Business, Economy & Banking Current Affairs - 2019

Business, Economy and Banking in Current Affairs 2019 with latest news and current affairs in Agriculture, Industry, Banking, Capital Markets, Import and Export and Government schemes in commercial sector.

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CCEA takes steps for operationalisation of IDFs

The Cabinet Committee on Economic Affairs (CCEA) has taken the following steps to promote the operationalisation of Infrastructure Debt Funds (IDFs).

  • The annual Guarantee Fee payable to the Concession Authority has been capped at 0.05% per annum, of outstanding debt financed by the IDF NBFCs (Non Banking Financial Companies) for the first 3 years of operation of the IDF NBFC.
  • IDFs will be given the status of Public Financial Institutions (PFI). Infrastructure Debt Funds are allowed to file Shelf Prospectus under Section 60 A of the Companies Act, 1956 and access to provisions of the SARFAESI Act, including to the adjudicatory process through Debt Recovery Tribunals.
  • Post-successful COD PPP (Commercial Operation Declaration) projects shall now be eligible for investment by Insurance Companies, Provident Funds (PFs), EPFO, Mutual Funds (MFs), etc.
What are Infrastructure Debt Funds (IDF)?

As per Reserve Bank of India, IDFs are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors, specially insurance and pension funds can invest through units and bonds issued by the IDFs. IDFs would essentially act as vehicles for refinancing existing debt of infrastructure companies, thereby creating fresh space for banks to lend to fresh infrastructure projects.

IDF-NBFCs would take over loans extended to infrastructure projects which are created through the Public Private Partnership (PPP) route and have successfully completed 1 year of commercial production. Such take-over of loans from banks would be covered by a Tripartite Agreement between the IDF, Concessionaire and the Project Authority for ensuring a compulsory buyout with termination payment in the event of default in repayment by the Concessionaire.

What legal forms can IDF be set up as and who will be the regulators?

Infrastructure Debt Funds (IDFs), can be set up either as a Trust or as a Company. A trust based IDF would normally be a Mutual Fund (MF), regulated by SEBI, while a company based IDF would normally be a NBFC regulated by the Reserve Bank.

Do the NBFCs/IFCs need prior permission from Reserve Bank for sponsoring IDFs?

Yes NBFCs and NBFC-IFCs need to take prior approval from the Reserve Bank for sponsoring IDFs.

How do IDF- NBFCs and IDF-MFs (Mutual Funds) raise resources?

IDF-NBFCs will raise resources through issue of either Rupee or Dollar denominated bonds of minimum 5 year maturity. IDF-MFs will raise resources through issue of units of MFs.

What does “sponsorship” mean?

“Sponsorship” means equity participation by the NBFC between 30 to 49% of the IDF.

Who can invest in the bonds of IDF-NBFCs and Units of IDF-MFs?

Domestic/offshore institutional investors, especially insurance and pension funds can invest through units and bonds issued by the IDFs.

IDBI Bank launches ‘Own Your NPA’ campaign

In a bid to speedily recover Non-Performing Assets (NPA), the IDBI Bank has launched a campaign named ‘Own Your NPA’.

What is ‘Own Your NPA’ campaign?

It is a NPA recovery drive launched by the IDBI Bank through which it has tasked its managers — at the zonal, regional and branch levels — to focus their on making recoveries from the top 20 bad loan accounts in their jurisdiction. As part of the campaign, each zonal, regional and branch manager will personally go and meet the customers. The bank has identified 1522 cases, involving an aggregate principal outstanding of Rs 5,805 crore which is approximately 73% of its total NPAs of Rs 7,959 crore as on June-end 2013.

What is Non-Performing Assets (NPA)?

In simple words, the assets of the Banks which don’t perform (means don’t bring any return) are called Non Performing Assets. In more general sense they are “bad Loans”.

  • Any asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.

However, there is a prescribed definition by the RBI which defines the NPAs as:

  • Terms Loans on which interest and / or installment of principal remain overdue for a particular quarter for a period of more than 90 days from the end of that particular quarter.
  • The Bills those remain overdue for a period of More than 90 Days from the end of a quarter.
  • Any amount to be received remains overdue for a period of more than 90 days.
  • The Cash Credit account remains out of order for a period of more than 90 days. Out of order means over the sanctioned limit.

Note: This period of 90 Days for the above categories was 180 days prior to 2004.

So 90 Days is the thumb rule in the deciding the NPAs. However, there is an exception to this. Go through the following case:

A farmer has taken a loan for a paddy crop in the beginning of the Rabi Season and has not made a repayment. In which of the following situations, if Installment or interest is not paid for this loan, it would become a NPA (Non Performing Asset)?

  1. 90 Days from the due date
  2. 90 Days from the end of the Rabi Season
  3. 1 crop season from the due date
  4. 2 crop seasons from the due date

The answer of the above question is (4) i.e. 2 crop seasons from the due date. Please note the following:

  • For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is NOT paid for 2 crop seasons (means Kharif, and next Rabi in the above question), it would be termed as a NPA.
  • For long duration crops, the above would be 1 Crop season from the due date.