RBI to overhaul debt recovery process
BS REPORTER
Mumbai, 15 November
The Reserve Bank of India ( RBI) is to soon announce measures to
ensure fair recovery for bankers and investors, and to punish those
trying to milk the system.
"In the next few weeks, we will announce measures to incentivise early
recognition, better resolution, and fair recovery of distressed loans.
We will focus on putting real assets back to work in their best use,"
said Raghuram Rajan, governor of the central bank, at the annual
banking event, BANCON, here on Friday.
Rajan blamed promoters of companies for taking undue advantage of the
debt restructuring process. " The natural incentive for a promoter to
deal with distress is to hold on to equity and control, despite having
no real equity left, and to stand in the way of all efforts to resolve
the underlying project, while hoping for an ' Act of God' to bail him
out. Not all bankers and promoters succumb to these natural incentives
but too many do," he said.
He didn't spare bankers, either. " The natural, and worst, way for a
bank management with limited tenure to deal with distress is to extend
and pretend to evergreen the loan, hope it recovers by miracle or that
one's successor has to deal with it," Rajan said. He added, while
answering a question from the audience, that the practice of transfer
of top management among public sector banks ( PSBs) could be reviewed.
His comments come when banks face problems on the asset quality front
and PSBs are the worst hit. State- run banks have seen more slippages
in the past couple of years and have restructured more assets than
their private and foreign counterparts. Debt recast by government
banks has also raised questions on whether restructuring was done only
to defer slippage to the non- performing
category. Turn to Page 9 >
SPECIAL COVERAGE ON PAGE 7
Measures in next few weeks to ensure fair recovery of distressed
loans; Rajan keeps market guessing on rate cut
"The natural incentive for
Click: Article continued from…RBI to overhaul debt recovery process
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RBI to overhaul...
Rajan, who has raised policy interest rates twice since taking office
in September, said no single data point would determine RBI's next
move on curtailing high inflation in a weak economy.
Wholesale Price Indexbased inflation hit an eightmonth high of seven
per cent in October, driven by costlier fuel and manufactured goods,
data on Thursday showed, raising the prospect of a further rate
increase.
Rajan said demand needed to be reduced, without having severe effects
on investment and supply. " This is a balancing act, which requires
the Reserve Bank to act firmly so that the economy is disinflating,
even while allowing the weak economy more time than one would normally
allow for it to reach a comfortable level of inflation," he said.
"The weak state of the economy, as well as the good kharif ( summer)
and rabi (winter) harvest, will generate disinflationary forces that
will help. We await data to see how these forces are playing out."
Which is when he added that " no single data point or number will
determine our next move".
While lauding PSBs' efforts to digitise operations, enabling them to
implement core banking solutions, the governor said the lenders must
not rest on their laurels. "In the coming months, we will discuss with
stakeholders in PSBs about what needs to be done to further improve
their stability, efficiency and productivity," he said.
The governor also emphasised the need to deepen financial markets and
introduce new products to help banks de- risk their balance sheet. "
Liquid markets will help banks offload risks they should not bear,
such as interest rate or exchange risk.
These will also allow banks to sell assets that they have no
comparative advantage in holding, such as long- term loans to
completed infrastructure projects, better held by infrastructure
funds, pension funds, and insurance companies." Rajan said liquid
markets would also help promoters raise equity to absorb the risks
that banks otherwise end in absorbing.
In the coming weeks, RBI plans to roll out more recommendations of the
Gandhi committee report to improve the liquidity and depth of the
government securities market. "We will then turn to money markets and
corporate debt markets. We will introduce new variants of interest
rate futures and products like inflationindexed certificates, and work
to improve liquidity in derivative markets," Rajan said.
India Inc asks Sebi to relax new M& A norms
BS REPORTER
Mumbai, 15 November
India Inc has sought relaxation from the Securities and Exchange Board
of India ( Sebi) on the new merger and acquisitions (M& A) norms,
which bar promoters from voting on a scheme of amalgamation.
At the Confederation of Indian Industry ( CII) s national council
meeting on Friday, business leaders asked Sebi Chairman U K Sinha to
reconsider the norms it had introduced in February this year.
These norms had made it mandatory for all listed companies to get any
scheme of arrangement vetted by the securities market regulator. To
successfully pass such resolutions, companies also need the approval
of most minority shareholders, under the new rules.
"The issue of promoters not being allowed to vote on the mergers... it
is a harsh provision… Iurge you to look at it, especially in the case
of whollyowned subsidiaries, where nobodys interest is diluted," Arun
Nanda, director of Mahindra & Mahindra, told the Sebi chief.
Godrej Group Chairman Adi Godrej said, " Being a listed company is
becoming more and more difficult. Certain decisions can be only taken
by minority shareholder; this might impact the companies wanting to
list." Addressing industry concerns, Sinha said the new norms had been
introduced, as there were several cases in which interests of minority
shareholders were being compromised.
"We are not in a position to relook at the norms that prevent
promoters from voting in scheme of arrangements.
Most of the concerns have been taken care of in the second ( M& A)
circular we issued in May. Sebi scrutiny is, anyway, much less in the
case of wholly- owned subsidiaries. However, if there are any further
complaints, Sebi is willing to look at those," he said.
CII members also voiced concern on the growing dominance of foreign
institutional investors ( FIIs), financial savings moving out of
equities and the sharp decline in raising equity capital. " In the
last four- five years, we have seen massive movement of money out of
financial savings into asset classes such as gold and real estate. At
atime when you are seeing an increase in transparency in the financial
market, and rightly so, the rest of the system is less transparent. We
have seen financial savings move into less transparent part of the
economy," said Uday Kotak, chairman, Kotak Mahindra Bank.
"In the 80s, the market was dominated by Indian institutions.
Since the last 10 years, the market is being dominated by FIIs. Even
if you want to raise just ₹ 200 crore, bankers want us to go abroad,"
said Nanda.
Sinha said the regulatory arbitrage would be short- lived, as
everywhere, things were becoming more and more transparent. He added
the markets would deepen if pension money was invested in equities. "
Take the example of any country, including the US. The asset
management industry can develop only when you allow pension money to
be invested in the market. Unfortunately, for a variety of reasons,
pension money is not allowed to come into the market," he said, urging
corporate India to look at investing pension money into equities.
"Up to 15 per cent of EFPO (Employees' Provident Fund Organisation)
money can be invested in the market. But thats not happening. If that
much money would have come into the market, our market would have
provided great counterbalance to FIIs," he said.
Industry voices concern on FII domination, decline in equity fund- raising
Sebi to come out with tighter norms on company disclosures BS REPORTER
Mumbai, 15 November
The Securities and Exchange Board of India (Sebi) was likely to
announce new norms to bring about greater scrutiny of the way
companies adhered to disclosure requirements, said a senior regulatory
official.
The guidelines, which would require stock exchanges to do more to
ensure companies met their obligations to shareholders, were likely to
be announced on Monday, said Sebi Chairman U K Sinha. " We are going
to announce something on Monday… we are getting into the quality of
the filing and in that regard, we have now decided to come out with
detailed guidelines about the quality and adequacy of the
disclosures," he said at the Federation of Indian Chambers of Commerce
and Industry ( Ficci) s Capital Markets Conference here on Friday. "
You will be perhaps shocked to know today, there more than 1,100
listed companies that are non- compliant with the requirement of
clause 35 of the listing agreement… the direction with regard to the
shareholding pattern that must be filed by them," he said.
A listing agreement is a contract between the company and the exchange
on which it is listed. Clause 35 of the listing agreement requires
companies to file their shareholding pattern with the exchange prior
to listing, as well as on a quarterly basis or if there is capital
restructuring, according to information on exchange websites. A number
of companies are non- compliant with disclosures on corporate
governance, which require companies to provide disclosures on various
matters, including related- party transactions and the use of money
raised by the company.
Sebi Chairman U K Sinha ( left) with National Stock Exchange Managing
Director and CEO Chitra Ramakrishna at Ficci's Capital Markets
Conference, in Mumbai on Friday. PHOTO: PTI
Source Business Line
SEBI to unveil stricter corporate disclosure norms
OUR BUREAU
SHARE · COMMENT · PRINT · T+
MUMBAI, NOV. 15:
To improve the quality of the information disclosed by corporates, the
Securities and Exchange Board of India (SEBI) said it will roll out on
Monday detailed guidelines on corporate disclosures.
SEBI PEEVED
The regulator was miffed at companies not disclosing their
shareholding pattern (Clause 35 of the Listing Agreement) and not
submitting their compliance report on corporate governance (Clause
49). SEBI wants strict compliance of the new guidelines. Speaking in
Mumbai at the FICCI Capital Market Conference on Friday, SEBI Chairman
U. K. Sinha said: "Today, there are 1,100 companies which are not
compliant with the requirement of Clause 35 of the shareholding
pattern, which means the direction with regard to the shareholding
pattern has not been complied with.
"Also, there are 900 companies which are not compliant with the
corporate governance norms as per Clause 49. You will accept that this
can't go on like this." SEBI is also reviewing its guidelines on
de-listing of companies besides those relating to preferential
allotment of shares.
SEBI is also talking to its peer regulators in the US and the European
Union to find a solution to the impact of overseas regulations such as
the Foreign Account Tax Compliance Act or FATCA (which requires US
nationals to pay taxes on money earned abroad and also requires
foreign financial institutions to disclose account details of their US
clients to the US tax authorities) on Indian companies
--
CS A Rengarajan
9381011200
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