Lok Sabha Question No. 965 (UNSTARRED), answered on 2019-02-08
Subject: RBI’s Surplus Fund
Ministry: FINANCE
Asked by: VIJAY KUMAR S.R., S. RAJENDRAN, KUNWAR HARIBANSH SINGH, GAJANAN CHANDRAKANT KIRTIKAR, T. RADHAKRISHNAN, SUDHEER GUPTA

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 965.

TO BE ANSWERED ON FRIDAY, FEBRUARY 8, 2019 {MAGHA 19, 1940 (SAKA)}

## RBI's Surplus Fund

## QUESTION

965.  SHRI  S.R.  VIJAYAKUMAR:  SHRI  S.  RAJENDRAN:  KUNWAR  HARIBANSH SINGH: SHRI GAJANAN KIRTIKAR: SHRI T. RADHAKRISHNAN: SHRI SUDHEER GUPTA

Will the Minister of FINANCE be pleased to state:

(a) whether the Government had set up a panel for framing guidelines for the transfer of the RBI's surplus funds to the Government;

(b) if so, whether the panel has submitted its report to the Government;

(c) if so, the details thereof and the main recommendations made by the panel;

(d) the action taken/being taken by the Government on the recommendations of the panel; and

(e) the steps taken/being taken by the Government to tackle challenges faced by banking and non-banking sector in the country?

## ANSWER

## Minister of State in the Ministry of Finance SHRI P. RADHAKRISHNAN

(a):  The  Reserve  Bank  of  India  (RBI),  in  consultation  with  the  Government  of  India,  has constituted an Expert Committee under the Chairmanship of Dr. Bimal Jalan to review the extant Economic Capital Framework of the RBI.

(b): The Expert Committee has not submitted its report.

(c) and (d): Questions do not arise.

(e): Government has followed a comprehensive 4R's strategy of recognising Non-Performing Assets (NPAs)  transparently, resolving and recovering value  from stressed accounts, recapitalising Public Sector Banks (PSBs), and reforms in PSBs and the financial ecosystem for tackling challenges faced by the banking sector, key aspects of which are as under:

- (i) Recognition of restructured standard assets has been done as NPAs, beginning with the Asset Quality Review (AQR) in 2015, resulting in a decline in such stressed assets  in Scheduled Commercial Banks (SCBs) from the peak of 5.7% in March 2015 to 0.42% as of December 2018 (provisional data).
- (ii) Resolution process has been strengthened including by changing the creditor-debtor relationship  through  the  Insolvency  and  Bankruptcy  Code,  2016  and  debarment  of wilful defaulters and connected persons from the resolution process, which has resulted in record recovery.
- (iii) Recapitalisation amounting to Rs. 2,11,000 crore has been initiated in October 2017 to strengthen balance-sheets of PSBs.
- (iv) Reforms have been pursued under a comprehensive PSB Reforms Agenda adopted by PSBs.

Government's 4R's strategy has resulted in the following positive outcomes:

- (i) Gross NPAs of SCBs peaked in March 2018 and have declined by Rs. 26,901 crore in the first three quarters of the current financial year to Rs. 10,09,286 crore (provisional data).
- (ii) Aggregate recovery of Rs. 3,62,120 crore has been made by SCBs since the initiation of  recognition  in  FY  2015-16  including  record  recovery  of  Rs.  1,17,443  crore (provisional data) in the first three quarters of the current financial year.
- (iii) Non-NPA accounts of SCBs overdue by 31 to 90 days have declined for five successive quarters, reducing from Rs. 2.84 lakh crore as of June 2017 to Rs. 1.10 lakh crore as of September 2018, reducing credit at risk.
- (iv) Provision Coverage Ratio of SCBs has risen steadily and appreciably from 49.3% at the time of AQR to 69.2% as of December 2018 (provisional data).

Regarding steps taken to tackle challenges faced by the non-banking sector, RBI has apprised that-

- (1) In  order  to  strengthen  and  ensure  ownership-neutral  regulations,  the  regulatory requirements for government-owned Non-Banking Financial Companies(NBFCs) have been aligned with those for other NBFCs in a phased manner;
- (2) For  effective and  timely  redressal  of  grievances  of  customers  of  NBFCs,  an Ombudsman Scheme for deposit-taking NBFCs has been introduced;
- (3) With  the  objective  of  bringing  outsourced  activities  of  NBFCs  within  regulatory purview  as  well  as  ensuring  sound  and  responsive  risk  management  practices  by NBFCs, RBI has issued directions to NBFCs on managing risks arising from outsourced activities associated with financial services provided by them;
- (4) In  order  to  promote  investments  in  infrastructure  by  Systemically  Important  Core Investment  Companies  (CIC-ND-SI),  CIC-ND-SIs  have  been  permitted  to  hold Infrastructure Investment Funds (InvIT) units only as sponsors, provided such exposure does not exceed the minimum holding and tenor limits prescribed under Securities and Exchange Board of India (SEBI) regulations for a sponsor;
- (5) To provide an impetus to priority sector lending (PSL), NBFCs have been permitted to co-originate  priority  sector  loans  with  banks  to  generate  synergy  arising  from  the combination of low-cost funds from banks and lower cost of operations of NBFCs;
- (6) Asset  Reconstruction  Companies  (ARCs)  complying  with  corporate  governance practices  have  been  exempted  from  the  shareholding  limit  of  26  per  cent  of  post-

converted  equity  of  the  borrower  company  if  the  extent  of  shareholding  after  the conversion of debt to equity does not exceed the permissible foreign direct investment (FDI) limit for the specific sector;

- (7) To expand the investor base and to infuse greater depth in the Security Receipt (SR) market, RBI has notified Alternative Investment Funds categories II and III, registered with SEBI, as non-institutional investors.
- (8) Guidelines have been issued to ARCs for 'fit and proper' aspects of the sponsor of an ARC  which include, inter-alia , parameters related to integrity, reputation, track record, experience,  sources  as  well  as  stability  of  funds,  and  the  ability  to  access  financial markets.
- (9) NBFCs recently faced liquidity stress. In order to ameliorate the stress faced, RBI has taken the following steps:
4. (a) Open  Market  Operations  were  conducted  in  addition to regular Liquidity Adjustment Facility (LAF) auctions;
5. (b) RBI  permitted  banks  to  reckon  Government  securities  held  by  them  up  to  an amount  equal  to  their  incremental  outstanding  credit  to  NBFCs  and  Housing Finance Companies (HFCs), over and above the amount of credit to NBFCs and HFCs outstanding on their books as on October 19, 2018, as Level 1 High Quality Liquidity Assets (HQLA) under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) within the mandatory SLR requirement, which is in addition to the existing FALLCR of 13 per cent of Net Demand and Time Liabilities (NDTL) and limited to 0.5 per cent of the bank's NDTL;the said additional FALLCR is available up to March 31, 2019;
6. (c) The  single  borrower  exposure  limit  for  loans  to  NBFCs  which  do  not  finance infrastructure, stands increased from 10 percent to 15 percent of capital funds of the lender, up to March 31, 2019;
7. (d) Banks were permitted on November 2, 2018 to provide partial credit enhancement (PCE) within aggregate PCE exposure limit of 20% for bonds of minimum tenor of 3  years  issued  by  NBFC-ND-SIs  registered  with  RBI  and  Housing  Finance Companies (HFCs) registered with the National Housing Bank (NHB), within one percent of capital funds and with regard to extant single/group borrower exposure limits for refinancing the existing debt;
8. (e) RBI reduced the minimum average maturity requirement for External Commercial Borrowings in the infrastructure space raised by eligible borrowers from 5 years to 3 years, with effect from November 6, 2018; and
9. (f) To  encourage  NBFCs  to  securitise  their  assets  and  ease  the  liquidity  situation, guidelines have been issued to NBFCs providing them dispensation for a period of six months from extant minimum holding period requirements of one year to receipt of  repayment  of  six  monthly  instalments  or  two  quarterly  instalments  (as applicable) for loans with original maturity of above 5 years,  subject to minimum retention requirement of 20% of the book value of the loans being securitised or 20% of the cash flows from the assets assigned.

Further, refinance limit for HFCs has been enhanced from Rs. 24,000 crore to Rs. 50,000 crore by the NHB.

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