Facing calls to explain why banks had largely failed to pass on to consumers and businesses two policy rate cuts this year, Raghuram Rajan, the normally easy-going governor of the Reserve Bank of India, launched a rare attack. “Banks are sitting on money,” he said after the RBI’s latest interest rate meeting. “Their marginal cost of funding has fallen.

The state of Jammu Kashmir is heading towards insolvency as its treasury is empty, The Tribune reported. About 50 per cent of the government employees, pensioners, daily wagers and casual labourers have not received salaries. “It is a grim situation and there are no chances of the money coming anytime soon,” said a source in the government. Sources confirmed that Rs 1,400 crore was released in March but that was exhausted to meet bills that were pending for months.

India's largest bank will hold a record online auction this weekend to sell repossessed flats, warehouses and offices worth a total of nearly $200 million as the state lender seeks to chip away at its $10 billion mountain of bad debt, Reuters reported. The State Bank of India auction will be the biggest nationwide online sale to date and is a rare public move to turn distressed loans into ready cash.

India’s legion of heavily indebted companies took heart last week as shares in Suzlon Energy soared nearly a third on news that the ailing wind-turbine manufacturer had sold a 23 per cent stake to Dilip Shanghvi, the billionaire pharmaceutical tycoon, for Rs18bn ($290m), the Financial Times reported. The investment drew attention partly because of its buyer. Mr Shanghvi, India’s second-richest man, boasts a reputation as a canny entrepreneur.

India’s prime minister Narendra Modi this month unveiled plans to sell down government holdings in public sector banks, potentially injecting Rs1.6tn ($26bn) of capital into the banking system. But many analysts remain doubtful over the viability of the recapitalisation and how much it could raise, the Financial Times reported. Few disagree that banks in Asia’s second-largest economy need funds. Earlier this year, India admitted it needed to find an extra Rs2.4tn, with a particular focus on struggling state-backed lenders, which control around three-quarters of assets.

India’s government said banks may be asked to lend as much as 6 billion rupees ($94 million) to billionaire Kalanithi Maran’s SpiceJet Ltd., as the indebted airline seeks investment over the next two months to keep flying, Bloomberg News reported. The loans would be guaranteed by Maran and repaid as soon as investment was secured, part of a package of steps to prevent a shutdown that would damage India’s airline industry, the government said in New Delhi late yesterday.

Hindalco is gearing up for a mega debt restructuring drive. CNBC-TV18 learns from sources that over the next one year Hindalco seeks to restructure its debt of Rs 63,000 crore in three phases. Hindalco plans to refinance Rs 6,000 crore debt in the first tranche through dollarising debt. Move may reduce company’s debt cost by up to Rs 150 crore. Going ahead, it may raise ECB issue of up to USD 500 million in the second tranche. Discussions are still on to carve out a plan for the remaining debt. In the third tranche, it will actively look to reduce debt.

The Reserve Bank of India will soon allow banks more flexibility while restructuring corporate loans, The Indian Express reported. Banks will be able to increase their equity holdings above the current cap of 10 per cent in companies undergoing debt restructuring through conversion of loan into equity. RBI Governor Raghuram Rajan said the RBI is planning to unveil two measures to enable more productive loan restructuring. It is considering extending the 5/25 rule for fresh lending.

Reserve Bank of India Governor Raghuram Rajan said banks should have more power to recoup money from defaulters to rebalance a system that’s skewed in favor of large companies, Bloomberg News reported. The Indian credit system is unhealthy and rests on an uneven sharing of risks and profits that overprotects big borrowers and forces state-controlled banks to absorb losses in downturns without profiting in good times, Rajan said yesterday.

A panel set up by the Union finance ministry to help frame a bankruptcy code will submit its suggestions on insolvency in small and medium enterprises (SMEs) by the budget session of Parliament, followed by its report covering the larger corporate sector later next year, Livemint reported. The government is hoping that a bankruptcy framework, along with the various steps taken in the last few months, will improve the country’s ranking in the World Bank’s Ease of Doing Business report. India is currently at the 142nd rank out of 189 countries.