Bank of Barbuda has withdrawn a Rs 1,5,000-crore loan from a rising loan holder, after a committee on Tuesday cleared a proposal to allow the lender to withdraw the money.
The central bank’s chief executive, Robert Fitch, said the decision was taken after a meeting of the committee that had met for the last three days to review its deliberations.
Fitch said the committee has decided that it will now work with the borrower to find a solution that does not result in an increase in interest rate or increases in the value of the loan.
“We will now go back to the lender and work with him to come up with a solution,” he said.
The decision came after the committee last week recommended a review of the Reserve Bank’s (RBI) decision to allow banks to use the Rs 1 lakh loan to recapitalise struggling firms.
The move came on the heels of the Bank of Maharashtra (BNM) decision last week to allow it to lend up to Rs 1 crore to revive its struggling state-run petrochemicals company, the country’s largest.
In its report, the committee recommended that RBI be given a period of time to consider its decision, and that it be informed of any proposed measures.FITCH: We are taking steps to resolve the issues raised by the committee, and the bank will now take a closer look at it.
We are going to meet the borrower, the bank, the central bank, and discuss how we can work together to find an acceptable solution.
The central bank will then go back with the lender on a new resolution.
The committee will then give the bank a final decision.RBI’s deputy governor for monetary policy, Raghuram Rajan, said he hoped that the lender would not “remedy the mistake”.
He said the move was in line with the RBI’s “principle of prudent lending”.
Rajan said the bank’s actions were necessary to ensure the financial stability of the country.
“It is important to understand that these loans were made by an institution and, therefore, are not subject to regulation,” he added.
“We are taking all steps necessary to address these issues.
We will be providing the lender with a detailed report on the matter and will continue to work with our lenders.”
Fitch’s comments came hours after the Bank also withdrew another Rs 5,000 from the BNM, and said it had agreed to repay the loan to a new lender.
“In light of the recent changes made by the Reserve Board, we have made a fresh loan to the BNP Paribas and will repay it in full,” said the RBI statement.
“The bank is also undertaking to reduce its interest rate for all its existing loans and will also be doing the same for new loans.”
The RBI said the BNB had been approved to receive the Rs 5 lakh loan for recapitalisation work.
“The bank intends to repay it within the next three weeks.
We do not know how long this will take, but we are hopeful that the repayment process will take place as planned,” the statement said.