Bank Rate

Cash Reserve Ratio (CRR)

RBI vide another circular dated 16.02.2001 has decided to reduce CRR by one half of one percentage point in two stages by 0.25 percentages point each, effective from fortnights beginning February 24 and March 10, 2001.

The reduction in CRR by 0.5 percentage point will augment lendable resources of banks by about Rs.4,100 crore. 

RBI starts corporate debt recast

The Reserve Bank of India has embarked on its largest-ever corporate debt restructuring exercise in consultation with the finance ministry to issue guidelines on loan restructuring by next month after clearance from the board for financial supervision.

Banks and institutions will be allowed to restructure loans within two years of commercial production of any project. This was only one year previously. They will not be required to classify the recast loans as substandard assets.

The impact of the restructuring exercise will be two fold: it will bring down the level of non-performing assets (NPA) of the system by atleast a percentage point, besides bringing down the provisioning requirement on fresh NPAs.

The restructuring exercise will address ground realities-- there are industries which have been facing difficulties because of the opening up of certain sectors and the economic downturn. The restructuring exercise will take care of these industries. 

This will also help corporates to access fresh loans from the system, as the restructured loans will not be classified as a substandard asset anymore.

Under the new proposal, a corporate and a lender will have to enter a fresh loan agreement as part of the restructuring exercise to avoid evergreening.

When put in place, the new norms will also make the BIFR quite superfluous, as companies en route can be revived through this debt restructuring exercise. Corporates which have their net worth wiped out to the extent of 50 percent can be brought under the ambit of this scheme. At present a company goes to the BIFR when its net worth is totally wiped out.

However, even though the assets will turn standard, the banks and financial institutions will not be allowed to write back the earlier provisions and boost the bottomline. They will also be required to follow the income recognition norms on a cash basis.

Finally, if during the period of two years the restructured asset turns sticky again the concerned bank or financial institutions will have to book the loss. 

IDBI stake

The government of India have approved the transfer of 23 crore shares held by the Industrial Development Bank of India (IDBI) in the capital of SIDBI to banks and financial institutions at Rs.30 per share. The government also approved the allocation of shares amongst the institutions and the dates for payment by them to IDBI. 

SIDBI unveils financial package for Gujarat

The Small Industries Development Bank of India (SIDBI) will extend concessions to small scale industry units affected by the Gujarat earthquake. This assistance will be provided through the bank's special relief refinance scheme. The refinance to these units will be through the Gujarat State Financial Corporation and Gujarat Industrial Investment Corporations (GIIC) at a lower rate of 10.5 percent against the existing rate of 12 percent. 

SIDBI will provide additional resource support through its special refinance scheme to GSFC, GIIC and commercial banks. A special refinance limit of Rs.50 crore has been ear-marked to GSFC. Under the scheme, assistance is extended on liberal terms with flexible promoters' contribution and DER with moratorium up to two years. 

SIDBI to set up overseas VCF 

Mr. Nimbalkar emphasised the need for giving a push to the knowledge driven and emerging areas of the economy like information technology, bio-technology, food processing, pharmaceuticals and readymade garments in the post WTO scenario. SIDBI will set up a separate bio-technology fund. The size of the proposed bio-technology fund will be approximately Rs.50 crore and it will be enhanced according to future requirements.

Alongwith a number of challenges, the WTO had opened up tremendous opportunities for small scale industries (SSI) and huge potential for exports therefrom. 

SIDBI to use NGOs as tools for disbursing micro credit

SIDBI has identified non-government organisations (NGOs) as a medium for disbursing loans under the micro credit scheme.

130 NGOs have been identified throughout the country for disbursement of small loans and more than three lakh people have already taken advantage of the scheme. 

Lack of credit is an impediment across the country in the development of SSIs. The problem is more severe in respect of small sized loans where banks are reluctant to lend without collateral security. As NGOs are in close contact with the local community at the grass-root level, providing loans as well as their recovery would be convenient. 

SIDBI launched its micro-credit scheme with an initial corpus of Rs.100 crore for providing soft loans for setting up micro enterprises. The bank provides loans ranging from Rs.2,000 to Rs.10,000. The credit is given through an NGO.

The scheme is specifically targetted at lower strata of society capable of setting up micro enterprises only and has won the coveted `Asian Banking Award, 1999'.

SIDBI identifies 9 sectors for aid in post-QR phase

SIDBI to raise Rs.400-500 crore via placement

SIDBI is planning to raise around Rs.400-500 crore through private placement for augmenting its capital base, CMD SIDBI Shri P.B. Nimbalkar said on 05.02.2001. 

SIDBI is a AAA-rated agency with capital adequacy ratio of 28 per cent and net non-performing assets (NPAs) of only 1.38 percent, lowest among financial institutions.

For the nine months ended December 31, 2001, SIDBI had earned a profit of Rs.338 crore and during the last fiscal, the agency earned a net profit of Rs.459 crore.

SIDBI in its ten years of operations has sanctioned loans worth Rs.55,000 crore and actual disbursements of Rs.40,000 crore. Out of this more than 60 per cent are disbursed as indirect assistance through 889 primary lending agencies and the rest are disbursed directly through various schemes.

SIDBI has also taken several initiatives in helping domestic industries face global competition after the quantitative restrictions are removed. 

SBI, associates to take 26.5% stake in SIDBI at Rs.30 a share

State Bank of India and its associates are likely to pick up around 26.5 per cent of the 51 per cent equity being offloaded by IDBI in Small Industries Development Bank of India at Rs.30 a share. While SBI is expected to hold around 21 per cent equity in SIDBI, its seven subsidiaries would pick up 5.5 per cent equity, official sources said. Bank of Baroda, Canara Bank, Punjab National Bank, Bank of India and 15 other public sector banks will pick up the remaining stake in the proportion ranging from 0.2 - 5.2 per cent, sources said, adding that PSU banks would hold a total two-thirds of the divested shares. LIC is expected to pick up 17.3 per cent equity, GIC 8.7 per cent and NABARD 4.35 per cent, while IIBI and Exim Bank will hold a little over 2 per cent each in SIDBI. 

Gleanings

Sanctions and disbursements of all financial institutions including the SFCs and SIDCs has expanded at a rate of 24.14 per cent per annum and 23.8 per cent per annum respectively during the period between 1970-71 and 1999-2000. In addition, there has been a spurt in the activities of non-banking finance corporations (NBFCs) and mutual funds over the last two decades. Deposits of NBFCs recorded an impressive growth of about 35 per cent per annum from the mid-eighties to the middle of the nineties. In the sixties and seventies, the Unit Trust of India, (UTI) was the only mutual fund. By 1999-2000, as many as 34 mutual funds were operating of which seven mutual funds were set up by public sector banks and financial institutions. Their total resource mobilisation in 1999-2000 was nearly Rs.2,000 crore, with 78 per cent of his having been mobilised by the private sector mutual funds. 

FI disclosure norms tightened

The Reserve Bank of India has revised the disclosure norms for FIs on the lines of those for the banks to be effective after March 31, 2001.

The FIs will be required to disclose their top 20 exposures to business houses in the balance sheets. However, they will have the freedom of not naming the corporates.

They will now be required to disclose movements of non-performing assets (NPAs), liquidity gap, capital adequacy ratio (CAR) among other things in their balance sheets.

The objective is to bring in more transparency in the operations of the institutions.