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Ira Dugal

@dugalira

24 Jun 20

1/n A short thread on a story today, which I think is systemically important.

Last week, RBI issued new draft rules for housing finance companies. Until recently, HFCs were under NHB. This was transferred to RBI post the DHFL fiasco.

2/n One of the quirks of NHB rules was that HFCs were allowed to restructure developer loans once without marking them down as NPAs.

This has existed for some time and has gone under the radar even though the RBI clamped down on restructuring forbearance at banks many years ago

3/n Now RBI has taken over regulation of HFCs and is harmonising regulations.

Surprisingly, it has not suggested doing away with this restructuring window available to HFCs. Why? Isn't that the first loophole it should plug?

Read 4 tweets

Ira Dugal

@dugalira

17 May 20

MGNREGA budget raised to Rs 1 lakh crore from budget estimate of Rs 61,000 crore.

Good.

---Debt related to COVID-19 should be excluded from the category of default.
-- No fresh insolvency proceedings for 1 year.
-- For MSMEs, special insolvency framework to be notified.
-- Minimum threshold for insolvency raised to Rs 1 crore.

New PSU policy:
-- All sectors will be open to private sector.
-- In notified strategic sectors, at least one PSU and upto a maximum of four PSUs will be allowed.
-- PSUs to be merged where too many exist.

Read 5 tweets

Ira Dugal

@dugalira

13 May 20

FM says 15 measures to be announced today.

- Collateral free loan for MSMEs upto Rs 3 lakh crore.
- MSMEs with Rs 25 Crore outstanding loan or Rs 100 crore turnover can avail.
- 100 percent credit guaranteed (presumably by govt)
- To benefit 45 lakh MSMEs 1/n

Loans will be of 4 year tenure. 12 month moratorium on principal payment. Interest to be capped.

Announcement 2:
-- Rs 20,000 crore subordinate debt programme for stressed MSMEs
-- 2 lakh MSMEs to benefit including stressed / NPAs
-- Govt to provide Rs 4000 crore to the Credit Guarantee fund, which in turn will provide the debt.

Read 13 tweets

Ira Dugal

@dugalira

8 May 20

1/n A thread on some of the points Raghuram Rajan makes on monetisation:

1) The government’s priority should be to protect the economy and spend what’s needed. It’s inability to finance itself or fears of monetisation should not be a constraint....

1-A) That’s not to say fiscal deficits don’t matter. Medium term roadmap must be clear else investors and rating agencies will take “fright.”

He suggests following NK Singh committee advice, using medium term debt targets and an independent fiscal council. 2/n

In normal times, direct monetisation would be inflationary. However in abnormal times, the excess Govt spending undertaken after monetisation will not lead to fresh credit being created as banks are risk averse.

Hence, it gets parked back at the RBI reverse repo window. 3/n

Read 8 tweets

Ira Dugal

@dugalira

7 May 20

Answers to two questions on Yes Bank getting clearer:

1) What was the real quality of the bank's loan/investment book?

2) Will depositors keep the faith?

26.63% of corporate loan book is bad (after write-offs).
- Corporate NPA: Rs 31,731 cr
- Total NPA: Rs 32,878 cr
- SMA 1 + SMA 2: Rs 11,102 cr

If you assume much of SMA 1+ SMA 2 is corporate (going by current NPA proportions), about Rs 42.599 cr of corporate book is stressed.

The above is after write-offs in Q4. If you take Dec'19 numbers, about Rs 50,000 crore in corporate accounts were stressed.

That worked out to 38% of the corporate loan book was bad.

Read 9 tweets