Existential minimum for over-indebted people can go to BRL 600 – 04/19/2023 – Market

The government of Luiz Inácio Lula da Silva (PT) proposes to increase the so-called existential minimum from BRL 303 to BRL 600, a portion of the monthly income of highly indebted individuals that is protected from banks. The initiative is part of a package formulated by the Ministry of Finance with 13 measures aimed at the credit market and which will be released this Thursday (20).

With the update of the existential minimum, the ministry plans to reach a total of 14 million Brazilians (5 million more than currently), who will also be entitled to apply for a special procedure for renegotiating debts with the Union.

According to preliminary estimates, the balance subject to renegotiation would grow by around R$30 billion, from R$235 billion to R$266 billion. The value of BRL 600 for the existential minimum was defined together with the Ministry of Justice in order to match it with the amount granted by the government to beneficiaries of the Bolsa Família program.

“This is a measure that can be a source of relief for the population at this time”, says Marcos Barbosa Pinto, Secretary of Economic Reforms at the Treasury, adding that Brazil currently has around 70 million negative Brazilians.

The Ministry of Finance seeks to encourage the granting of credit at a time when the financial institutions’ appetite is lower, cautious after the Americanas case and the international scenario, with the financial difficulties faced by the banking sector in the US and Europe.

In this context, the package of structural credit measures is based on three axes: the bank credit market, the capital market and the insurance market.

The Treasury understands that there are a series of constraints that do not necessarily provide guarantees and security for credit and intends to make some bureaucratic requirements more flexible. For example, an individual who has an income equal to or less than the maximum allowed for inclusion in small companies will be exempt from presenting several certificates to obtain credit, as consultation with the Cadin (Informative Registry of Unpaid Credits of the Federal Public Sector) will be used. ).

To the same extent, it intends to make the requirements for issuing debentures more flexible [títulos de dívida de empresas] –eliminating, for example, the requirement to call a general meeting of shareholders to endorse the shares, which could be done by the board or the board.

The folder also wants to simplify the way in which individuals and companies share tax data with financial institutions. This means that the customer would authorize the bank to access data under the control of the Federal Revenue Service, such as income, billing and IR (Income Tax) refunds, so that that user could prove his or her real financial condition and obtain credit with adequate interest to every situation.

In another action to stimulate credit, the ministry intends to present a bill allowing the use of open private pension plan resources, insurance, capitalization bonds and Fapi (Individual Programmed Retirement Fund) as guarantee for loans.

In this case, someone who needed money to settle a temporary financial backlog could provide the funds as collateral, reducing the interest on the loan taken. At first, there will be no limitation on the amount to be redeemed, which may be changed later.

The government will also support the urgent processing of the new guarantee framework created by the Jair Bolsonaro (PL) government and which is in the Federal Senate. The text, which seeks to stimulate the credit market in the country, allows, among other things, to use the same property as collateral in more than one bank loan.

In the case of a BRL 1 million property given as collateral for a BRL 100,000 loan, for example, the owner could use the remaining BRL 900,000 to pledge other loans.

For the Secretary of Economic Reforms, the project is “meritorious” and is blocked in Congress by “accessory discussions”. According to Barbosa Pinto, the economic portfolio intends to dialogue with Congress to “remove obstacles”. As an example, he cites a discussion about family welfare.

The digital real –under development by the Central Bank– appears as one of the measures that, in the ministry’s assessment, will help to modernize the credit market. The intention is to send a complementary bill that creates the legal basis for the digital currency, which would open space for the emergence of new financial institutions that would increase competition in the sector.

Another complementary bill, currently being discussed in the Chamber, aims to simplify the rules that regulate financial institutions. According to the folder, among the expected impacts are the lower risk of using public resources in the case of intervention and the reduction in the cost of credit for smaller banks.

There are also proposals to increase competition in the insurance sector. In this market, the Farm’s idea is to enable cooperatives to expand their areas of activity, starting to sell products in markets such as insurance for bicycles, cell phones, tablets and notebooks.

In the case of PPPs (Public-Private Partnerships) to states and municipalities, the Treasury will change the procedure for verifying limits and conditions to allow the contracting of loans in order to guarantee the Union’s counter-guarantee to the PPP projects of these entities.

With this, smaller city halls could guarantee partnerships of the type for the construction of day care centers to expand early childhood education or even universalize basic sanitation infrastructure.

In addition, the ministry wants to edit a decree to allow the issuance of debentures with income tax exemption for investments in education, health, public safety, prison system, urban parks and conservation units, cultural and sports equipment, social housing and urban regeneration.

Today, funding is concentrated in infrastructure sectors, such as lighting, urban mobility and basic sanitation.

Some measures were anticipated by the Sheet. On the occasion, the ministry said that it also intends to amend the Civil Code to eliminate the existing interest ceiling for loans between individuals – currently restricted to the basic rate (Selic). The government understands that the limit hinders the development of the capital market and channels resources to traditional banks.

Another idea mentioned earlier refers to the enforcement of corporate debts, in which the administrative part of the process —such as identification of assets and valuation of values— would leave the responsibility of the Judiciary and would be passed on to lawyers, specialized companies or notaries.

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STRUCTURAL CREDIT MEASURES PROPOSED BY THE MINISTRY OF FINANCE

Bank Credit Market

1. Federal guarantee to states and municipalities for PPPs

2. New Marco das Garantias: bill (PL) in the Senate that improves guarantees and expands access to credit

3. Bill that allows the use, as a loan guarantee, of social security resources, such as insurance, capitalization bonds and open supplementary pension plans

4. Bill to simplify the procedure for issuing debentures and reducing bureaucratic requirements in granting credit

5. Ordinance to simplify the way individuals and companies share tax data with banks

6. Complementary bill to establish the legal basis for the creation of Real Digital

7. Complementary PL already in the Chamber, simplifies regulations on financial institutions (bank resolution regime)

8. Decree amends the current regulation of the Overindebtedness Law, in order to modify the value of the “existential minimum” (today already regulated by a 2022 decree). It would go from BRL 303.00 to BRL 600.00

Capital market

1. PL to improve mechanisms to protect minority investors against damages caused by unlawful acts by controlling shareholders and managers

2. PL to align the MFIs (responsible for settlement processes, clearing, guarantees, registration and deposits of financial assets and securities) with the best international practices

3. Decree to allow incentivized debentures for social and environmental infrastructure

Insurance market

1. Complementary PL to enable insurance cooperatives to expand their range of activities

2. Bill in the Senate that revises and expands private insurance rules