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Waiving Interest on Interest during Moratorium A person has filed a case in Supreme Court that the interest on the interest accrued and applied during the moratorium period 01.03.2020 to 31.08.2020 should be waived by banks, both for term loans and cash credit/overdraft accounts. While banks have every right to apply interest on the interest portion that has already been applied till it is paid off, the burden of interest on interest can be reduced in several ways. On 4th April 2020, I sent my suggestion to RBI as under:  (Quote) " RBI decision advising banks  (i) to extend a moratorium of three months on the equated monthly instalments or the normal monthly instalments in respect of all term loans outstanding as on 1st March 2020 and (ii) to defer the interest due on working capital facilities outstanding as on 1st March 2020 will definitely help every borrower to breathe easy and help him/her/the organisation to make use of this money in meeting other pressin...

  Insolvency Suspension Ordinance     As per the first moratorium given, RBI permitted Lenders to grant a moratorium on payment of Loan repayment instalments falling due between March 1, 2020 and May 31, 2020. But the insolvency suspension ordinance says that one can initiate insolvency proceedings in respect of defaults that occurred prior to March 25, 2020.  So what will happen to instalments that fell due between 1st March & 25th March 2020 but not paid on due dates? Will it be considered default for insolvency proceedings initiation  or will be given the benefit of moratorium by RBI?  Clarity is needed from both RBI and IBBI Regards Viswanathan Retired Banker

OFF-CYCLE REPO RATE AND REGULATORY CHANGES RBI Governor surprised everyone by convening the Monetary Policy Committee (MPC) meeting in advance (originally scheduled for June 3 to 5, 2020) to assess the economic risks arising due to the impact of ongoing COVID-19 pandemic. (i) Affordable lending rates to revive growth, (ii) keep the funds supply chain from the banks hassle free through various liquidity measures and (iii) ease the financial stress through supportive measures had been the hall mark of the RBI approach, ever since the present Governor assumed charge. The announcements were no different this time as well. Salient features: ü Policy Rate reduced by 40 bps and      Effective rates are:  Repo: 4.00%; Reverse Repo: 3.35%; Bank Rate/MSF: 4.25% ü Moratorium on term loan instalments and working capital interest extended upto 31.08.2020 (in effect six month moratorium from 01.03.2020 to 31.08.2020) and ü   Additional liquidity easing ...

WILL THE FINANCIAL STIMULUS REACH NEEDY AND REVIVE ECONOMY? Lot of home work has gone behind Hon'ble Finance Minister’s series of announcements made over five days, each day dedicated to particular sectors.  It really brought out the genuine intentions of the government to reach to the needy and also convert the most challenging moments into opportunities for revival.  There is an on-going debate that much of the Rs.20 lac cr. stimulus has been passed onto financial players like banks and public financial institutions and the impact on the fiscal budget is minimal.  Fiscal Deficit increases when the expenditure is more than the estimates and also when the revenue falls short of the estimates.  In the first quarter, India's GDP is expected to be only 45% of the estimates and consequently there will be a huge shortfall in tax revenues (50% comes from direct taxes).  However, there is no indication that the expenditure will come down by that level as main co...

CRISIL CD RATING OF YES BANK DID NOT REFLECT RISK The general complaint against credit rating agencies in India is that they revise their ratings much after the damage is done to the investors and the other stake holders. CRISIL has recently  (19th March 2020) given a rating of  A2(assigned) to the CD Programme of Rs.20,000 cr. of Yes Bank. A2 (one notch below the best rating) indicates that the instruments have a strong degree of safety and carry low credit risk.  FACTS:   As per the rating rationale made available in public domain, the rating awarded is centrally pinned to the extraordinary support received/likely to be received from the Ministry of Finance, RBI and SBI(now holding 48% equity in yes bank). The report quotes i) Restructuring scheme (scheme)of the bank jointly implemented by the govt and RBI, ii) Overwhelming support received from SBI in raising the equity proposed in the scheme,  iii) Liquidity support promised by RBI and...

CKP CO-OPERATIVE BANK LIQUIDATION CKP co-operative Bank Licence has been cancelled and winding up proceedings have commenced as notified by RBI on 30th April 2020.  So, out of Rs.485 cr deposits as on 31.03.2020, how much money will be refunded to depositors? A small work out is as under: i) Individual Depositors holding deposits upto Rs.5 lacs - Rs.365 cr. ii) No. of depositors holding deposits in excess of Rs.5 lacs - 1120 (As per Mint paper report) iii) Deposits in (ii) protected upto DICGC (1120*5)           - Rs.56 cr iv) Total Deposits not protected by DICGC = 485-(365+56)= Rs.64 cr. As against the above protection given, DICGC has the following right of subrogation over the following: (as per balance sheet as on 31.03.2019)   i) cash and balances with RBI = 25 cr ii) Investments (SLR?)     = 272 cr iii) Loans and Advances = 171 cr iv) Fixed Assets = 34 cr totalling Rs.472 cr.  Excluding ...