Saturday 10 October 2020

10.10.2020: Today's Banking / Financial News

10.10.2020: Today's Banking / Financial News at a Glance

🍒 RBI delivers without a policy rate cut : As widely expected, the Monetary Policy Committee maintained status quo on the key policy rate, with inflation rate holding above the RBI’s comfort level. But the MPC brought pre-Diwali cheer by giving a ‘whatever it takes’ assurance to revive growth, as it looked at the “current inflation hump as transient”. The 5:1 vote of the six-member MPC in favour of a continued accommodative stance “at least during the current financial year and into the next financial year”, also offered markets an extended comfort on rates and liquidity. - Business Line

🍒 Bankers' reaction to RBI keeping status quo on rates, maintaining 'accommodative' stance : The six-member Monetary Policy Committee (MPC) on Friday unanimously voted for keeping the policy repo rate unchanged as retail inflation has been above its upper tolerance level of 6 per cent for several months. The Committee decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward. To provide impetus towards reviving the economy, the Reserve Bank of India (RBI) announced specific additional measures to enhance liquidity support for financial markets; provide regulatory support to improve the flow of credit to specific sectors, among others.- Business Line

🍒 RBI policy overall positive, growth-oriented, say experts : Financial sector participants on Friday said RBI's decision to keep the key repo rate unchanged is an accommodative approach to manage inflation while keeping growth as target, amid the current economic conditions. The Monetary Policy Committee (MPC) evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the policy repo rate unchanged at 4 per cent, RBI Governor Shaktikanta Das said in his policy statement for the bi-monthly monetary policy review. "It also decided to continue with the accommodative stance of monetary policy as long as necessary - at least during the current financial year and into the next year - to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward," Das said. - economic times

🍒 SBI urges SC to dismiss plea against wind up UBHL : The State Bank of India (SBI) on Thursday urged the Supreme Court to dismiss a plea by Vijay Mallya’s firm United Breweries Holdings (UBHL) against its winding up for failure to pay admitted liabilities to creditors as per the corporate guarantees extended to the defunct Kingfisher Airlines. SBI senior counsel Mukul Rohtagi told a bench led by Justice UU Lalit that Mallya is facing bankruptcy proceedings in the UK, besides extradition proceedings. “Appeals should be dismissed as Mallya is behind all this and is playing ducks and graces,” he said, requesting the apex court to give it some more time to seek “other instructions and also find about the ongoing proceedings.” - Financial express

🍒 RBI raises retail exposure threshold for banks : The Reserve Bank of India (RBI) has upped the absolute threshold limit for maximum aggregated retail exposure of banks to one counterparty to ₹7.5 crore from ₹5 crore. This move is aimed at facilitating higher credit flow to the retail segment, which mainly consists of individuals and small businesses (with turnover of up to ₹50 crore). This increased exposure limit is in respect of all fresh as well as incremental qualifying exposures, and is in harmonisation with the Basel guidelines. “This measure is expected to expand credit flow to small businesses,” the RBI said.- Business Line

🍒 HDFC Bank takes festive offers to rural India to pump up credit growth : Private lender HDFC Bank has taken its “festive treats” offering to its semi-urban and rural markets in a bid to prop up credit growth. The bank will use its network of 1.2 lakh village level entrepreneurs (VLEs) and tap over 3,000 plus hyperlocal merchants and traders to offer customized deals at the regional level. According to the lender, customers will get special deals on all banking products from loans to bank accounts. This includes home loans, 2-wheeler loans, car loans, tractor loans, gold loans or business growth loans. Customers can avail of flat 5% to 15% off in various categories of products.- economic times

🍒 RBI’s move to rationalize home loan risk weightage to support higher lending : The Reserve Bank of India’s decision to rationalize the risk weights on home loans and link them to Loan-to-Value (LTV) ratio is expected to bolster the real estate sector with higher lending, property developers said. Until now, the risk was linked to both size of the home loan and loan to value and the move to link it to only the latter is likely to help lenders on the capital adequacy front enabling them to provide more loans. “The decision to rationalise the risk weights on home loans and link them to Loan to value ratios only will give a boost to the real estate sector. Particularly this step would benefit borrowers of higher value loans. It would ensure that more credit is available to borrowers,” said Niranjan Hiranandani, President (National) NAREDCO. “This move is a much appreciated step recognising the role of the real estate sector in generating employment and economic activity.” The decision, according to property developers, has come at the right time and will help projects in all segments and price points. - economic times

🍒 Relief to exporters: RBI discontinues automatic caution-listing system : The Reserve Bank of India on Friday announced discontinuing the system-based automatic caution-listing of exporters, a move aimed at providing flexibility to exporters in terms of realisation of export proceeds. Exports have been adversely impacted by the pandemic-related contraction in external demand, RBI Governor Shaktikanta Das said during a virtual press conference after the meeting of the Monetary Policy Committee. "In this environment, it is crucial to provide flexibility to exporters in the realisation of export proceeds and to empower them to negotiate better terms with overseas buyers," he said.- economic times

🍒 RTGS to be available 24x7x365 from Dec 2020 : The Reserve Bank of India (RBI) in its Statement on Development and Regulatory Policies has announced that the money transfer facility, RTGS, will be available round the clock, 24 hours a day, 7 days a week from December 2020. Under the current rules, the transfers can be made between 7 AM and 6 PM on all working days except for the second and fourth Saturday of the month and on Sundays. The announcement comes after the RBI made the NEFT facility available 24X7 from December 16, 2019. In its statement the central bank said, "In December 2019, the National Electronic Funds Transfer (NEFT) system was made available on a 24x7x365 basis and the system has been operating smoothly since then. The large-value RTGS system is currently available for customers from 7.00 am to 6.00 pm on all working days of a week (except 2nd and 4th Saturdays of the month). - economic times

🍒 Digital Apnayen campaign gives further push to digital payment adoption : The Digital Apnayen Campaign, which was rolled out on August 15 to encourage customers to use digital banking channels, has propelled digital payment adoption with banks having on-boarded 1.58 crore customers in less than two months since launch, the Finance Ministry said on Friday. It has also resulted in deployment of 50,000 Point of Sales (PoS) terminals, over three lakh QR codes, and 18,000 BHIM Aadhaar pay devices in just 45 days, the Department of Financial Services tweeted on Friday. This campaign was launched under the aegis of the government’s Digital India initiative. .- Business Line

🍒 RBI expects real GDP to fall by 9.5% : India’s recovery is likely to be a three-speed recovery predominantly, with individual sectors showing varying paces depending on sector-specific realities, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. For the year 2020-21 as a whole, the central bank expects real GDP to decline by 9.5 per cent, with risks tilted to the downside: (-)9.8 per cent in Q2 (July-September) 2020-21; (-)5.6 per cent in Q3 (October-December); and 0.5 per cent in Q4 (January-March 2021). Real GDP growth for Q1 (April-June) 2021-22 will see a rebound, with the RBI placing it at 20.6 per cent. “There is currently an animated debate about the shape of the recovery. Will it be V, U, L, or W? More recently, there has also been talk of a K-shaped recovery. “In my view, it is likely to predominantly be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities,” said the Governor in his bi-monthly monetary policy address. - Business Line

🍒 Co-origination scheme expanded to include all NBFCs, HFCs : All non-banking financial companies, including housing finance companies, will now be included in the co-origination scheme as part of efforts for greater financial inclusion and give more operational flexibility to lending institutions. The move is also expected to give a boost to housing finance. “Based on the feedback received from the stakeholders to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort, and to improve the flow of credit to the unserved and underserved sector of the economy, it has been decided to extend the scheme to all NBFCs (including HFCs) to make all priority sector loans eligible for the scheme and give greater operational flexibility to the lending institutions, while requiring them to conform to the regulatory guidelines on outsourcing, KYC,” said the RBI’s Statement on Developmental and Regulatory Policies. - Business Line

🍒 With ‘slog overs’ and ‘strike form’, RBI chief describes state of play : With the IPL season in full swing, Reserve Bank of India Governor Shaktikanta Das on Friday chose cricketing terminologies to suggest that some of the worst-hit sectors of the economy can use “slog overs” to rescue the “innings”. “Open their accounts” and “strike form” also found a place in the Governor’s statement as he shared his views on the pandemic-hit economy after the Monetary Policy Committee (MPC) decided to leave key benchmark rate unchanged and maintain an accommodative stance. Trying to explain the process of recovery for the Covid-19-hit economy, Das said, “In my view, it is likely to predominantly be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities.” He added that sectors that would “open their accounts” the earliest are expected to be those that have shown resilience in the face of the pandemic and are also labour-intensive. - Business Line

🍒 CBI books HDIL promoters Wadhawans for Rs 200-crore loan fraud in YES Bank : The CBI has booked HDIL promoters Rakesh Wadhawan and Sarang Wadhawan, along with other directors and auditors in the firm, in an alleged Rs 200-crore loan fraud in Yes Bank involving Mack Star, officials said Friday. After registering the case, the CBI searched the residence of Rakesh Wadhawan and his son Sarang in Mumbai, they said. The agency also carried out searches at nine other premises in Mumbai, including two offices of HDIL, they said. It is alleged that Yes Bank had given loan to Mack Star in which HDIL was a minority shareholder. - Business Line

🍒 Cheaper big-ticket home loans to give realty sector a boost : Home loans over ₹75 lakh may get cheaper, with the RBI’s move to link risk weights for home loans with the loan-to-value (LTV) ratio. The LTV is the ratio of the loan amount to the value of the property.In a move that could reduce banks’ capital requirement and ease rates to boost demand, the RBI has rationalised risk-weights for new housing loans sanctioned up to March 31, 2022. Such loans will now attract a risk weight of 35 per cent where the LTV is less than or equal to 80 per cent, and a risk weight of 50 per cent where the LTV is more than 80 per cent but less than or equal to 90 per cent.The measure is expected to particularly give relief to big ticket loans above ₹75 lakh.According to an SBI report, these loans constitute around 12-15 per cent of the total housing loan portfolio, where the risk weight is higher.Assuming a growth of 20 per cent for the next 18 months, this could reduce the capital requirement of around ₹500 crore, which can enable banks to ease rates to boost demand, the report said. Punjab National Bank MD & CEO CH. SS Mallikarjuna Rao said that the move will give impetus for high value houses. - Business Line

🍒 PE investors, foreign banks taking majority stakes may rescue old pvt banks : For the past two weeks, old private banks — those that existed during bank nationalisation — have hit the headlines for wrong reasons. Whether Lakshmi Vilas Bank (LVB) or Dhanlaxmi Bank, issues around corporate governance, mismanagement, differences between promoter groups and even the effectiveness of shareholder activism were being raised — which ultimately question whether the Reserve Bank of India (RBI) has monitored these banks adequately. Several of these banks were placed under the Prompt Corrective Action (PCA) framework of additional regulator scrutiny but this does not seem to have stemmed the rot (see table). “Placing banks under PCA alone would not do good; there needs to be scrutiny on what went wrong and a viable road map for the banks to exit PCA,” said Abizer Diwanji, partner and national leader-financial services, EY India. In effect, he is advocating that banks under distress be treated differently so that an effective rescue plan can be worked out. - Business Standard

🍒 CARE Ratings downgrades LVB debt instruments over plunge in net worth : CARE Ratings has downgraded Lakshmi Vilas Bank (LVB)'s tier-II bonds totalling Rs 618.70 crore, citing a sharp decline in net worth caused by losses in FY20 and in Q1 of FY21. The development comes two days after Brickwork Ratings downgraded the lender's debt to 'BWR B+'/ Credit Watch with negative implications for the lender's long-term bonds of Rs 50.50 crore, and a day after LVB received an indicative non-binding offer from the Clix Group. LVB has reported a capital adequacy ratio (CAR) and Tier-I CAR of 0.17 per cent and -1.83 per cent (negative), respectively, as on June 30, 2020 (1.12 per cent and -0.88 per cent as March 31, 2020) as against the regulatory requirement of 10.875 per cent and 8.875 per cent. - Business Standard

🍒 Series-VII of the sovereign gold bond opens for subscription from October 12 : The Series-VII for Sovereign Gold Bonds 2020-21 will be open for the period October 12-16 with a settlement date on October 20. The issue price of the bond during the subscription period would be ₹5,051 per gram, an official release said. The Government, in consultation with the Reserve Bank of India, has decided to allow a discount of ₹50 per gram from the issue price to those investors who apply online and the payment is made through digital mode. For such investors the issue price of Gold Bond will be ₹5,001 per gram of gold, the release added. - Business Line

🍒 Forex reserves surge to life-time high of $545.638 billion : The country’s foreign exchange reserves rose by USD 3.618 billion to reach a life-time high of USD 545.638 billion in the week ended October 2, 2020, the RBI data showed. In the previous week ended September 25, the reserves had declined by USD 3.017 billion to USD 542.021 billion. During the reporting week, the increase in forex kitty was on account of a rise in foreign currency assets (FCA), a major component of the overall reserves. FCA increased by USD 3.104 billion to USD 503.046 billion in the week ended October 2, the data showed.

🍒 Rupee settles 8 paise higher at 73.16 : The rupee has settled 8 paise higher at 73.16 against the US dollar on Friday as the Reserve Bank of India decided to keep the benchmark interest rate unchanged. At the interbank forex market, the rupee opened at 73.21 against the American currency, gained some ground to touch an intraday highe of 73.09, but gave up some of its gains towards close. On Thursday, the rupee closed at 73.24 against the US dollar.

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