News Update by CMA H Padmanabhan (29-12-2018)

Update for the Day 29th December 2018

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CORPORATE NEWS

Soon, bank-type asset liability management norms for NBFCs

The Reserve Bank of India plans to usher in new asset liability management (ALM) norms for non-banking finance companies (NBFCs) — similar to the one for banks — to avert asset liability mismatches like the one that led IL&FS to default and cause a liquidity squeeze.

“The recent experience of debt default of a systemically important NBFC highlighted the vulnerability and need for strengthening regulatory vigil, on the sector in general and on asset liability management (ALM) framework in particular,” the RBI said in its ‘Trend and Progress’ report released on Friday.

Over 1 lakh companies deregistered this fiscal: Govt

Names of more than 1 lakh companies have been struck off the official records in the current fiscal for not carrying business activities for a long time, the government said Friday.

As part of clamping down on illicit fund flows, the Corporate Affairs Ministry has been taking action against entities that are suspected to be shell companies.

Under the Companies Act, 2013, a company can be deregistered if it has not been carrying out any business for two continuous years and has also not applied for obtaining dormant status.

Minister of State for Corporate Affairs P P Chaudhary informed the Lok Sabha that 2.26 lakh companies were struck off from the Register of Companies as on December 31, 2017.

SEBI expands OFS framework to all companies with Rs 1,000 crore and above m-cap

Capital markets regulator Sebi Friday expanded its offer for sale (OFS) framework to all the companies with market capitalisation of Rs 1,000 crore and above.

Currently, the OFS framework is available to top 200 companies by market capitalisation.

Also, if the seller fails to get sufficient demand from non-retail investors at or above the floor price on the first day of offer, then the seller may choose to cancel the offer post bidding, in full (both retail and non-retail), on the first day itself and not proceed with the offer to retail investors on the second day.

“OFS mechanism shall be available to companies with market capitalisation of Rs 1,000 crore and above, with the threshold of market capitalisation computed as the average daily market capitalization for six months period prior to the month in which the OFS opens,” the Securities and Exchange Board of India (SEBI) said in a circular.

The mechanism has been successfully used to divest stake by promoters and large shareholders.

The move comes after the board of Sebi approved a proposal in this regard earlier this month.

SEBI announces measures to protect investors in an event of credit default

Fund managers handling debt schemes whose portfolio gets segregated because of a blundered investment call, will have to forgo a portion of their annual bonus, while mutual funds will not be able to charge fees for managing the separated part of the product. These, among a raft of measures on segregation of debt portfolio, were announced by Securities and Exchange Board of India on Friday to protect investors in these products in the event of a credit default that led to erosion of scheme returns.

The capital market regulator said the move to penalize the fund manager is to deter the fund houses from misusing this facility.




IBC NEWS

Strengthen NCLT infra to speed up resolutions: RBI

The Reserve Bank of India has called for strengthening the National Company Law Tribunal(NCLT) infrastructure to ensure time bound resolution of stressed assets of the banking sector. Better resolution will also depend on the future of loan repayment culture, it said

In its ` Trends and Progress in Banking for 2017-18’ released on Friday, in view of the large number of cases that may be referred to the NCLT in near future, there may be a case for strengthening the NCLT infrastructure in order to ensure that it can deliver on its promise of time-bound resolution”

The Insolvency and Bankruptcy Code (IBC) has been witnessing a growing number of applications from creditors which is not only challenging the existing infrastructure of the NCLT but also seriously impacting the completion of the resolution process within the stipulated timelines, ratings firm Icra said in a recent note. The number of corporate debtors admitted by the NCLT but are yet to be resolved through the corporate insolvency resolution process increased to 816 as on September 30, 2018 from 723 as on June 30, 2018, despite the quarter having the highest closure of cases seen so far at 123, it said.

IBC: India Inc’s sudden and gradual road to freedom 

The Insolvency and Bankruptcy Code (IBC), which turned two this month, remains a work in progress despite creditors getting record recoveries and a rise of never-before opportunities to exit and buy businesses in India.

To explain IBC’s birth, Insolvency and Bankruptcy Board of India (IBBI) Chairperson M.S. Sahoo last week recalled a dialogue in a novel by Ernest Hemingway — ‘How did you go bankrupt?’ and the response is ‘Gradually and then suddenly’.
This was to illustrate the fact that the insolvency reform was in the works since 1992 but was suddenly made operational from December 1, 2016 with no prior experience of a regime that should be proactive, incentive-compliant, market-led and time-bound.

While the insolvency reform was ‘gradual and then sudden’, IBC, which in Finance Minister Arun Jaitley’s words was hurriedly put in place due to necessity because every other solution had effectively failed, will achieve its objective gradually.

RBI has called for better NCLT infratsructure for time bound resolution of stressed assets

The Reserve Bank of India has called for strengthening the National Company Law Tribunal(NCLT) infrastructure to ensure time bound resolution of stressed assets of the banking sector. Better resolution will also depend on the future of loan repayment culture, it said

In its ` Trends and Progress in Banking for 2017-18’ released on Friday, in view of the large number of cases that may be referred to the NCLT in near future, there may be a case for strengthening the NCLT infrastructure in order to ensure that it can deliver on its promise of time-bound resolution”




MSME NEWS

Parliamentary panel for classifying MSMEs according to annual turnover

A parliamentary panel has suggested to classify micro, small and medium enterprises (MSMEs) according to their annual turnovers instead of investments in plant and machinery.

“Taking into consideration the views of majority of the stakeholders and the arguments put forth by the MSME ministry, the committee feels that instead of the current classification based on investment in plant and machinery/equipment, the MSMEs could be classified based on their annual turnover,” the department-related parliamentary standing committee on industry said in its report.

It was tabled in the Lok Sabha Friday.

The ministry has also proposed similar way to classify MSMEs in the MSMEs Development (Amendment) Bill, 2018.

The report said that with the proposed change in the classification, it is more likely that a large number of enterprises would come under the ministry.

“The committee, therefore, desires that the ministry may make all-out efforts to obtain increased budget allocation for the sector,” it added.

Over 1.12 lakh MSME loan applications approved under ’59 minutes’ scheme

Public sector banks have approved more than 1.12 lakh loan applications of MSMEs totalling Rs 37,412 crore under the ’59 minutes’ loan scheme launched by the government in November. GST-registered micro, small and medium enterprises (MSMEs) can take loan up to Rs 1 crore in just 59 minutes through ‘psbloansin59minutes.com’ portal.

Giving details about the progress of the scheme, Minister of State for Finance Shiv Pratap Shukla in a written reply to the Lok Sabha said that as on December 25, out of over 1.31 lakh applications, the state-owned banks have accorded in-principal approval to 1.12 lakh applicants.

He further said that sanctions have been made in respect of 40,669 cases totalling Rs 14,088.32 crore. Shukla further said the government and the Reserve Bank have taken several steps to ensure access of credit to MSME sector.

Kerala government to invite startups for upto Rs 1 crore IT projects

Kerala government has given sanction to its departments and autonomous institutions to invite start-ups registered under the Kerala Startup Mission (KSUM) in implementation of their IT projects that cost upto Rs 1 crore.

As per the government order, the state departments, boards, local self-government institutions, corporations and universities etc can rope in startups through limited tender for design, development and implementation of their IT projects costing above Rs 20 lakh and below Rs 1 crore.

The decision comes close on the heels of Kerala receiving the honour of top performer in the annual states’ startup ranking 2018, held in New Delhi recently. A total of 27 states and three union territories had participated in the ranking exercise.




OTHER NEWS

RBI says banks under PCA report slower NPA growth in FY18

The 11 public sector banks that are under the prompt corrective action (PCA) framework have shown lower growth in gross non-performing assets as against non-PCA banks, the Reserve Bank said in a report Friday.

Of the 21 state-owned banks, as many as 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders. These 11 banks constitute a fifth of the system-wide credit and deposits.

These are Allahabad Bank, United Bank, Corporation Bank, IDBI Bank, Uco Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The PCA banks have also increased recoveries, while containing the growth in advances and deposits, reducing riskiness of assets and focusing on better rated assets.

“The PCA banks have also shown lower growth in GNPAs, relative to non-PCA state-run lenders,” the report on the ‘Trends & Progress of Banking in 2017-18’, said.

The report said various restrictions on PCA banks have resulted in reining in their operating expenses as well.
Some of these banks have made efforts to identify and sell their non-core assets. However, asset quality and capital position have experienced deterioration.

RBI to ensure sustainable growth of NBFCs with adequate credit

In spite of the previlaing concerns around non-bank lenders due to defaults by industry major IL&FS, the Reserve Bank Friday said it will ensure that growth in the shadow-banking sector is sustained and liquidity fears are eased.

The NBFC sector is liquidity crisis after a series of defaults by Infrastructure Leasing & Financial Services (IL&FS) and its many subsidiaries since late August.

“While in 2018-19, though concerns surrounding the sector due to debt defaults amidst temporary asset liability mismatches arose, the inherent strength of the NBFC sector, coupled with the RBI’s continuing vigil on the regulatory and supervisory front, will ensure that the growth of the sector is sustained and liquidity fears are allayed,” RBI said in its annual report on ‘Trends & Progress of Banking in 2017-18’, released Friday.

Small online sellers doubt impact of revised ecommerce FDI policy

Small sellers on e-commerce platforms are sceptical about whether the updated FDI norms on ecommerce will address their grievances, alleging that large marketplace operators tend to find loopholes to get around restrictions, as they have done earlier.

Even with strict rules aimed at protecting small sellers, there is no mechanism for redressal or penalties if marketplaces do not adhere to the norms, they said.

“There is some amount of anxiety about whether the policy will be implemented properly or not,” said Adil Saleem, managing director of Cart2India, a Bengaluru-based online seller of electronics and accessories.

Sellers point out that the earlier rules, as prescribed in Press Note 3, also had safeguards for them. However, the rules failed to bring about a level playing field because they were not implemented properly. They alleged that marketplaces were able to arm-twist them.

Banks can continue liquidity support to NBFCs until March

The Reserve Bank of India (RBI) has extended to end-March the relaxation offered to banks for providing liquidity support to NBFCs. This facility was initially available up to end-December

“In order to further facilitate banks to lend to NBFCs and HFCs, it has been decided to extend the aforesaid facilities up to March 31,” the RBI said late Friday.

It had allowed banks to use government securities equal to their outstanding credit to non-bank lenders- NBFCs and home financiers – over and above their outstanding credit to them as on October 19, to be used to meet liquidity coverage ratio (LCR) requirements.

LCR pertains to highly liquid assets that banks and financial institutions hold to meet their short-term obligations.

RBI backs higher capital norms, need for prompt corrective action

The Reserve Bank of India has backed its policy of asking banks to maintain capital ratios that exceed global norms, one of several areas of disagreement with the government that had led to the exit of Urjit Patel as governor. It also upheld the prompt corrective action (PCA) framework for weak banks, which was another point of contention.

The central bank said the Indian banking system has a high proportion of nonperforming assets (NPAs) that aren’t provided for in relation to capital levels.

“The case for a recalibration of risk-weights or minimum capital requirements would need to be carefully assessed—frontloading of regulatory relaxations before the structural reforms fully set in and conclusive evidence on sustained improvement in CDRs (cumulative default rates) and LGDs (loss given defaults) is observed—could be detrimental to the interests of the economy,” RBI said in the Report on Trend and Progress of Banking in India for FY18 that was published Friday

RBI to set up compliance portal to track cyber fraud 

The Reserve Bank of India (RBI) would set up a compliance and tracking system portal to tackle the proliferation of cyber-fraud and seeks to establish a better redressal mechanism for consumers. With digital transactions gaining traction, RBI’s customer-protection measures are seen as a bid to promote and improve confidence in the digital channel. This will support the government’s objective of creating a ‘less-cash’ economy.

“The Reserve Bank is actively engaged in improving customer service in banks by addressing existing inadequacies and the need to benchmark it against international standards in order to instil timeliness and quality by harnessing technological developments and appropriate incentives to facilitate change,” the apex bank said in its Report on Trends and Progress.

Thank You 🤝

CMA H Padmanabhan