NEWS HOUR - 19th Nov to 26th Nov 2017 - FINANCE AND INVESTMENT CLUB - IIM ROHTAK

NEWS HOUR 19th Nov– 26

Weekly News Magazine

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Nov 2017

PRESIDENT’S NOD TO MORE STRINGENT INSOLVENCY AND BANKRUPTCY CODE (IBC) Report by - Pavan Kumar

Wilful defaulters prohibited from being resolution applicants

President signed the ordinance which prohibits wilful defaulters and the habitually non-compliant from being the ‘resolution applicant’ in non-performing assets (NPAs) resolution process. The violators of norms, now, can be penalized from Rs.1 lakh to Rs.2 crores.

In a statement, Ministry of Corporate Affairs (MCA) said, “The ordinance comes as a blow to defaulting promoters seeking to reclaim their firms that are under insolvency proceedings, and aims at putting in place safeguards to prevent unscrupulous persons from misusing or vitiating the provisions of the IBC.” An applicant is considered ineligible if he is a wilful defaulter, whose account is classified as NPAs for one or more years and has not settled interest payments.

Second, a person who has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor undergoing resolution process. Last, promoters or in the management of authority of corporate debtor during the execution of the resolution plan, holding company, the subsidiary company, associate company or related party.

Also, the feasibility and viability of the resolution plan before approving is ensured by the Committee of Creditors (CoC). Moreover, additional powers are given to the Insolvency and Bankruptcy Board of India (IBBI) to check on the predecessor of the applicant submitting the resolution plan for the preferential, undervalued or fraudulent transactions. The new amendment directs the CoC to reject the applications and calls for a fresh ploy of resolution where the applicant is not eligible as per the revised norms and offered application before the commencement of the Ordinance.

Challenges The amendment gives an unintended advantage to foreign bidders as the concept of wilful defaulters does not exist in most of the countries. Since the disqualification criteria for foreign institutional investors (FII) is unknown, it might be even lighter. Secondly, identification of wilful defaulter is in itself a challenge. Though the basis maybe on guidelines of RBI, the promoter can challenge such determination and might stay the insolvency proceedings until it is decided. Hence, it defies the objective of IBC, i.e., fast resolution of cases.

In This Issue 

President’s nod to more stringent Insolvency and Bankruptcy Code (IBC)

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S&P maintains India’s sovereign rating at BBB-

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India set to join EBRD

S&P MAINTAINS INDIA’S SOVEREIGN

Some key points

RATING AT BBB Report by - Rajesh Khanna

Sovereign ratings are used by investors to understand a country’s credit risk for investing, and it also includes political risks. After Moody’s rating upgrade, Industry leaders and economic experts expected that Standard & Poor’s (S&P) might increase their rating for India. But, the New York-based credit rating agency on Friday retained their ratings at BBB-. While keeping its outlook for the country as ‘stable,' S&P appreciated Modi government’s economic and institutional reforms and predicted that growth would remain robust over the next two years.

S&P have mentioned the following reasons for not upgrading the ratings. Demonetization & GST have hit India’s confidence and GDP growth, which in turn slowed down the economic progress of the country. Low wealth level at close to US$2000 in 2017, measured by GDP per capita have constrained India’s ratings as it is the least among all investment-grade sovereigns that S&P rates. Also, India’s general government revenue is lowest as compared with other sovereigns with an estimated 22% of 2017 GDP. Further, Public sector banks will require a significant capital infusion of about US $30 Billion to meet the requirement of Basel III capital norms. Though the government has announced plans for bank recapitalization, weaker profitability, and increasing Non-performing assets among public sector banks is a major concern to be addressed. Finally, the ruling BJP government has a clear majority in the lower house of parliament but lacks the majority in the Rajya Sabha and hence the opposition party could stall some of the fundamental reforms. This leads to unnecessary delays in implementing reform efforts, though NDA coalition government could eventually become a majority in the Rajya Sabha.

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Demonetization & GST have hit India’s confidence and GDP growth, which in turn slowed down the economic progress of the country

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Low wealth level at close to US$2000 in 2017, measured

by GDP per capita have constrained India’s ratings

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S&P appreciated Modi government’s economic and institutional reforms and predicted that growth would remain robust over the next two years

Earlier, the government had questioned the complex methodology used by the rating agencies to assign sovereign ratings. Arvind Subramanian, Chief Economic Adviser, suggested that if per capita GDP plays a major role in upgrading sovereign rating, then poorer countries might be provoked and even ridicule such ratings given by the global rating agencies.

Source: Web

Some Key Points 

According to Finance Minister Mr. Arun Jaitley, India will initially have only 100 shares

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It will also provide a boost to Indian exports and widen the scope of cooperation with various multilateral institutions

Source : Web

INDIA SET TO JOIN EBRD Report by - Ruchit Chaudhary

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The Union Cabinet of India has passed a resolution approving the membership of India for European Bank for Reconstruction and Development (EBRD). The Department of Economic Affairs, which comes under the aegis of Ministry of Finance, has initiated the process of acquiring EBRD’s membership. According to Finance Minister Mr. Arun Jaitley, India will initially have only 100 shares, but it could be increased after further negotiations.

This move by the Union Government will enhance the economic profile of India and will increase investment opportunities in the country. It will also provide a boost to Indian exports and widen the scope of cooperation with various multilateral institutions, especially in the fields of manufacturing, services, technology, and energy.

Background on EBRD EBRD is an international financial institution which was set up in 1991. It mainly focuses on investments for developmental work. It primarily operates in over 30 countries located in central Europe up to central Asia. It is collectively owned by 65 nations and two intergovernmental institutions: the European Union and the European Investment Bank. It is governed by a President and Board of Directors acting on behalf of the Board of Governors, who are usually the finance ministers of the member countries. A project is considered to be eligible for funding under EBRD if it satisfies certain criteria which include: 1.

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Should be located in a country under the aegis of EBRD, have strong commercial prospects, involve significant equity contributions from the project sponsor, benefit the local economy, help develop the private sector, and satisfy banking and environmental standards.