- EFFECT OF PNB SCAM – IMF CALLS FOR REFORMS AT PSBs: With the recent Punjab National Bank LOUs fraud the International Monetary Fund (IMF) has commented on the status of Indian Banks. It said the Indian banking reforms like the insolvency code and recapitalization will be ineffective unless the governance standards are improved. IMFs Deputy Managing Director Mr. Tao Zhang has said that mere reforms are not enough and should be accompanied by governance reforms which improve the internal controls which in turn will be crucial for financial stability.
- PSU BANKS NEED GOVERNMENT APPROVAL FOR ISSUING AT1 BONDS: The government has instructed Public Sector Banks to take its permission before floating Additional Tier-1 bonds (AT1 Bonds), which have turned out to be loss making for bankers and the government. AT1 bonds are perpetual bonds without fixed maturity. The decision was taken after the government had to step in for a troubled PSU bank that could not repay its AT1 bond investors because of a regulatory restriction. AT1 Bond has a clause that if a bank is loss making, it cannot pay AT1 coupon and then the bank would default on interest payments purely on regulatory reasons.
- PSBs PLAN TIGHTER LENDING NORMS FOR CORPORATE LOANS ABOVE Rs 250 CRORE: Public Sector Banks (PSBs) will discourage multiple banking arrangements for companies with exposure of more than 250 crore in the banking system and will move all such loans under the consortium of banks for better monitoring. Under consortium arrangement there will be more discipline and effective monitoring.
- IDBI BANK WITHDRAWS SANCTIONED LIMITS TO SEVERAL INDIAN COMPANIES: IDBI Bank has suddenly withdrawn and reduced the sanctioned credit limits to several of its corporate customers without stating any valid reasons. Since the bank has cut credit facilities like Cash credit, vendor financing etc., the affected companies are facing lot of problems in their working capital cycle. Corporates affected by this sudden and unexpected move have come together and approached the Finance Ministry seeking reprieve.
- RBI BARS BANKS FROM ISSUING LOUs: The Reserve Bank of India has discontinued issuance of Letters of Undertaking (LOUs) and Letters of Comfort (LOCs) with immediate effect. This is an attempt to prevent further fraudulent transactions. The immediate effect of this would be it will increase the import cost and the profitable business avenue of foreign Branches of Indian Banks would close down. And since the importers will now have to buy dollars from market, the rupee could come under pressure.
- PSBs TO LINK SWIFT WITH CORE BANKING SOULTION BY APRIL 30TH : As directed by Reserve Bank of India, all Public Sector banks (PSBs) will link their SWIFT Systems with their respective Core Banking Systems (CBS) by April 30Th as a measure to prevent frauds like the recent one that happened in Punjab National Bank. Along with this, the State run banks also decided to speed up the process of taking out “Cyber Insurance” at the earliest.
- GOVERNMENT ASKS ALL BANKS TO “NAME & SHAME” WILFUL DEFAULTERS: Tightening the noose around “WILFUL DEFAULTERS”, the government has asked all banks to “name & shame” such borrowers by publishing their photographs and other details in newspapers. The number of wilful defaulters rose to 9,063 at the end of December 2017. Now Banks will formulate a policy with the approval of their Board of Directors which clearly sets out the criteria for publication of photographs of wilful defaulters.
This post first appeared on IMPACT OF DEMONITIZATION OF CURRENCY IN INDIA IN 2016, please read the originial post: here
