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RBI Planning to Auction Distressed Private Banks

Professor of Financial Economics and Part-time Value Investor, Transfin.
Jan 8, 2020 10:04 AM 2 min read

RBI may be planning to auction distressed private banks.



RBI planning to auction distressed private banks.

Letting Go: As per a Business Standard report, the RBI is planning to auction distressed private banks that have been placed under the Prompt Corrective Action (PCA) framework for a prolonged period.


This can be seen as part of the RBI's plan to adopt a  differentiated regulatory regime for public- and private-sector banks under the PCA framework.


At present, there are six lenders under the RBI’s PCA framework that includes two private banks — IDBI Bank and Lakshmi Vilas Bank.


In the Past Lies The Future: In the last such instance, the RBI had put a moratorium on the erstwhile United Western Bank (UWB) in September 2006, considering its poor capital base. Following this, 17 entities had submitted an expression of interest and the RBI decided to merge UWB with IDBI, after imposing a month’s restrictions on operations. In 2004 too, it had merged private lender Global Trust Bank with state-owned Oriental Bank of Commerce after imposing a three-month moratorium.


Government planning to come up with export financing scheme for small businesses.

Paving Way: In a bid to boost exports, the government is planning to come up with an export financing scheme, which would offer lower interest rates in Rupee and Dollar terms as well as reduced premium cost for small businesses.


Under the Niryat Rin Vikas Yojana (Nirvik) scheme, interest rates will likely fall to 3.15% for export credit in Dollar terms and 7.35% in Rupee terms, according to the proposal moved to the Cabinet. Currently, the interest rates are pegged at 3-6% for credit in foreign currency and around 10% in Rupee terms.


Exports had declined for the fourth successive month in November by 0.32%. BS


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