Latest Bank merger news of PSU banks and PSU Insurance Company

 


A government document shared on social media has triggered speculation about possible PSU bank mergers between Union Bank and UCO Bank, and Bank of India and Bank of Maharashtra. The document, whose source couldn't be verified, said that a Parliamentary committee will hold discussions with four PSU banks in the first week of January under banking laws, which govern mergers and acquisitions, among other things.

However, the government has not yet provided official information regarding the merger. Neither of the four PSU banks mentioned have made any stock exchange filings in this regard.


The document being circulated on X (formerly Twitter) is a government PDF issued in the name of Ramesh Yadav, Under Secretary of the Government of India. The letter is issued to the Governor, Reserve Bank of India, Chairman of LIC, IRDAI, and NABARD, along with MD and CEOs of UCO Bank, Bank of Maharashtra, Bank of India, and Union Bank of India.

The PDF is also addressed to CMDs of New India Assurance Company, United India Insurance Company, Oriental Insurance Company, National Insurance Company, and MD & CEO of SBI Life Insurance Company. The subject of the alleged government PDF states 'Study Visit programme of the Committee on Subordinate Legislation, Lok Sabha to Mumbai and Goa from 2 to 6 January 2024'.

The 2-day programme includes informal discussions with the representatives of Union Bank of India and UCO Bank on January 2, and with representatives of Bank of Maharashtra and Bank of India on January 4, 2024, on rules/regulations framed under Banking Regulations Act 1949 and other relevant Acts as applicable to them and the regulatory mechanism in post-merger scenario.

The Finance Ministry has reportedly issued a clarification, saying that this is a parliamentary committee on subordinate legislation, and it has no connection whatsoever with the policies of bank mergers, according to CNBC-Awaaz. Amid the merger buzz, the ministry reportedly changed the agenda of its meeting. According to the new agenda, there is no mention of the word “Merger”, which simply means that there is no proposal for a merger between Union Bank of India and UCO Bank, Bank of India, and Bank of Maharashtra, said CNBC Awaaz in its report.

Meanwhile, No proposal to merge the public sector banks is being considered by the government and the discussions were part of a ‘routine exercise, Reuters also reported citing two sources from the Ministry of Finance.










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Latest Bipartite Settlement News - Finmin asks IBA to finalise wage revision of bankers of PSU banks by December 1


The government has asked the Indian Banks' Association (IBA) to initiate the process of negotiations for the 12th Bi-partite settlement in a time-bound manner and to finalise it by December 1, 2023, said a senior official.


The wage revision for employees and officers of the public sector banks is due from November 1, 2022.


The early wage revision would help improve working conditions and incentivise the banking sector employees, the official said.


Further, the official said, the finance ministry has asked IBA to ensure that all future wage negotiations should be finalised before the beginning of the subsequent period so that the wage revision could be implemented from the due date itself.


As a part of the settlement, the IBA is expected to engage in dialogues with the employees' Unions/ Associations and work out to arrive at a mutually agreeable wage settlement.


The government has stressed the importance of fairness and equity in the revision, ensuring that the compensation structure remains competitive with other players in the banking industry, the official said.


"Wage settlement for banks has always been a tedious and time-consuming process with bank managements, represented by IBA, and employees' unions engaging in tough negotiations. Historically, delays of 2-3 years in wage settlement have led to a substantial accumulation of arrears, which are eventually disbursed in a lump-sum.


"This contrasts with the more sustainable approach of integrating the revised wages into the regular monthly salaries," said the official.


Highlighting that the banking sector is the backbone of the Indian economy, the official said it is incumbent upon the management of banks to ensure that employees are adequately compensated and it is necessary for the health and stability of the entire economy as well.


It also comes at a time when the financials of the Public Sector Banks are healthy with the net profits almost tripled to Rs 1.04 lakh crore in FY'23 as compared to Rs Rs 36,270 crore earned in FY'14.


At the same time, the Return on Assets (ROA) in PSBs rose from 0.51 per cent in FY'14 to 0.78 per cent, while Net Interest Margin (NIM) has also increased from 2.73 per cent to 3.23 per cent in FY'23.


Wage settlement talks normally benefit employees of public sector banks, old generation private banks and some foreign banks.


In the previous agreement, 12 state-owned banks, 10 old-generation private sector banks and seven foreign banks signed up. New-generation private banks like HDFC Bank and ICICI Bank are not part of these settlement talks.


The last 11th Bipartite Wage Negotiations concluded after three years of negotiations in 2020 agreed for 15 per cent pay revision for PSBs employees.


Almost 3.79 lakh officers and close to 5 lakh bank employees of PSBs, old-generation private banks and foreign were covered under the wage hike due from November 1, 2017.


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FM Nirmala Sitharaman to meet chiefs of PSU Banks today; here's what's on agenda

 


Finance minister Niramala Sitharaman on 25 March will meet managing directors of public sector banks (PSBs) in order to review performance against the backdrop of the failure of a few banks in the US and the liquidity crisis faced by Credit Suisse.

Sources told news agency PTI that the meeting is going to take stock of the progress made by banks in achieving targets set for the various government schemes including: Kisan Credit Card (KCC), Stand-Up India, Pradhan Mantri Mudra Yojana (PMMY), emergency credit line guarantee scheme (ECLGS) to help businesses affected by COVID-19.

This will be the first full review meeting after the presentation of Union Budget 2023-24 on 1 February. The banks would also be asked to focus on the areas highlighted by the Budget, including credit flow to productive sectors.

Sources further added that the finance minister will review financial inclusion, credit growth, asset quality, and capital raising and business growth plan of banks for the next financial year. Discussion will also be held on non-performing assets (NPAs) of ₹100 crore and the recovery status.

This meeting comes against the backdrop of global concern over the failure of banks due to aggressive monetary tightening.

The US Fed on Wednesday hiked interest rates by 25 basis points to tame high inflation despite the banking crisis. To fight the persistent hot inflation, the Fed has so far increased rates from zero to 4.75 to 5 per cent, all in just one year.

Taking a cue, both, the Bank of England and the European Central Bank (ECB) have also raised their benchmark interest rates.

Meanwhile, policymakers and experts have said that the Indian banking system is in good shape and can handle the situation caused due to monetary tightening.

Various reforms undertaken by the government have resulted in significant improvement in the asset quality of public sector banks, with the gross NPA ratio declining from the peak of 14.6 per cent in March 2018 to 5.53 per cent in December 2022.

All PSBs are in profit with an aggregate profit of ₹66,543 crore in 2021-22, and that further increased to ₹70,167 crore in the first nine months of the current financial year.

At the same time, resilience has increased with the provision coverage ratio of PSBs rising from 46 per cent to 89.9 per cent in December 2022. The capital adequacy ratio of PSBs improved significantly from 11.5 per cent in March 2015 to 14.5 per cent in December 2022.

The total market capitalisation of PSBs (excluding IDBI Bank, which was categorised as a private sector bank in January 2019) increased from ₹4.52 lakh crore in March 2018 to ₹10.63 lakh crore in December 2022, he said.

The government implemented a comprehensive 4R strategy of Recognising NPAs transparently, Resolution and recovery, Recapitalising PSBs, and Reforms in the financial ecosystem.

Major banking reforms undertaken by the government over the last eight years ensured credit discipline, responsible lending and improved governance, besides the adoption of technology, amalgamation of banks, and maintaining general confidence of bankers.

Yesterday, the Lok Sabha passed the Finance Bill, 2023 with some amendments. Union Finance Minister Nirmala Sitharaman tabled ‘The Finance Bill, 2023’ in the lower house amid sloganeering by Opposition MPs demanding a JPC inquiry into the Adani Group issue. She introduced 64 official amendments to the Finance Bill which was tabled in Parliament on February 1 along with the Budget proposals. 


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IDBI Bank Privatisation: Govt Likely to Invite EoIs in July-End After Discussions with RBI


The central government has been mulling the privatisation of IDBI Bank for quite some time now, and has kept the lender in its list of companies for divestment. The Department of Investment and Public Asset Management (DIPAM) is currently holding roadshows in the US for the sale of the bank, which is set to be another important landmark in reaching India’s divestment targets. The actual quantum of government stake sale at the IDBI Bank will be known once the roadshow is over, the Centre had said earlier in April.


Currently, the government is in the process of holding roadshows in the US, an official was quoted by PTI as saying, on June 10, Friday. After a few more such investor meets, it will finalise the contours of the IDBI Bank stake sale, the official added.


“We may need one more round of discussion with RBI on IDBI strategic sale. The expression of interest (EoI) may be invited by July-end," the official said. It was earlier confirmed by sources that the government may invite EoIs in May for selling its stake in IDBI Bank and expects to complete the disinvestment process in the current financial year 2022-23.


The official said while the quantum of stake dilution of both the government and LIC is yet to be decided, the management control in IDBI Bank will be transferred in the strategic sale.


DIPAM secretary Tuhin Kanta Pandey had in April also said that the EoIs will be invited once the meetings with investors were over. “The quantum of exit will be known post roadshow and then the structure of Expression of Interest will be finalised. One thing is very sure that management control will be passed on. Currently, it is with LIC. But, management control at what level of equity will have to be decided when we have decided the structure of EoI,” Pandey had said in Delhi during an event on LIC IPO roadshow.


The government holds 45.48 per cent stake in the bank, while LIC owns 49.24 per cent. Necessary amendments to the IDBI Bank Act have already been made through the Finance Act 2021, and transaction advisors have been appointed.


The Cabinet Committee on Economic Affairs had given in-principle approval for strategic disinvestment and transfer of management control in IDBI Bank in May last year. “CCEA has given an in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd”, a government had statement said.


In January 2019, IDBI Bank became a subsidiary of LIC, following the acquisition of additional 8,27,590,885 equity shares. In December 2020, IDBI Bank was classified as an associate company due to the reduction of LIC shareholding to 49.24 per cent. The IDBI Bank privatisation efforts come during a time when the government has put off similar plans for Bharat Petroleum.

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Bank privatisation not in one go, govt may retain at least 26% in 2 PSBs


The government may not fully exit from the two state-run banks that are to be privatised and instead retain at least a 26% stake for the first few years. A senior official said the extent of the stake sale will depend on interest from investors and market conditions.


The government will introduce a bill in the winter session of parliament to make the changes needed before privatising the two banks. The Central Bank of India and Indian Overseas Bank have reportedly been shortlisted by Niti Aayog for disposal. However, a final decision is yet to be taken.


"The upcoming bill will clear decks for regulatory approvals required for privatisation of two PSBs (public sector banks) but we may like to retain some stake and dilute it at a later stage," the official said, reasoning that the government may like to cash in on the upside in valuation after the stake sale.


Banking on Better Valuation

A similar strategy is being pursued in the case of state-run BEML (formerly Bharat Earth Movers Ltd), where the government is divesting 26% equity along with management control of the Bengaluru-based company. The government has a 54.03% stake in the company. "The required changes in the (banking) laws have been vetted by the law ministry. We will soon take it to the cabinet so that it can be taken up by parliament," said the official cited above.


The Banking Laws Amendment Bill, 2021, will make changes to the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 and 1980, and incidental amendments to the Banking Regulation Act, 1949.


"In case of IDBI Bank as well we have said that the extent of respective shareholding to be divested will be decided at the time of structuring of transaction in consultation with the Reserve Bank of India," said another official aware of developments. IDBI Bank is also on the government's asset-sale list.


He said parallel consultations are on with the banking regulator, the Reserve Bank of India (RBI), for relaxations in ownership and management criteria. These are aimed at allowing the banks being divested to make room for a wider pool of bidders such as non-banking finance companies (NBFCs) that are owned by corporate groups.


Finance minister Nirmala Sitharaman had announced the privatisation of two state-run banks as part of the government's disinvestment programme in her February budget speech. "Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22," she had said.


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Govt to amend banking laws to facilitate privatisation of two PSU banks


To facilitate privatisation of two public sector banks (PSBs), the government is all set to introduce a banking laws amendment bill in the upcoming Winter Session starting Monday. Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 earlier this year had announced the privatisation of PSBs as part of disinvestment drive to garner Rs 1.75 lakh crore.


The Banking Laws (Amendment) Bill, 2021, to be introduced during the session is expected to bring down the minimum government holding in the PSBs from 51 per cent to 26 per cent, sources said.


However, sources said a final call in this respect would be taken by the Union Cabinet when it would vet the proposed legislation.


“To effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two Public Sector Banks,” according to the list of legislative business for the Winter Session.


These Acts led to the nationalisation of banks in two phases and provisions of these laws have to be changed for the privatisation of banks, sources said.


In the last concluded session, Parliament passed a bill to allow privatisation of state-run general insurance companies.


The General Insurance Business (Nationalisation) Amendment Bill, 2021, removed the requirement of the central government to hold at least 51 per cent of the equity capital in a specified insurer.


The Act, which came into force in 1972, provided for the acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers in order to serve better the needs of the economy by securing the development of general insurance business.


Government think-tank NITI Aayog has already suggested two banks and one insurance company to Core Group of Secretaries on Disinvestment for privatisation.


According to sources, Central Bank of India and Indian Overseas Bank are likely candidates for the privatisation.

As per the process, the Core Group of Secretaries, headed by the Cabinet Secretary, will send its recommendation to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.


The members of the Core Group of Secretaries include economic affairs secretary, revenue secretary, expenditure secretary, corporate affairs secretary, legal affairs secretary, Department of Public Enterprises secretary, Department of Investment and Public Asset Management (DIPAM) secretary and an administrative department secretary.

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IDBI Bank disinvestment: Govt approves 100% stake sale by Centre, LIC


The government has approved the sale of its entire stake, and that of the Life Insurance Corporation of India (LIC), in IDBI bank.


On July 9, the Department of Investment and Public Asset Management (DIPAM) said the Cabinet Committee of Economic Affairs (CCEA) has given its go-ahead to the government and the LIC to offload 100 percent of their entire stakes in IDBI Bank, along with a transfer of management.


At present, IDBI Bank is classified as a private sector bank by the RBI with the government's shareholding at 45.5 percent, LIC's shareholding at 49.24 percent and the non-promoter shareholding at 5.29 percent.


However, DIPAM has said that the exact quantum of stake to be sold will be decided based on a number of factors. "It will be determined, as we go through the transaction, and ascertain investor's interest," it said.


The Department has also clarified that since LIC's stake will be sold alongside the government's shareholding in this transaction, there will be only one transaction advisor.


the Centre's plans to offload atleast 26 percent of its stake. It had also reported that the entire stake may be sold.


DIPAM, in the RFPs issued, had said that the bids by interested investment banks, financial institutions, consulting firms and law firms should be submitted by July 13.


Responding to the queries raised by bidders on the RFP, Dipam has said the broad quantum of primary infusion expected in the bank, and the timeframe for such infusion has not yet been decided. It has also clarified that consortium bids are not allowed.


LIC completed the acquisition of controlling stake in IDBI Bank in January 2019 making it the majority shareholder of the bank. Subsequent to the enhancement of equity stake by LIC, the RBI clarified that IDBI Bank stands re-categorised as a private sector bank.


The Cabinet Committee on Economic Affairs had cleared the 'strategic divestment' of IDBI in early May. LIC will reduce its shareholding in IDBI Bank in parallel with the central government, and with an intent to relinquish management control.


For 2021-22, the Centre has set itself a divestment target of Rs 1.75 lakh crore, on the back of the planned privatisation of Air India, Bharat Petroleum, Shipping Corp, Concor, two state-owned banks (yet to be decided) and the initial public offering of LIC Ltd.

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Government mulls bank merger before privatisation

 


The government will look into the balance sheet of banks in the first quarter of next financial year and may consider merger of two public sector banks, before going ahead with privatisation. According to sources in the Finance Ministry, the government has not yet shortlisted any bank so far and it would be done only after examining the balance sheet.

“Lots of names are floating but we have not shortlisted anything yet. It will be decided after taking into account performance of the Q4 (Jan- March 2021) and Q1 of FY22 ( April to June 2021) after consultation with the RBI. If required, the PSBs can be merged before privatisation,” a senior official with the finance ministry told TNIE. 

The finance minister, in her budget speech, had announced that two state-run banks will be privatised in the next fiscal. “Other than IDBI Bank, we propose to take up the privatisation of two public-sector banks and one General Insurance company in the year 2021-22,” Nirmala Sitharaman had said.  Other banks including Bank of India as well as Punjab and Sind Bank were also doing the rounds in various media reports.  However, the official added that it may not be the “weakest” bank which will go for privatisation.

“The decision will be taken on the basis of unlocking the valuation and not on which is the weakest Bank. It is a more complex process. A lot of factors may go into the decision making and also on the appetite of the investor,” the official argued. On the timeline, the official ruled out the process would be initiated in the first half of the next financial year.

“There are many legal processes which need to be followed to facilitate privatisation and it requires certain amendments. All these will take some time,” the official said. The government is likely to bring amendments to two legislations later this year. Finance ministry sources said that amendments would be 

required in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 to facilitate the privatisation.


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Government is considering mid-sized to small banks for its first round of privatisation.


Government has shortlisted four mid-sized state-run banks for privatization, under a new push to sell state assets and shore up government revenues, three government sources said.


Privatisation of the banking sector, which is dominated by state-run behemoths with hundreds of thousands of employees, is politically risky because it could put jobs at risk but Prime Minister Narendra Modi's administration aims to make a start with second-tier banks.


The four banks on the shortlist are Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India, two officials told Reuters on condition of anonymity as the matter is not yet public.


Two of those banks will be selected for sale in the 2021/2022 financial year which begins in April, the officials said. The shortlist has not previously been reported.


The government is considering mid-sized to small banks for its first round of privatisation to test the waters. In the coming years it could also look at some of the country's bigger banks, the officials said.


The government, however, will continue to hold a majority stake in India's largest lender State Bank of India, which is seen as a 'strategic bank' for implementing initiatives such as expanding rural credit.


A finance ministry spokesman declined to comment on the matter.


India's deepest economic contraction on record caused by the pandemic is driving the push for bolder reforms, economists say.


Government also wants to overhaul a banking sector reeling under a heavy load of non-performing assets, which are likely to rise further once banks are allowed to categorise loans that soured during the pandemic as bad.


PM Modi's office initially wanted four banks to be put up for sale in the coming fiscal year, but officials have advised caution fearing resistance from unions representing the employees.

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DFS has approved the 11th Bipartite Wage Settlement, Arrears will be paid this month only

Ministry of Finance, Department of Financial Services had approved the 11th Bipartite Wage Settlement and give the Non Objection on behalf of the Government to Public Sector Banks to make arrears and revised salary payment to existing employees. 

They have also provided the NOC for paying enhanced pension or family pension as per the 11th BPS settlement terms.


The Arrears and revised salary will be paid from the month of December 2020.


A mixed response from the bankers as they waited for long 3 years for this. The hike given to them was not appreciating i.e. 15%, if compare with the risk and work pressure.


The signed NOC by DFS to IBA :



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Cabinet approves RBI's proposal to merge Lakshmi Vilas Bank with DBS Bank, all branches to function as DBS Bank, says RBI


Union Cabinet on Wednesday approved the merger of capital-starved Lakshmi Vilas Bank (LVB) with DBS Bank India. The Reserve Bank of India on 17 November proposed the merger of the 94-year-old lender with the Indian arm of Singapore’s DBS Bank. As part of the amalgamation, DBIL will infuse fresh capital of Rs.2,500 crore into LVB.

The central bank on 17 November placed Lakshmi Vilas Bank under one-month moratorium, superseded its board and capped withdrawals at Rs.25,000 per depositor. "With the merger, there will no further restrictions on the depositors regarding the withdrawal of their deposit," Union minister Prakash Javadekar said.


Analysts and global credit rating agencies have applauded RBI's move and said that it will benefit both parties. "The quick action taken by the RBI in the Laxmi Vilas Bank matter affirms the faith of the depositors in the banking system," Ajay Shaw, Partner, DSK Legal.


"LVB merger with another bank is a very prudent step in order to save the depositors and to mitigate the systematic disruption associated with it. The image of government and regulator gets enhanced by such timely action and response," said S Ravi, former chairman of Bombay Stock Exchange (BSE) and Managing Partner of Ravi Rajan & Co.


DBS was the first foreign bank to receive a banking licence after the central bank allowed foreign banks to set up a wholly owned subsidiary in 2014. "With DBS likely to use digital capabilities to enhance its physical footprint in India, the proposed deal could lead to a 30-40% increase in Indian assets of DBS," said JPMorgan analysts Harsh Wardhan Modi and Saurabh Kumar.


The regulator had put LVB under Prompt Corrective Action in September 2019. The lender earlier reported widening of its net loss at Rs.397 crore in the second quarter ended September 2020 due to rise in bad loans and provisions. On 25 September, the shareholders of the bank had voted out seven members from the board, including the then MD and CEO S Sundar. The RBI on 27 September appointed the CoD composed of three independent directors Meeta Makhan, Shakti Sinha, and Satish Kumar Kalra, being headed by Meeta Makhan.


Moody’s said the merger will strengthen DBS’s business position in India by adding new retail and small and medium-sized customers.

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Govt may sell stake in IDBI Bank in FY21 but no decision yet on other banks

The government intends to go ahead with its proposed stake sale in IDBI Bank in the current fiscal and there is no decision as yet on privatising more banks, a finance ministry source said on Saturday.

The statement comes amid growing speculations about the government privatising more banks, including Uco Bank, Punjab & Sind Bank and Bank of Maharashtra, following reported recommendations by Niti Aayog.

The central bank also reportedly made a pitch for the government to pare down its stake in certain state-run banks to 26%.

The government held a 47.11% stake in IDBI Bank as of June 2020, while LIC is the promoter of the bad loan-laden lender with a 51% stake. The Centre has set a disinvestment target of Rs 2.1 lakh crore for the current fiscal. Of this, Rs 1.2 lakh crore will come from divestment of public sector undertakings.

The rest Rs 90,000 crore is expected to come from stake sale in financial institutions like LIC and IDBI Bank.

The centre will also come out with a list of strategic sectors soon. If banks feature in that, there could be scope for further amalgation or privatisation of state-run banks. “However, it will all depend on which sectors are finally part of the strategic sector list. The Cabinet will soon take a call on this issue,” said the source. Similarly, no final decision has been made yet on the quantum of the government’s stake dilution in insurance behemoth LIC, added the source.

Once a sector is declared strategic, a maximum of four state-run companies will be allowed in it, the government recently announced. Already, thanks to a series of amalgamations in recent years to create a few lenders with much stronger balance sheets, the number of state-run banks has been reduced from 27 in 2017 to just 12 now.

Despite the enormous challenges posed by the Covid-19 outbreak, the government is working on completing the stake sale process of about 23 public sector companies, divestment in which has already been cleared by the Cabinet, finance minister Nirmala Sitharaman said earlier this week.
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Moratorium extension of 3 months by RBI has two sides; the second one is ugly for banks


Governor Das had announced a three-month moratorium for all term loan repayments between March 1 and May 31 at his last address in April.

The loan moratorium will be extended till August 31, says RBI governor Shaktikanta Das. This makes it a six-month moratorium. He added that the lending institutions are being permitted to restore the margins for working capital to the origin level by March 31, 2021.

"The surprise move by the RBI to reduce repo rate to 4 percent from 4.4 percent followed by an extension of the loan moratorium by another three months is a welcome step and can provide solace to the ailing economy whereby EMI burden for the borrowers would be somewhat lowered and would also allow them to defer EMI payments by another three months. For corporate borrowers too, the increase in group exposure limit of banks to 30 percent from 25 percent will bring some relief," said Rajesh Agarwal, Head of Research at Aum Capital.

"The fall in bold yield after the announcement is positive news, the committee's decision to continue with its accommodative stance is further good news but the point remains that even after so much of liquidity, the banks are reluctant to take additional risk and that has resulted in a muted credit growth," he added.

"RBI, which has been proactive in recent times, has risen to the occasion by advancing the policy meet to cut policy rates by 40bp. Also, the unequivocal statement that monetary policy will continue to be accommodative till growth revives sends positive signals. The fact that the central bank has refrained from giving a GDP growth figure is a reflection of the complexity in giving projections with the present growth models," said VK Vijayakumar- Chief Investment Strategist at Geojit Financial Services.

"Extension of the moratorium announced earlier by another 3 months is a relief. A takeaway from the policy announcement is that the stress in the banking sector will continue," he added.


For banks, the extension of moratorium by another three months has two sides. A clear picture on the asset quality of the lenders will now emerge only by March 2021, instead of September 2020. There is a risk of the moral hazard issue creeping in, as borrowers who have the ability to pay, may even opt for moratorium. And for MFIs and NBFCs catering to the bottom-of-the-pyramid customers, the risk of repayment behaviour getting disturbed is higher.

On the positive side, the moratorium extension gives more time to customers (professionals, small businesses, MSMEs and corporates) for recovery in earnings/repayment capacity in an easing lockdown scenario. Thus, the probability of them slipping buckets after the end of moratorium on August 31 diminishes, and therefore the NPL spike for lenders could be lower than what is anticipated now.

The moratorium extension also gives time to lenders to strengthen their collection infrastructure for retail products as restrictions on physical collection/follow-up eases out and collection agencies would have had their migrant workforce back.

For working capital facilities, interest payment has been deferred by another three months, in line with extension of moratorium on terms loans. The accumulated interest for the deferment period can be covered into a funded interest term loan payable be end of the current fiscal. Thus borrowers need not pay accumulated interest in one shot immediately after the deferment period, which is a big relief for them.

While the RBI governor Shaktikanta Das announced that the three-month term loan moratorium has been extended till August 31, it is to be noted that individual banks have the right to take a decision on whether this will be allowed for all borrowers. It is only an enabling provision and not a mandate.

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Bad bank may start with Rs 60K-crore NPAs; govt may put in Rs 10K crore


Banks are likely to move big-ticket bad loans amounting to over Rs 60,000 crore to an asset reconstruction company (ARC), which will focus on turning around non-performing assets (NPAs) and enhancing value. Banks are likely to transfer more stressed assets going forward.

The government could invest up to 50 per cent of the capital in the “bad bank” with a contribution of about Rs 9,000-10,000 crore, said sources.The ARC is expected to take up both old and new cases, bankers said.

Banking lobby group Indian Banks’ Association (IBA) is expected to take the proposal, which is on the lines of the Sashakt panel recommendations, to the finance ministry this week.


The panel had recommended that large bad loans could be resolved under an ARC. The IBA plan envisages setting up of three entities — an ARC, an asset management company (AMC), and an alternative investment fund (AIF) to acquire bad loans from banks with an aim to turn around those assets.

The ARC will acquire and aggregate the asset, the AMC will manage the assets — including takeover of management or restructuring of assets, and the AIF will raise funds and invest into securities floated by the ARC.

The proposed ARC will have to be backed by the government. A similar arrangement was done in the case of IDBI Bank where a stressed assets management fund was created, bankers added. The coronavirus pandemic is expected to result in a rise in NPAs of banks despite steps like allowing a 90-day moratorium on retail loans and relaxing working capital financing norms.

In July 2018 a committee headed by Sunil Mehta, now chairman of YES Bank, had come out with a report on resolution of stressed assets (dubbed as Sashakt panel). It recommended the formation of an independent ARC to acquire bad loans predominantly from public sector banks. The large assets with exposure above Rs 500 crore with potential for turnaround were to be managed by an AMC, while the AIF would raise funds and invest in the securities of the ARC.


The groundwork for forming such a vehicle has been done, keeping in mind the regulatory environment and conditions in financial sector. This would help to reduce response time.
According to a CARE Ratings analysis, gross non-performing assets of commercial banks declined to Rs 9 trillion in December 2019 from Rs 9.7 trillion in December 2018. Public sector banks continued to have the lion’s share (Rs 7.2 trillion in December 2019) of the total NPA pool.

State Bank of India Chairman Rajnish Kumar had said last week this is the right time for a structure along the lines of a bad bank as most banks are holding very high levels of provisioning of NPAs.

Banks have been making hefty provisions for bad loans after asset quality review kicked in 2015-16. As a consequence, the provision coverage ratio of banks has also seen an improvement from 65 per cent in December 2018 to 71.6 per cent in December 2019, reflecting an improvement in the financial health of scheduled commercial banks.

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Role of Bankers in 20 lakh crore package of Government



For MSME
1.     Collateral Free Automatic Loan for MSME.
2.     Those MSME having Loan up to 25crore and turnover up to 100crore will be covered in this scheme. 100% Central Government Guaranteed will help 40 Lac Units.
3.     This loan will be for 4 yrs with a moratorium of 12 Months.
4.     45 Lakh MSME Units will get benefit from It. Total 3 Lakh Crore Loan will be Given under this scheme.
5.     20000Crore will be infused as Subordinate Debt for stressed MSME. Two Lakh SME will get benefit from this.
6.     Government will provide 4000 crore to CGTSME Trust.
7.     Rs 50000crore will be infused as equity to standard MSME. Will help them to expand their capacities.
8.      Definition of MSME changed. Investment Limit which defines a SME is changed. Now Turnover croreiteria is also introduced. Difference between manufacturing and service SME is removed. Micro Units- Investment limit increased to 1 crore from 20 lakh and Turnover can be up to 5 crore. Other changes are also done. For Medium Enterprise the limit increased to 10 crore Investment and turnover 50 crore, 20 crore and 100 crore.
9.     Tenders up to 200Crore relating to Government procurement will not be Global Tenders any more. MSME will get benefit out of it.
10.  E-Market Linkage will be Provided to all MSME due to less possibility of Trade fares. All Central Government outstanding will be cleared within 45 Days by Government help of all MSME.
·            For EPF
1.   EPF Payment was paid by Government for Mar, April and May now extended by another 3 months. 12%+12% will be paid by Government of India.
2.   Contribution reduced from 12% to 10% for those organization having more than 100 employee is done now.
·         For NBFC, MFI, HFC
1.   Special 30000 crore liquidity window will be given. Government will buy debt papers of these institutions even if investment grade. These will be fully guaranteed by government of India.
2.   To Give 45000 crore liquidity will be given to NBFC. First 20% loss will be born by Government of India. Even unrated papers will be get money under this scheme.

·         Discom :- Discom not able to pay the power generation Companies. 90000 crore Special fund created to pay all outstanding of Power Generation Companies. PFC and REC will give this money.
·         Contractors :- 6 Month extension will be given to all Government contractors of Railways, Roads, Other departments. Government Agencies will partially release Bank Guarantees to the extent of work completed. A Big Step.
·         Real estate :- Covid19 can be treated as act of God. Using the Force Major Clause the project registration will be extended by 6 Month automatically. Completion dates of existing projects to be extended automatically by 6 Months by Government authorities.
·         Tax Related :-
1.   Non Salaried TDS and TCS rates will be reduced by 25% from existing rates. This will be effective from tomorrow and will remain till 31-03-2021.
2.    All Pending Refunds will be issued immediately to all even above 5 Lakhs. For AY 2020-21 the ITR Dates extended to 30th Nov 2020, And Tax Audit Date extended to 31st October 2020.


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AIBEA Supports For Government Undertaking of 'Yes Bank', Demands Accountability of RBI

All India Bank Employees' Association (AIBEA) on Saturday said the Reserve Bank must be held accountable and the government should start taking all the private sector banks under its fold.

"At the same time, in order to protect the interest of the depositors and bank's clients, Yes Bank should be immediately brought under the public sector. One by one private banks, which are being glorified by the government, are failing. It is high time that the government should take a call and repeat 1969 - all the private banks should be brought under public sector," said C H Venkatachalam, General Secretary, AIBEA.

"The fact that Yes Bank has been ailing with various problems including issues of divergence, non-disclosures, mounting bad loans, inadequate capital, inability to augment capital, etc.

"But the RBI took its own sweet time and after a lot of damage, it has announced the moratorium creating panic amongst the depositors."

The bank union said the RBI, being the regulator, cannot be unaware of the ongoing in Yes Bank.

"If today, the bank has to be closed down due to mismanagement, the RBI cannot extricate itself from the responsibility. Every time, the RBI is failing to take timely steps to prevent such bank debacles. Same thing was observed during United Western Bank and Global Trust Bank," Venketachalam said.

The AIBEA said there were repeated audit reports which pointed out glaring lapses and yet the RBI did no act. Same thing has happened now.

"The government must make RBI answerable and accountable. It is strange that the RBI is putting various banks under Prompt Corrective Action - PCA restrictions. In fact, we feel that the government should bring the RBI under PCA norms," he added.


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