WEEKLY FINANCIAL SNIPPETS 16/06/2018

  1. GOVERNMENT PLANS TO FORM A LARGE PUBLIC SECTOR ASSET RECONSTRUCION COMPANY: The government is planning to set up a large Public Sector Asset Reconstruction Company (ARC), sort of a big Bad Bank. The government wants to fast track the resolution of stressed assets in the banking system. This way it can set right the PSBs’ impaired capacity  to ease credit flows,especially to Medium & Small Enterprises. A committee under Sunil Mehta, Non-Executive Chairman of PNB has been asked by the government to appraise on this issue.

 

  1. 90,000 NON-FILERS ON TAX RADAR: More than 90,000 persons who had deposited Rs. 10 lakh or more in their bank accounts during demonetization period are on the radar of Income-Tax department for not filing tax returns by March 31, 2018. Department had served notices to nearly 3 lakh persons who had deposited Rs. 10 lakh or more during the said period and of these nearly 2.1 lakh persons filed their returns by March 31, 2018. The rest will now face action.

 

  1. RESERVE BANK OF INDIA ISSUES GUIDELINES ON LOAN SYSTEM FOR DELIVERY OF BANK CREDIT: The Reserve bank of India has issues guidelines on loan system for delivery of bank credit. According to this, the borrowers who have a total working capital limits of Rs. 150 crores and above should have at least 40% of it as  Term Loan component FROM Ocober1, 2018. The same will be revised to 60% from April 1, 2019. This is a move to instil discipline among large borrowers with working capital limits.

 

  1. GOVERNMENT TO SET UP NBFC FOR FOOD COMPANIES: The government is planning to set up a Non-Banking Finance Company (NBFC) dedicated for funding food processing industry. This NBFC will exclusively fund food processing projects. This would be named as Agro Processing Financial Institute. It will be a lending institution driven by private sector, where government will have a stake. The government will have 20% stake and soon will issue a Request For Proposal (RFP), inviting both private and foreign sector financial firms to hold the residual stake.

 

  1. PSU BANKS’ NPA WRITE-OFFS SURGE TO 140% OVER THEIR LOSSES IN FY-18: Public Sector Banks          (PSBs) have written-off Non-Performing assets (NPAs) worth Rs. 1.2 Trillion, ( Rs 1, 20,000 Crores), an amount that is nearly 1.5 times more than their total losses posted in 2017-18. This is the first time that banks have made huge writ-offs on bad loans. A write-off means the bank has made 100% provision from its earnings against the loss asset and this loss asset (NPA) is no longer a part of bank’s balance sheet.

 

  1. BANKS MAY ASK BIG BORROWERS FOR MORE PROOF BEFORE SANCTIONING LOANS: The government may ask state-run banks to run a re-check on big borrowers with Corporate Affairs Ministry or Registrar of Companies (ROC) before sanctioning high value consortium loans. The idea is to find out if the borrower has any associated shell companies, get a fix on subsidiaries with direct or indirect beneficiaries and to determine whether there are any red flags against the prospective borrower. This follows the fraud and diversion of funds being uncovered at present,where in most of the cases it was found that the loans from banks were diverted to shell companies. State owned banks may also seek such information on their own for smaller value loans if they want a higher degree of comfort.

 

  1. RBI MUST ACT AS AN ALERT INSPECTOR, NOT JUST OFF-SITE SURVEYOR: Reserve Bank of India Union has requested Governor Mr. Urjit Patel to monitor banks through a combination of risk-based supervision, off-site surveillance and on-site inspections of operational systems. In a written letter to the Governor, the union has suggested that the RBI should undertake random supervision of bank branches in all parts of the country periodically, possibly 10% of bank branches comprising all regions on an annual basis which will give the best result.
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