Financial Awareness for RBI Grade B-27 July 2017
FinMin asks PSBs to work together to hive off consortium loans gone bad (Source: BL)
- If public sector banks have collectively given a company a project loan, which then turns sour, they should not break ranks and sell the loan piecemeal to asset reconstruction companies (ARCs), according to the Finance Ministry.
- Instead, they should sell the ‘consortium loan’ lock, stock and barrel to an ARC or a consortium of ARCs.
- The ministry believes that collectively, public sector banks (PSBs) can realise better pricing on the sale of a project loan given in consortium rather than by doing so singly. A project loan is given by lenders to finance new projects as well as for expansion, diversification and modernisation of existing ones in infrastructure and non-infrastructure sectors.
2. NCLT reserves order on insolvency plea against Essar Steel (Source: BS)
- The National Company Law Tribunal reserved its order for initiating insolvency proceedings against Essar Steel, after hearing the arguments of the two petitioners- State Bank of India (SBI) and Standard Chartered Bank (SCB).
- The tribunal will be announcing the date of pronouncement later this week.
- Essar Steel owes its lenders around Rs 45,000 crore. Out of this, the SBI-led consortium accounts for around 93 per cent of the overall pending amount. Last year in March, around Rs Rs 31,671 crore was declared as a bad loan, which soared to Rs 32,684 crore at the end of March in 2017.
3. Insolvency case: NCLT admits bankruptcy plea against Bhushan Steel (Source: BS)
- The Delhi bench of National Company Law Tribunal (NCLT) admits insolvency petition against Bhushan Steel and Bhushan Power and Steel. While State Bank of India filed a petition against Bhushan Steel, Punjab National Bank filed a petition against Bhushan Power and Steel.
- In total, Bhushan Steel owes about Rs 40,000 crore to at least 20 lenders.
4. Supreme Court allows case settlement after insolvency proceedings begin (Source: MINT)
- Just seven months after the operationalization of the Insolvency and Bankruptcy Code (IBC), it has been tested by the apex court. The Supreme Court on July 24th ruled that a settlement can be considered and a case can be withdrawn after insolvency proceedings have started against a company.
- After the admission of the petition, it acquires the character of the representative suit and through publication in newspapers, other creditors get a right to participate in the insolvency resolution process and therefore IBC does not allow the petition to be dismissed on the basis of a compromise between the operational creditor and corporate debtor.
5. Indian banks most at risk among Southeast Asia peers: Moody’s poll (Source: MINT)
- Indian banks are most at risk in South and Southeast Asia and being under-capitalised, they lack sufficient loan provisioning, says a Moody’s poll.
- It said the government has appeared reluctant to increase capital infusion into PSU banks despite the limited ability of these lenders to access equity markets for the much-needed capital.
6. US Fed holds policy rates steady, says balance sheet unwind to start soon (Source: MINT)
- US Federal Reserve officials said they would begin running off their $4.5 trillion balance sheet “relatively soon” and left their benchmark policy rate unchanged as they assess progress toward their inflation goal.
- The start of balance-sheet normalization—possibly as soon as September—is another policy milestone in an economic recovery now in its ninth year. The Fed bought trillions of dollars of securities to lower long-term borrowing costs after its policy rate was cut to zero in December 2008. The Fed said, “the committee is monitoring inflation developments closely.”
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