BQ: RBI Eases Norms On ‘End-Use’ Of Funds Raised Through External Borrowings

30 July 2019: The Reserve Bank of India, on Tuesday, eased guidelines around the end-use of funds raised through external commercial borrowings, giving corporations and non-bank lenders greater leeway in using overseas borrowings.

The easing of rules comes at a time when the domestic banking system remains cautious on lending, particularly to sectors which have thrown up a high proportion of bad loans. A section of non-bank lenders, too, are struggling to raise funds from banks and the bond markets.

To beat the funding constraints, the RBI has allowed ECBs to be used for working capital and general corporate purposes. It also allowed repayment of rupee loans using ECBs, including in cases where an account is stressed or has turned non-performing.

“Based on the feedback from stakeholders and with a view to further liberalise the ECB framework, it has been decided, in consultation with the Government of India, to relax the end-use restrictions,” the RBI said in a circular on Tuesday.

The move will enable Indian corporates to avail of offshore funds and ensure repayment of domestic lenders, Leena Chacko, partner at Cyril Amarchand Mangaldas, said, adding that the ECB regulations have been considerably liberalised. “Corporates can avail of ECBs for repayment of rupee loans which have been classified as NPA or SMA-2 for one-time settlement arrangement with the lenders,” Chacko said. “Lender banks are also permitted to assign SMA-2 and NPA loans to ECB lenders. NBFCs can also avail ECB and on-lend for general corporate purposes and working capital requirements subject to the conditions specified in the regulations.”

According to Moin Ladha, partner at Khaitan & Co., this will improve access to capital for Indian companies and in some situation be advantageous both from a borrower and lender perspective.

As per the new rules:

ECBs with a minimum maturity of 10 years can be used for working capital and general corporate purposes.

In the case of NBFCs, ECBs of minimum 10-year maturity can be used for on-lending.

ECBs of minimum maturity of seven years can be used to repay rupee loans for capital expenditure.

For repayment of rupee loans availed domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years.

Corporates can also avail ECBs for repayment of capital expenditure in manufacturing and infrastructure classified as SMA-2 or NPA under any one-time settlement with lenders. SMA-2 loans are those that are overdue by 60 days while loans overdue by more than 90 days are classified as NPAs.

Domestic banks can also sell loans to eligible ECB lenders, provided that provisions such as the ‘all-in-cost’ ceiling is not breached.

The Bloomberg Quint reported

MC: NCLAT agrees to hear pleas of IL&FS auditors against impleadment

30 July 2019: The National Company Law Appellate Tribunal (NCLAT) has said it would hear the pleas of auditors of IL&FS — Deloitte Haskins & Sells LLP and B S R Associates LLP — against an order passed by NCLT to implead them in the ongoing case of oppression and mismanagement of the scam-hit firm. The case will be heard on August 19.

A two-member bench of the NCLAT has directed the Ministry of Corporate Affairs (MCA) and others to file their replies in the matter within a week.

“Interim order dated 23rd July, 2019 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai, in MA Nos. 2581 & 2071 of 2019 in CP 3638/241-242/2018 shall continue till next date,” the NCLAT said.

It further added, “However, the interim order will not come in the way of the National Company Law Tribunal and the Union of India to proceed in accordance with law.”

Earlier, the Mumbai bench of the National Company Law Tribunal (NCLT) had on July 18 allowed the MCA’s plea to prosecute Deloitte, BSR Associates and other auditors for their failure to detect and report the scams that took place at IL&FS under their watch as auditors.

Udayan Sen and Kalpesh Mehta, partners at Deloitte, and Sampath Ganesh, a partner at BSR & Associates, had also been impleaded as respondents by the NCLT order.

On July 23, the NCLT Mumbai bench had stayed its own order for four weeks to allow the auditors to appeal against the impleadment.

In its order, the NCLAT, while seeking the government’s response on the auditors’ plea against impleadment, said the NCLT Mumbai bench’s order of stay would continue till August 19, when it would hear the case.

As reported on moneycontrol

CNBCtv18: IRDA allows insurance companies to sign inter-creditor pact

30 July 2019: The Insurance Regulatory and Development Agency (IRDA) has written a letter to the Indian Banks Association (IBA), saying it has permitted insurance companies to sign inter-creditor agreement (ICA) pact along with banks for the resolution of stressed assets.

The Reserve Bank of India (RBI) in its June 7th circular had directed lenders to identify stress quickly, sign ICA and resolve bad loans proactively. Since many of the lenders are insurance companies, IRDA approval becomes crucial for all lenders to unite and hammer out resolutions.

The CNBCtv18 reported

ET: United Bank of India reports fraud against Visa Steel

30 July 2019: State-owned United Bank of India has reported fraud against Visa Steel for misappropriation of bank funds, while the lender has booked Rs 105 crore net profit for the quarter ending June.

UBI Managing Director Ashok Kumar Pradhan has said that the bank had Rs 90 crore exposure to Visa Steel, which defaulted a total of Rs 3600 crore of bank loans. The Kolkata-based lender has also reported fraud of Rs 850 crore against Bhushan Power & Steel Ltd (BPSL), following others including Punjab National Bank.

Senior UBI executives said that it has provided fully against the exposure to BPSL while the Visa Steel exposure is covered 60% by provision.

UBI’s net profit was backed by improvement in asset quality. This is the bank’s second quarterly net profit in a row after making seven consecutive losses earlier. It had made Rs 389 crore loss in the year ago period.

The bank’s net non performing assets ratio improved to 8.19% as on June, compared with 15.17% a year back.

UBI management has expressed confidence that its net NPA would be lower than 6% by September, a necessary parameter for lifting the lending restrictions and others under PCA framework.

“Irrespective of government infusion of capital, we should be out of PCA after the second quarter,” Pradhan told ET.

Reserve Bank of India had curbed business expansion possibilities of 11 banks including UBI for high ratio of sticky loans and negative return on assets. UBI’s gross NPA stood at 15.89% compared with 22.72% a year back while fresh accumulation of bad loans fell to Rs 407 crore compared with Rs 547 crore in the year ago period..

RBI, meanwhile, has allowed UBI to sell government securities bought before the business curb was imposed which boosted the bank’s earnings.

Its operating profit grew 141% at Rs 683 crore in the June quarter over Rs 283 crore in the year ago period. Net interest margin improved to 2.83% from 2.36%.

The Economic Times reported

BI: Jaypee Infratech resolution time extended by 90 days, NCLAT invites new bids

30 July 2019: New Delhi, The National Company Law Appellate Tribunal (NCLAT) on Tuesday extended the resolution process of Jaypee Infratech (JIL) by 90 days, thereby allowing submission of fresh bids for the bankrupt realty company.

The extension would come into effect with the receipt of the appellate tribunal’s order.

The two-judge Bench, headed by NCLAT Chairman S.J. Mukhopadhaya, however, barred Jayprakash Associates (JAL), the parent company of JIL, from bidding.

The order said the process of bidding and approval of a resolution plan by the committee of creditors (CoC) should conclude in 45 days.

The 90-day extension comes amid the lenders’ request to exclude around 250 days, from September 17, 2018 to June 4, 2019, from the stipulated period for corporate insolvency resolution process, as during this period no bid could be voted upon in view of the confusion regarding the voting rights of the homebuyers.

Under the Insolvency and Bankruptcy Code (IBC), the resolution process of a company is mandated to be concluded within 270 days, failing which the company has to go for liquidation. The 270-day deadline for Jaypee Infratech ended on May 6.

As reported on BusinessInsider