RBI for revealing of names of wilful defaulters

The Reserve Bank governor, Dr. Bimal Jalan on February 16 said that the Central Bank had no objection to publishing the names of bank defaulters as suggested by central vigilance commissioner, Shri N. Vittal. 

"There is no difference of views between the RBI and CVC on the issue of publishing the list of defaulters". He said at a seminar on the `State of the Indian Economy' organised by Indian Merchants Chamber in Mumbai. 

The RBI has already placed a list of suit-filed accounts on its website for the benefit of bankers and public at large. In fact, this list covers a bulk of NPAs in the banking sector, Dr. Jalan said. 

Easier NPA norms for insurance entry

The Reserve Bank of India has softened the non-performing criteria for entry of banks into the insurance sector and has now said that the level of NPAs should only be `reasonable'. 

It has also raised the maximum equity holding limit of a bank in insurance joint ventures from 30 per cent to 50 per cent. 

The RBI has clarified that banks can enter the insurance business on a pure-fee-based (agency) basis wherein they do not assume any of the insurance risk or they can set up a joint venture to enter the insurance business fully. 

The RBI has said that banks which want to set up an insurance JV have to have a `reasonable' level of NPAs. Other pre-qualifying conditions are a minimum net worth of Rs.500 crore, a minimum capital adequacy ratio of 10 per cent, a net profit record for the last three years and that the track record of the performance of subsidiaries of the bank should be satisfactory. 

RBI prescribes prudential norms for takeout financing

The RBI has prescribed, between 20 and 100 per cent risk weightage for takeout financing. It has stipulated that in cases where the counter party risk is guaranteed by the government, the risk weight will be zero. The risk weight applicable to a lending institution varies from 20 per cent of the amount to be taken over (in case of an unconditional takeover), to a 100 per cent risk weight for a conditional takeover. On the other hand, the risk weight for the taking over institution has been pegged at a constant 100 per cent. 

However, while there is no credit conversion factor applicable to a lending institution since the entire takeout financing is not an off balance sheet transaction, the credit conversion factor applicable to a taking over institution varies from 50 per cent in case of conditional takeover to 100 per cent for an unconditional takeover. 

Under a takeout finance arrangement, the FI/bank financing an infrastructure project (lending institution) transfers the outstanding loan amount to another institution (taking over institution) on a pre-determined basis. Takeout finance helps the banks in asset-liability management since they finance infrastructure which requires long-term funds while their sources are short term. 

The takeout finance arrangement involves three parties : promoters of the project, the lending bank or institution and the taking over institution. The company recognises the takeout finance arrangement by way of an inter creditor agreement. 

The RBI, has stated the taking over institution will have to make provisions on non-performing assets (NPAs) being taken over in their accounts from the date of it turning into a NPA in the lending institution's books. 

Reduction in Bank Rate and CRR

RBI in its circular dated April 01, 2000 has advised reduction by one percentage point in the bank rate effective April 02, 2000 from 8 per cent per annum to 7 per cent per annum. 

RBI has also decided to reduce cash reserve ratio by one percentage point in two stages by 0.5 percentage point each, effective from fortnights beginning April 8 and April 22, 2000 respectively. This reduction in CRR will augment lendable resources of banks by about Rs.7,200 crore. 

SIDBI-IDBI delinking cleared

The government has issued the notification delinking the Small Industrial Development Bank of India (SIDBI) from its parent Industrial Development Bank of India (IDBI). This follows the Presidential assent to the bill delinking SIDBI on March 27. 

IDBI will dilute its stake in SIDBI from 100 per cent to 49 per cent, and 51 per cent will be held by the government owned or controlled institutions. 

As a result of the changes, IDBI will finalise its accounts for 1999-2000 without having to consider SIDBI's accounts. IDBI had planned to finalise its accounts for the year on the basis of US GAAP. It had hired the services of SB Billimoria to help it in the finalisation of accouts in US Gaap terms. 

Moreover, IDBI is expected to net a huge premium on the transfer of its stake in SIDBI, which will reflect in this year's balance sheet. 

At the same time, Dr. Sailendra Narain, Managing Director (MD) of SIDBI has been made the first Chairman and M.D. of the Institution. Earlier Shri G.P. Gupta, Chairman of IDBI was also the SIDBI Chairman while Shri Narain was the MD. 

SIDBI, IIT plan incubation centre for SSIs

The first centre under the National Programme of Innovation and Incubation for small scale sector will be set up by SIDBI in collaboration with IIT, Kanpur. 

This was formally announced by the finance minister Shri Yashwant Sinha on March 14, 2000 while inaugurating the programme, meant for sunrise industries like information technology, pharmaceuticals, bio-technology, food processing, e-commerce etc. These industries, being knowledge-based, require research and some period for incubation, says Dr. Sailendra Narain, Managing Director, SIDBI. 

These industries are generally in the small scale sector and new ideas take birth in this sector only, added Dr. Narain. 

SIDBI is also holding talks with the Indian Institute of Managements and the National Institute of Fashion Technology for setting up similar institutes in collaboration with them. 

SIDBI has already collaborated with the commerce industry to set-up a technology upgradation fund for the leather industry. Rs.25 crore fund set up jointly with the textile ministry is also in operation. 

The SIDBI chief suggested that the government should set up a taskforce with financial institutions and representatives of the small scale industry as its members to re-work policies that have been made to promote the sector so that it really goes in favour of SSIs. The involvement of the small sector in the framing of policies was vital because they could ensure that all problems and related issues are completely covered and nothing is left out. 

LS nod for SIDBI Act amendment

The Lok Sabha on 16.03.2000 approved certain changes to a Bill seeking to amend the Small Industries Development Bank of India Act, 1989, which provides for establishment of a principal financial institution for promoting, financing and development of industrial concerns in the small scale sector. 

The amendments, moved by minister of state for finance Shri Balasaheb Vikhe Patil, have already been approved by the Rajya Sabha. It seeks to substitute the year 1999 with 2000 in the SIDBI (amendment) Act. It is proposed that the financial institution SIDBI would become an independent entity to co-ordinate the functions of institutions engaged in promoting, financing or developing industrial concerns. 

SIDBI is a wholly-owned subsidiary of the Industrial Development Bank of India. The new provisions would enable SIDBI to raise resources both in debt and equity at competitive terms from the domestic as well as international markets so that stability in export growth could be achieved. 

SIDBI to increase corpus of venture capital fund

SIDBI has received proposals for over Rs.140 crore from information technology (IT) start-ups within three months of launch of its Rs.100 crore venture capital fund and is planning to increase the corpus soon.

SIDBI Chief General Manager, Shri B. Radhakrishnan said the fund will be `replenished' by the bank as soon as it is exhausted indicating a hike in the fund size in the next financial year. 

The National Venture Fund for Software and Information Technology Industry (NFSIT) has already received offers from 10-12 state governments which have formed venture funds to boost their IT sector. 

The fund was launched in December 1999 with Rs.100 crore (Rs.40 crore contribution from SIDBI and Rs.30 crore each from IDBI and the Ministry of Information Technology). SIDBI will either invest in the equity of the start-up companies or extend conditional loans which can be converted to equity later. 

SIDBI to put in Rs.100 crore for modernisation

SIDBI will pump in an additional Rs.100 crore for its technological development and modernisation fund this year to provide direct lending and refinance to technology upgradation and modernisation projects according to its CMD, Dr. Sailendra Narain. 

The fund having a corpus of Rs.200 crore was given an extension of three years in the Union Budget and sanctions have exceeded Rs.350 crore. 

The bank would like to provide direct lending and refinance facility at the prime lending rate to projects involving technology upgradation and modernisation. 

SIDBI is also collaborating with the government in its textile modernisation scheme under which a loan amount of Rs.25,000 crore has been finalised. 

SIDBI would function as the nodal agency and loans under the scheme would be given to textile and jute units in both SSI as well as the non SSI sector. 

Refinance Scheme for Textile Industry under Technology Upgradation Fund (RTUF)

SIDBI vide its circular dated March 8, 2000 has advised the PLIs to conform to the requirement of the Office of the Textile Commissioner (TXC) to send data in respect of TUF scheme directly to their office before the 10th of the following month, irrespective of whether assistance has been sanctioned during the month or not. 

Copies of the performa containing data are to be sent to SIDBI also as it is the nodal agency for SSI units to enable them to maintain data and submit the same to the GoI as and when required. 

PLIs have also been advised to make available adequate credit to the powerloom industry and its various sub-sectors. 

Refinance Scheme for Tannery Modernisation (RTM)

Government of India has launched the Tannery modernisation scheme to support existing tanneries for undertaking modernisation programme for positive environmental impact, becoming competitive, effecting better capacity utilisation, achieving productivity gains and reducing wastage etc. The scheme is initially to be in operation from 1999-2000 to 2001-2002. 

The release of GoI assistance under the scheme would be routed through SIDBI which would also be responsible for monitoring, arranging interface and co-ordination with PLIs and GoI. 

Eligibile institutions : SFCs, SIDCs, Scheduled comercial banks, State co-operative banks and Scheduled urban co-operative banks. 

Eligiblity criteria : Units intending to avail assistance should be in commercial operation for atleast 3 years and should have made profit for preceding 2 years and should not be in default to banks or FIs. Financial assistance under the scheme would be available to such projects wherein loan has been sanctioned on or after January 18, 2000. 

Quantum and Nature of assistance : The financial assistance under the scheme will be limited to 30% of cost of plant and machinery for small scale units and 20 per cent for non-small scale units, subject to ceiling of Rs.28 lakh and Rs.35 lakh respectively. 

Mode of assistance : By way of rupee term loan from PLIs 

Promoters' contribution : As required to arrive at the applicable Debt Equity Ratio (DER) based on the amount of the loan

Debt Equity Ratio :

i) For loans upto Rs.10 lakh - Upto 3:1 

ii) For loans above Rs.10 lakh - Upto 2:1 

Amount of Loan/Refinance : Refinance to the extent of 100% would be available to PLIs. 

Terms of Refinance Assistance : Rate of interest upto Rs.2 lakh is not to exceed 13.5% and interest on refinance would be 10.5%. Over Rs.2 lakh is to be decided by PLI and interest on refinance will be 12%. 

Period of repayment : Not to exceed 8 years including moratorium of 2 Years. 

In its circular dated March 25, 2000 SIDBI has clarified that availment of refinance by the eligible institutions from it is not a mandatory requirement. 

Investment ceiling for small scale/Ancillary Industrial Undertakings

SIDBI vide its circular dated January 5, 2000 had advised of the Central Government's decision to reduce the ceiling on investment in plant and machinery for the above type undertakings from Rs.300 lakh to Rs.100 lakh effective December 24, 1999. Accordingly term loans granted by the PLIs to industrial undertakings whose investment in plant and machinery did not exceed the revised ceiling only were eligible for refinance from SIDBI. However, it has been clarified that the term loans granted before the date of the notification on the then prevailing investment limit would continue to be eligible for refinance from SIDBI. 

SIDBI vide its circular dated March 15, 2000 has advised that the following clarifications have now been issued by office of the DC (SSI), Government of India :- 

i) The units that have obtained permanent registration on the order dated December 10, 1997 would continue to remain as SSI units in spite of the order dated December 24, 1999 reducing the investment limit to Rs.1 crore. 

ii) The units which had switched over to the SSI status based on the order dated December 10, 1997 would continue to remain as SSI units in spite of the order dated December 24, 1999 and 

iii) The units which have got provisional registration with the State authorities for their SSI status would continue to remain as SSI units, in spite of the order dated December 24, 1999 provided the provisional registration had taken place within the period of limitation of 180 days specified in the order dated December 10, 1997. 

SIDBI has advised that all cases satisfying the above criteria would be eligible to avail refinance from it. 

FI disbursals outpace growth in sanctions

Disbursements by all India Financial Institutions (AIFIs) have grown faster than sanctions during 1998-99. During this period, AIFIs disbursed and sanctioned Rs.72,025 crore and Rs.42,686 crore respectively i.e. a growth of 15.6 per cent and 17.2 per cent respectively over the corresponding period of the previous year. This is a shift from 1997-98 when the growth in disbursements had slowed down compared to sanctions. 

According to a report by the IDBI on development banking, the sanctions by FIs rose 17.9 per cent to Rs.91,043 crore while disbursements were up 7.1 per cent to Rs.57,481 crore. In the previous year, the corresponding figures were 49.3 per cent and 26.2 per cent. Cumulative sanctions and disbursements by FIs upto end-March 1999 aggregated Rs.5,20,653 crore and Rs.3,62,711 crore respectively. 

All India Deveopment Banks (AIDBs) accounted for a major portion of the sanctions (87.3 percent) and this includes resource support to other FIs. Investment institutions constituted 11.1 per cent; SFCs and SIDCs together accounted for 3.8 per cent and SFIs 0.3 per cent. Of the cumulative sanctions up to end March 1999, AIDBs (including IDBI/SIDBI's resource support to other FIs) constituted 80.9 per cent, IIs (the 3 investment institutions including LIC/UTI's resource support to other FIs) 17.4 per cent, SFCs 5.8 per cent, SIDCs 3.3 per cent and SFIs 0.5 per cent. 

Infrastructure sector comprising electricity generation, telecommunications, roads/ports/bridges accounted for the largest share (28.9 per cent) of sanctions by FIs.