Hard Facts 05 2017 (May)

Raj Malhotra’s IAS Study Group
RBI tightens JLF rules, directs banks not to break any norms, threatens to impose
penalties
The Reserve Bank of India (RBI) moved to make the joint lenders’ forum (JLF) more effective, directing banks to
not break any rules and to meet all deadlines. The regulator said any breach of rules would attract a monetary
penalty.
JLFs are meetings at which banks attempt to red-flag stress early and work to try and keep it in check by putting
in place a corrective action plan (CAP). Although the mechanism has been place for some time now, decisions
have been few and far between thanks to disagreements between lenders.
With a view to facilitating consensus, the RBI lowered the threshold needed for implementing a CAP —
decisions agreed to by a minimum of 60% of creditors by value and 50% of creditors by number will now be
valid. Earlier, 75% of the lenders by value and 60% by number needed to sign off on a CAP. Once a decision was
taken, the RBI said, it would be binding on all the others and must be implemented without any additional
conditionalities. If a lender wanted to exit, it could do so by resorting to the substitution option but if it failed to
exit within the given time, it would need to go along with the decision taken.
Corrective Action Plan (CAP) by JLF
The JLF may explore various options to resolve the stress in the account. The intention is not to encourage a
particular resolution option, e.g. restructuring or recovery, but to arrive at an early and feasible solution to
preserve the economic value of the underlying assets as well as the lenders’ loans. The options under Corrective
Action Plan (CAP) by the JLF would generally include: (a) Rectification b) Restructuring (c) Recovery.
India to grow at 7.7% in 2018-19: IMF
India’s growth is expected to rebound to 7.2% in the 2017-18 fiscal and 7.7% in 2018-19 after disruptions caused
by demonetisation, the IMF said on Tuesday, while recommending the removal of long-standing structural
bottlenecks to enhance market efficiency. The temporary disruptions (primarily to private consumption) caused
by cash shortages accompanying the currency exchange initiative are expected to gradually dissipate in 2017 as
cash shortages ease, the International Monetary Fund (IMF) said in its regional economic outlook. Such
disruptions would also be offset by tailwinds from a favourable monsoon season and continued progress in
resolving supply side bottlenecks, the IMF said. The investment recovery is expected to remain modest and
uneven across sectors as deleveraging takes place and industrial capacity utilisation picks up, it noted.
“In India, growth is projected to rebound to 7.2% in FY2017-18 and further to 7.7% in FY2018-19,” the IMF said.
“Headwinds from weaknesses in India’s bank and corporate balance sheets will also weigh on near-term credit
growth. Confidence and policy credibility gains, including from continued fiscal consolidation and antiinflationary
monetary policy, continue to underpin macroeconomic stability,” the IMF said. World Economic
Outlook and Global Financial Stability Report are prepared by IMF
Growth in China and Japan is revised upward for 2017 compared to the October 2016 World Economic Outlook,
owing mainly to continued policy support and strong recent data. Growth is revised downward in India due to
temporary effects from the currency exchange initiative and in South Korea owing to political uncertainty. Over
the medium term, slower growth in China is expected to be partially offset by an acceleration of growth in India,
underpinned by key structural reforms.
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