 "RBI mulls swapping debt for equity")
The Reserve Bank of India (RBI) is looking into a provision it introduced in June to help lenders manage stressed assets, Deputy Governor S S Mundra said on Tuesday, arguing it was too soon to write off the debt-for-equity swap tool as a failure. The central bank would soon come out with a methodology to determine the base rate taking into account marginal cost of funds to ensure effective monetary policy transmission, he said.
Strategic debt restructuring (SDR) aims to allow banks to take majority ownership of troubled firms and look for new owners. It allows banks to classify the non-performing assets (NPAs) in question as ‘standard’, rather than bad, during the 18-month process. “They (banks) have been given a window of 18 months. At this point, they are putting SDR in cases which are eligible. I think it's premature to say they (banks) are unable to find buyers,” he said. To date, SDR has been invoked in nine cases but none has yet sold assets or significantly reduced debt.
On the base rate framework, the deputy governor said it was a work in progress and could be expected shortly.
Asked about the March 2017 deadline for cleaning up the balance sheet of banks, Mundra said: "You wait for it. We will come out with all the details in due course of time." He, however, did not elaborate.
Last week, RBI Governor Raghuram Rajan had said steps taken by the central bank and the government should help lenders clean up their balance sheets by March 2017.
The gross NPA of public sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent in March 2015.
“We hope that over the span of the next year, say by March 2017, a full clean-up will have been done by banks, the idea is to put real assets back on track with whatever needs to be done,” Rajan had said. “We are in constant dialogue with banks on a number of issues, including assets on their balance sheets, and we are talking to them about what is being done under the 5:25 scheme... We have given a number of facilities to banks to improve their asset quality.”
Strategic debt restructuring (SDR) aims to allow banks to take majority ownership of troubled firms and look for new owners. It allows banks to classify the non-performing assets (NPAs) in question as ‘standard’, rather than bad, during the 18-month process. “They (banks) have been given a window of 18 months. At this point, they are putting SDR in cases which are eligible. I think it's premature to say they (banks) are unable to find buyers,” he said. To date, SDR has been invoked in nine cases but none has yet sold assets or significantly reduced debt.
On the base rate framework, the deputy governor said it was a work in progress and could be expected shortly.
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The median base lending rates of banks have come down by about 60 basis points as against a 125-basis point policy rate reduction since January. Base rate is the minimum benchmark rate below which a bank cannot lend.
Asked about the March 2017 deadline for cleaning up the balance sheet of banks, Mundra said: "You wait for it. We will come out with all the details in due course of time." He, however, did not elaborate.
Last week, RBI Governor Raghuram Rajan had said steps taken by the central bank and the government should help lenders clean up their balance sheets by March 2017.
The gross NPA of public sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent in March 2015.
“We hope that over the span of the next year, say by March 2017, a full clean-up will have been done by banks, the idea is to put real assets back on track with whatever needs to be done,” Rajan had said. “We are in constant dialogue with banks on a number of issues, including assets on their balance sheets, and we are talking to them about what is being done under the 5:25 scheme... We have given a number of facilities to banks to improve their asset quality.”