Daily Financial News Analysis – 14th Sep’20 – Free PDF Download


Loan Recast

  • Smarter banks fear that the straightjacket one-time loan restructuring (OTR) framework would kill the exclusive deals they have with borrowers.
  • Many private and foreign lenders have separate arrangements to protect their loan exposures.
  • Sixty per cent of lenders accounting for 75% of the value of outstanding loans have to join hands to invoke a resolution plan (which would involve easier terms to help stressed borrower repay loans)
  • The ICA will have to be signed within 30 days of the invocation of the plan, according to RBI’s September 7 notification based on the Kamath panel’s recommendations on OTR.
  • “If a bank signs the ICA, all special and exclusive rights it has with the borrower will cease to exist. However, if it does not sign the ICA, there is no guarantee that the lead bank and other lenders who constitute the majority will acknowledge these rights and arrangements,” said a senior banker.
  • A related question that crops up is, can a bank (which stays out of the ICA) initiate recovery proceedings when a borrower defaults.
  • Banks which don’t enter into ICA will have to make a higher provisioning on the loans.
  • Some industry bodies are also planning to make a representation to the ministry to provide the unused portion of the government guarantee on bank loans to small businesses to back fresh bank loans to larger companies in sectors which have been worst hit by the pandemic.

Clear MSME dues

  • MSME Ministry has asked the private sector enterprises of the country to take measures for release of payment of MSME dues on priority.
  • During the announcement of AatmaNirbhar Package, it was desired that the MSME receivables and dues should be paid in 45 days.
  • Accordingly, the Ministry of MSME took up the matter with Central Ministries, their Departments and Central Public Sector Enterprises (CPSEs).
  • In addition to writing and following up with them, the Ministry has also devised an online system for reporting.
  • Hundreds of CPSEs have been reporting on this system about the monthly dues and payments since the last four months.
  • Around 10 thousand crore rupees have been reported to have been paid by the Ministries and CPSEs.
  • Similarly, the Ministry has also taken up the issue with States and motivated them to monitor and see that such payments are made expeditiously.
  • Taking the efforts now further deeper, the Ministry has directly taken up the issue with top 500 corporate groups of the country.
  • It has written e-letters to the owners, CMDs or top executives of these five hundred corporates.

Investment from Japan

  • India has reached out to Japanese companies, not yet present in the country, such as Nintendo, Hitachi Metals, Taisho Pharma, Ono Pharma and Mizuno to set up operations here, and urged conglomerates already here to bring verticals currently missing.
  • The Japanese government is offering its companies incentives to shift manufacturing bases out of China either back home or to India or Bangladesh.
  • New Delhi is keen to wean some of them here and is reaching out to them to facilitate their entry.
  • The government has drawn up a list of all the Japanese companies and is reaching out to them.
  • Three categories of companies have been identified as part of the exercise.
  • The first category consists of companies not present in India.
  • The second list is of companies that have just one business vertical in the country while other verticals are in China.
  • The third is of those companies that have manufacturing here but can expand capacity further.
  • Japan has allocated about $221 million subsidy to encourage companies to relocate their manufacturing from China for 2020.
  • Japanese supply chains are currently heavily dependent on China.
  • India has formed a high-level group chaired by cabinet secretary to draw up a phased manufacturing plan and incentive schemes to attract foreign investments in manufacturing of mobile and electronics, medical devices, and pharmaceutical drugs.
  • A national repository of landbank has been set up to provide ready access to availability of land and resources in the country.
  • Japan is the fourth biggest investor in India.
  • Its total cumulative equity foreign direct investment (FDI) into India is nearly $200 billion, 7% of the total flows and more than that from the US and UK.

Automakers Build Inventory

  • Automobile and tractor manufacturers are stepping up production as they build inventory ahead of the main festivals, on hope that the momentum in demand seen since last month would pick up further ahead of Diwali.
  • Companies such as Maruti Suzuki, Hyundai Motor India, Mahindra & Mahindra and Toyota Kirloskar are going full steam ahead on building stock.
  • While the going is good, any reimposition of local lockdowns could affect sales.
  • Passenger vehicle sales rose in healthy double digits on-year in August, which the industry attributed to demand for personal mobility, strong rural buying as well as a base effect as sales were low last year.

Special loans for discoms

  • The loans being offered to state-run electricity distribution companies (discoms) under a special liquidity window may be increased to Rs 1.20 lakh crore from the Rs 90,000 crore announced earlier to cover the additional dues of these entities to power generators for the April-June period.
  • The Centre had announced the scheme to clear the dues owed by discoms to the power generating companies till March, but several states, citing the discoms’ additional stress due to the coronavirus lockdown, wanted a widening of the window.
  • Overdues — receivables pending for more than 60 days — to gencos by discoms stood at Rs 1.16 lakh crore on June-end.
  • By July-end, the figure had increased by another Rs 1,000 crore.
  • As on September 11, Rs 25,000 crore has been disbursed out of Rs 68,000 crore sanctioned under the scheme.
  • Funding to discoms under the Atmanirbhar bharat package would be done in two tranches, both special long-term transition loans of tenures up to 10 years.
  • RK Singh: the late payment surcharge rates on delayed payments have been reduced to 12% from about 18%.
  • Sending a stern message to discoms that refuse to mend their ways and be on a commercially viable path despite several bailout packages, the power ministry has recently told PFC-REC that they need not extend any new credit line to the discoms, after the exhaustion of the liquidity window, only if the latter don’t self-correct.




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