MUMBAI (Reuters) – The Reserve Bank of India has appealed to the country’s top court to let banks classify loans as nonperforming, saying a ban imposed to help borrowers in the COVID-19 pandemic could greatly harm the nation’s financial system.

FILE PHOTO: A security guard’s reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai, India, June 6, 2019. REUTERS/Francis Mascarenhas/File Photo

The central bank, in a filing to the Supreme Court late on Friday, warned that failure to immediately lift an interim stay on banks classifying any loan as a non-performing asset (NPA) would also undermine the central bank’s regulatory mandate.

The court granted the stay last month, responding to a plea filed by an Indian optician, later joined by a wide range of borrowers whose income or revenue was hit by the COVID-19 pandemic.

The court is set to rule on the matter on Tuesday. The ruling could have far-reaching consequences not only for millions of borrowers, but also for banks and the country, as state-run banks dominate the sector.

To help borrowers weather pandemic-related stress, the RBI has let banks offer a moratorium on loan payments for up to six months and permitted a one-time restructuring of accounts.

The RBI’s measures ensured that accounts that were standard prior to the implementation of the nationwide lockdown in late March, would not be classified as NPAs if the borrowers made use of the moratorium, which allowed repayments to be delayed until the end of August but with the loans continuing to accrue interest.

The central bank’s appeal followed a request by the court for further details from the RBI and government on their plans to help the borrowers.

The RBI responded by detailing the wide range of measures it

People shop at stores in Noida, Uttar Pradesh. 

Photographer: Prashanth Vishwanathan/Bloomberg 

India’s central bank and the federal government have urged the nation’s Supreme Court to reject pleas by borrowers to extend a loan repayment holiday, according to people familiar with the filing.

The Reserve Bank of India and the government filed their written views on Friday following an order by the court, saying the measures announced so far to increase liquidity and lower borrowing costs are having a positive impact on the economy, the people said, asking not to be identified because the filings aren’t public.

A RBI spokesperson didn’t immediately respond to a message seeking comment. Finance Ministry spokesman Rajesh Malhotra declined to comment, saying the matter is under consideration by the court.

Earlier this year, the central bank allowed lenders to freeze loan repayments through Aug. 31 to limit the impact of the coronavirus pandemic on borrowers. It also gave lenders power to restructure certain loans.

The measures announced by the RBI after the pandemic have assured 11.1 trillion rupees ($152 billion) of liquidity, equivalent to 5.5% of gross domestic product, while lower borrowing costs have led to a record 3.2 trillion rupees in primary issuance of corporate bonds between April and August, the central bank said in the filing.

Prime Minister Narendra Modi’s government has also offered additional support by deciding to pay the “interest on interest” on loans of as much as 20 million rupees for the duration of the RBI-authorized repayment holiday. The government said it will seek approval from the cabinet and parliament for the “huge” additional expenditure that will be incurred.

India’s financial system entered the pandemic already weakened by a mountain of bad loans at its banks and a two-year liquidity crisis at so-called shadow banks. Business activity

MUMBAI (Reuters) – The Reserve Bank of India (RBI) left key interest rates unchanged on Friday as widely expected, while keeping policy accommodative to help pull the coronavirus-ravaged economy out of its worst slump in four decades.

FILE PHOTO: A worker walks past the logo of Reserve Bank of India (RBI) inside its office in New Delhi, India July 8, 2019. REUTERS/Anushree Fadnavis

India’s economy has been the worst hit by the pandemic among major countries and new infections continue to climb, but RBI Governor Shaktikanta Das said there were some encouraging signs of a business turnaround and activity could return to growth in the January-March quarter.

As expected, the monetary policy committee (MPC) kept the repo rate, its key lending rate, at 4.0%, while the reverse repo rate or the key borrowing rate stayed at 3.35%.

The RBI has slashed the repo rate by 115 basis points (bps) since late March to cushion the shock from the coronavirus crisis and sweeping lockdowns to check its spread.

The RBI sees India’s real GDP contracting by 9.5% in the current fiscal year, Das said in a webcast after the MPC meeting.

“The MPC is of the view that revival of the economy from an unprecedented COVID-19 pandemic assumes the highest priority in the conduct of monetary policy,” he said.

“The MPC decides to maintain status quo on the policy rate in this meeting and await the easing of inflationary pressures to use the space available for supporting growth further.”

August inflation, at 6.69%, held above the top end of the RBI’s medium-term target range of 2-6% for the fifth consecutive month amid supply disruptions.

“The main reason for inaction today was the stickiness of inflation,” said Shilan Shah, senior India economist at Capital Economics in Singapore.

a machine on the side of a building: RBI-India-Lakshmi Vilas Bank

© Provided by Quartz
RBI-India-Lakshmi Vilas Bank

The unravelling of a 93-year-old small private bank is now threatening to destabilise India’s Rs97 lakh crore ($1,3 trillion) banking system.

On Sept. 25, shareholders of Chennai-based Lakshmi Vilas Bank’s (LVB) ousted managing director and chief executive officer S Sundar along with seven directors on allegations of mismanagement and poor governance. Sundar had been appointed to the bank in January this year.

Even though LVB is a fairly small player in India’s financial sector, analysts believe that the timing of this incident could have an outsized impact on the industry. India’s banking system, which is reeling under a spate of corporate defaults, is facing a fresh wave of bad loans triggered by the Covid-19 slump. Besides, the collapse of Punjab Maharashtra Co-operative (PMC) bank, Yes Bank, and IL&FS had riled the financial system over the last two years.


Load Error

“The Reserve Bank of India has let the situation at Lakshmi Vilas Bank linger for too long. It cannot afford another accident in the financial sector after IL&FS, PMC, and Yes Bank,” said Institutional Investor Advisory Services (IiAS).

The big banking mistake

The implosion at LVB did not happen overnight. In fact, the decay had been setting in for a long time.

The bank was founded in 1926 by a group of businessmen in the southern Indian state of Tamil Nadu with an aim to finance small businesses in the region. With this principle at its core, the bank continued to grow its loan book gradually, posting decent profits and paying a good dividend to its shareholders.

But between 2008 and 2017, it decided to change its unique strategy and copy what large banks were doing.

At the time, India’s leading private lenders such as ICICI Bank and Axis Bank were focusing on

India Central Bank Lauds Government Effort to Rein in Budget Gap

Photographer: T. Narayan/Bloomberg

The Reserve Bank of India said it will offer more support for debt markets in a package of measures meant to control borrowing costs and reassure traders worried about a bond deluge.

Sovereign bonds rallied after the central bank said it would double the size of purchases at open market operations to 200 billion rupees ($2.7 billion). The RBI will also buy state debt, and help companies raise funds by doing targeted long-term repurchase operations worth a trillion rupees.

The latest measures come as stubbornly high inflation kept the central bank from cutting rates even as the economy suffers from Asia’s worst-virus outbreak. In a sign of stress, underwriters have had to pick up four sovereign debt auctions recently after investors demanded higher yields.

“This was a bond market policy today rather than the money policy,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. Governor Shaktikanta Das “has done everything under his control, except cutting rates, to keep interest rates low through the bonds. The bullish sentiment will remain.”

The yield on the benchmark 10-year bond fell six basis points to 5.96%. The rupee gained 0.2% to 73.0650 to a dollar.

“Market participants should be assured that in keeping with the monetary policy stance announced today, the RBI will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special open market operations,” Das said in his speech.

Benchmark yields have largely been steady this month with Prime Minister Narendra Modi’s administration sticking to its 12 trillion rupees borrowing aim for the fiscal year. The second-half borrowing starts Friday with a scheduled 280 billion rupee debt sale.

Source Article