Financial Awareness-December(11-20) 2016

  1. Demonetisation bolsters sluggish govt-backed UPI payment system (Source: MINT)
  • The chaos caused by India’s ban on high-denomination rupee notes has provided a boost to a national cashless payment platform that has struggled to gain traction.
  • Usage of the government-backed Unified Payments Interface has surged, with more than 250,000 transactions in the first week of December, close to November’s total of 287,000, central bank data show, as some Indians seek to circumvent the cash shortage that followed the government’s surprise graft-busting move on 8 November.

2. 23% of Jan Dhan accounts are still showing zero balance (Source: BL)

  • Despite a huge surge in total deposits in Jan Dhan accounts following demonetisation, about one-fifth of these accounts still have no balance.
  • The net addition in the 25.8 crore Jan Dhan accounts was just Rs. 288 crore during the week ended December 7, taking total deposits to about Rs. 74,610 crore.
  • The percentage of zero balance accounts, however, remained flat at about 22.9 per cent despite the addition of Rs. 29,000 crore in total deposits in about 30 days after demonetisation of high-value notes took effect on November 9.
  • After the initial surge, total deposits in Jan Dhan accounts have seen a decline week after week. As much as Rs. 1,487 crore was parked in these accounts during the seven days ended November 30, as against Rs. 8,283 crore in the previous week.
  • The accretion was Rs. 18,615.54 crore a week after demonetisation, which moderated to less than half — Rs. 8,582.57 crore — from November 17-23.
  • Deposits in the 25.8 crore such accounts totalled Rs. 74,609.50 crore at the end of December 7, as per the Finance Ministry’s data. The upper limit for deposits in Jan Dhan accounts is Rs. 50,000.

3. Yes Bank, Grofers tie up to deliver cash at doorstep (Source: ET)

  • Extending facility to deliver cash at doorstep, Yes Bank has now tied-up with e-grocer Grofers allowing customers to get cash of up to Rs 2,000 when they order grocery online.
  • The cash delivery service, open to all back account holders. Customers who wish to order cash withdrawal will have to buy grocery of minimum of Rs 2,000 and pair it with a special code to get the money.
  • Earlier, Yes Bank had partnered with app-cab service Ola to deliver cash-ondemand at doorstep.

4. Cash squeeze: ADB slashes India’s 2016 growth estimate to 7% (Source: BL)

  • The Asian Development Bank (ADB) has trimmed its 2016 growth estimate for India to 7 per cent from the previous 7.4 per cent on account of demonetisation, weak investment and agricultural slowdown. But India’s growth forecast for 2017 was kept at 7.8 per cent.
  • The junking of old 500 and 1,000 rupee notes will likely affect largely cashbased sectors in the country, including small and medium-scale businesses.
  • In a supplement to its Asian Development Outlook 2016 Update report, ADB has downgraded 2016 growth for Asia to 5.6 per cent, below its previous projection of 5.7 per cent. For 2017, growth remains unchanged at 5.7 per cent.

5. Banking system to be capital constrained, needs $18 billion in 3 years (Source: ET)

  • The broader banking system in India will continue to be capital constrained and it will require an additional capital of up to Rs 1.2 lakh crore (USD 18 billion) over next three years, says a report.
  • In order to thrive in a resource-constrained world, banks will need to have a razor-sharp focus on managing their capital and their risk-return profiles, said the report by management consulting firm Oliver Wyman.
  • Opportunity for banks is substantial if they can successfully address their current stresses and re-invent business models, it added.
  • The report further noted that it is imperative for Indian banks to act upon the opportunities and challenges presented by the onset of the revolution in Indian banking.
  • According to Oliver Wyman, public sector banks have lost significant market share in recent years, and this trend is expected to continue as they grapple with asset quality issues and the resulting capital constraints.
  • Moreover, Fintech players are rapidly encroaching into spaces previously owned by banks at a time when banks are ‘bogged down’ by capital constraints and other challenges. “Declining revenues could combine with capital constraints to restrict the funds available for investing in new technologies and operating models,” it added.
  • As per the report, the largest opportunity is with Small and Medium Sized Enterprises, estimated at USD 140 billion, which is currently under-served due to high costs.

6. Small finance banks need upto Rs 60,000 crore of non-equity funds by FY20: Report (Source: ET)

  • Small finance banks funding mix will be different and complex after their transition from non-banking finance companies and microfinance institutions (NBFC-MFIs) and they are likely to need Rs 60,000 crore of non-equity funding by the financial year 2019-2020, according to a report.
  • The current funding mix for MFIs includes bank debt, other borrowings and equity, with bank debt being the largest proportion in the mix. Scheduled Commercial Banks (SCBs) prefer funding MFIs because these advances qualify as priority sector lending (PSL) for them.
  • “The improved profile and acceptability of the sector and the fact that some of the MFIs will transform into banks increase the funding complexity mainly because SFBs may not be able to directly borrow from banks,” the rating agency India Ratings and Research said in a report.
  • It said although at the beginning of the transition (one to three years), SFBs are likely to be comfortable on the short-term liquidity front, they will need to replace their amortising bank loans and fund the incremental book growth by customer deposits (1-1.5 years and that too primarily wholesale deposits) and certificate of deposits (CDs).

. 7. Demonetisation to hit bank credit growth (Source: BL)

  • Credit growth has always been closely linked to the pace of economic growth. The recent cut in GDP growth forecast by rating agencies, brokerage houses and the latest by the RBI will hence directly impact the growth in bank lending.
  • Given that bank credit has grown by a smaller multiple to the growth in GDP in recent years than in the past, lower-than-expected growth in GDP can only make matters worse.
  • On an average, the credit growth has been 2.5-3 times the real GDP growth in the past. The multiple has shrunk to 1.2-1.4 times over the last three years.
  • During the high growth periods between 2004-05 and 2007-08, when growth in GDP was a robust 8-9 per cent, credit demand had been strong. Bank credit then grew by 25-30 per cent year-on-year, at about three times the real GDP growth.
  • As GDP growth fell, credit growth too slipped to 14-16 per cent levels in 2011-12 and 2012-13. But what has made matters worse is that lending has grown at a slower pace in relation to the already lacklustre growth in the broader economy. Bank credit growth has ranged between 1.2 and 1.4 times the GDP growth over the past two years, mainly due to the weak credit offtake at public sector banks.
  • But in the last three years, public sector banks (PSBs) have grown at a far slower pace, because of their huge exposure to the corporate segment — 40-50 per cent of lending is to large corporates. Credit growth of PSBs plummeted to 7 per cent in 2014-15 from 13-14 per cent in the previous two years.
  • Lower-than-expected growth in GDP can hurt bank credit even more. Growth in GDP post-demonetisation has been marked down by various rating agencies and brokerage houses to 7 per cent levels for 2016-17. Considering a 1.2 to 1.4 times multiple, bank credit can at best grow by 8-9 per cent this fiscal.
  • For the next fiscal, even if GDP growth picks up pace to 7.7-8 per cent levels in a best case scenario, credit growth will likely continue to languish at 10-11 per cent.

8. ATMs run by private non-banking entities suffering as banks give priority to their own branches (Source: ET)

  • Operators of white label ATMs, or automatic teller machines owned and run by private non-banking entities, have reached out to the Reserve Bank of India to find a solution to their persistent problems with supply of cash.
  • As banks are giving priority to their own branches and ATM network while manging a limited supply of cash , almost all the 14,000 white label ATMs (WLAs) are lying dysfunctional.
  • Industry insiders said 99% of WLAs have not even operated for a single day after November 8. These players have as much as 6,500 ATMs in rural areas and service approximately 30 million customers per month.

9. New incentives to go cashless (Source: MINT)

The government on December 19th announced more measures to make the economy less dependent on cash. Some key points:

  • Small merchants with a turnover of up to Rs2 crore will have to pay less tax on financial transactions that have been carried out digitally.
  • Such entities will now pay a lower 6% of deemed profit in tax instead of the current 8% of deemed profit in respect of the amount of total turnover or gross receipts received through banking channels or digital means for fiscal year 2016-17.
  • Such an assessee is not required to maintain the regular books of account and is also exempt from getting the books of account audited.

 

 

 

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