Reserve Bank of India: A sledgehammer approach The Reserve Bank of India’s (RBI) decision to come down heavily on banks and non-banking finance companies (NBFCs) to curb “evergreening” of loans is full of good intentions. Per its latest circular, a regulated entity will not be allowed to invest in the schemes of any Alternative Investment Fund (AIF) that has invested in a borrower or investee of that lender. A debtor or a borrower would mean a company to which the lender currently has, or previously had, a loan or investment exposure anytime in the previous 12 months. The RBI said that entities regulated by the central bank invest in units of AIFs as part of their regular investment operations, but certain transactions have raised regulatory concerns, necessitating the move. Under the arrangement, some of the regulated entities invest in an AIF, which in turn routes the money to the borrower so that the latter can repay the loan or a portion of it to the regulated entity. As a result, a loan does not turn into a non-performing asset, which helps the borrower retain creditworthiness. The bank too is able to show a low NPA ratio. To be sure, the RBI isn’t the only regulator to red-flag such evergreening practices. Thus, the concerns of the RBI aren’t unfounded. The question is whether a sledgehammer approach was the solution. The directives—covering all kinds of AIFs with retrospective effect impacting existing exposures—will hurt many lenders, which had put money in AIFs as part of asset diversification, better returns, etc. The industry is justifiably concerned about institutions with existing lending relationships with investee portfolio entities facing a tight 30-day timeline to liquidate investments, failing which they must provision 100% for such investments. The practicality of the move is also questionable. Industry experts cite the absence of an active secondary market in India for AIF units. The challenge lies in selling AIF units, given that they are not listed, and there is no readily available market for offloading such investments. The circular even discourages regulated entities from investing in AIFs, even for legitimate reasons such as risk diversification. Unless these measures are further calibrated, they could serve as significant barriers for lenders to participate in AIFs. An unintended consequence of this regulatory measure would be that the flow of bank money into domestic AIFs could completely freeze for a time, till the matter is fully resolved. After all, domestic venture and private equity AIFs get 5-10% of the money from banks, and these monies are invested in companies who in turn, could borrow from the very same bank. While Sebi was looking at a more targeted approach, going only after the bad and not the good guys, the RBI has taken a more extreme step.
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The India Meteorological Department informed that dense to very dense fog conditions are very likely to continue in many parts of Punjab, Haryana, Chandigarh, and Delhi during the night and morning hours for the next three days.
“Dense to very dense fog conditions very likely to continue during night/morning hours in many parts of Punjab, Haryana, Chandigarh, Delhi during Dec 28-29 and in some parts for subsequent 3 days. Dense to very dense fog conditions very likely to continue during night/morning hours in some parts of Uttar Pradesh during Dec 28-29 and Dense fog in isolated pockets for subsequent 3 days,” the weather office said in its five day bulletin.