end-February had said: “…the central government hereby extends the term of appointment… for a period of six months beyond 29 February 2020 or until further orders, whichever is earlier.” 
     
    On 1 March 2017, Mr Tyagi assumed charge as SEBI chairman. Prior to this, he was additional secretary in the department of economic affairs under Union ministry of finance, handling portfolios of capital market division, investment division, infrastructure division and currency and coinage division.
     
    Interestingly, Mr Tyagi was initially appointed for a five-year term, which was suddenly reduced to three years. Eventually, with this decision, he will be serving a five-year term. 
     
    A decision to give SEBI chairmen a five-year term was made during CB Bhave’s tenure and has been the subject of a great deal of controversy, as has been described in former chairman UK Sinha’s recently released book on his years at SEBI.  
     
    Mr Sinha too had the second longest term at SEBI with multiple extensions. DR Mehta’s controversial seven-year term, which ended after the Ketan Parekh scam, is the longest that any chairman has served. 
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    COMMENTS

    amootha

    2 months ago

    when will sebi come out with a gudielines for banks on violations observed under sec 4 1 and 2 of the listing obligations and disclosure regulations

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