Financial Awareness-January(1-10) 2017

  1. Public sector banks: Government to soon finalise 2nd tranche of capital infusion (Source: MINT)
  • Finance ministry is likely to finalise the second tranche of capital infusion in public sector banks (PSBs) in the next three weeks. The decision on the second round of capital infusion is slated to be crystallised before the Budget.
  • The government has already announced fund infusion of Rs22,915 crore, out of the Rs25,000 crore earmarked for 13 PSBs for the current fiscal. The first tranche was announced with the objective of enhancing their lending operations and enabling them to raise more money from the market.
  • The capital infusion exercise for the current fiscal is based on an assessment of the compounded annual growth rate (CAGR) of credit growth for the last five years, banks’ own projections of credit growth and an objective assessment of the potential for growth of each PSB.

2. RBI arm to test blockchain tech for digital transactions (Source: BL)

  • As the government promotes digital banking transactions post demonetization, Institute for Development and Research in Banking Technology (IDRBT), a RBI arm, is coming up with blockchain technology framework to facilitate digital transactions in a tamperproof way. The institute will work with volunteering banks to build applications for the banking sector. It will also build a small digital currency model using blockchain technology.

3. Angel funds can now spread wings beyond just-born start-ups (Source: BL)

  • Angel funds can invest in start-ups that are up to five years old, following the latest relaxation of rules for investments in start-ups by the market regulator Securities and Exchange Board of India (SEBI).
  • The minimum tenure of angel funds’ investments in start-ups has also been lowered from three years to one year. The minimum size of an investment has also been lowered to Rs. 25 lakh from Rs. 50 lakh. The new rules also allow such funds to invest in overseas venture capital undertakings up to 25 per cent of their investible corpus in line with other AIFs.
  • The upper limit for the number of angel investors in a scheme has been increased from 49 to 200.

4. SBI to launch its own version of digital only bank soon (Source: ET)

  • State Bank of India is soon going to launch branch less banking called SBI Digi Bank, something similar to what Citi or DBS have done elsewhere in the world. The Digi Bank will have a financial superstore, a market place, and end-to-end digitisation for all products and services.
  • The digital-only bank, which will be device-agnostic, will use the Aadhar infrastructure for not only on-board customers but also provide them services online.

5. Cut in MCLR may not dilute bank’s interest margins: Jefferies (Source: FE)

  • The cut by banks in their marginal cost of funds based lending rate (MCLR) may not dilute their net interest margin (NIM) over the next one or two quarters, investment banking firm Jefferies said.
  • According to Jefferies, under the MCLR regime the banks have the ability to decide on the ‘interest reset dates’ as a result and increase or decrease in the rate does not immediately translate to a higher or lower interest rate.
  • On the other hand, implication on corporate profitability and improvement in interest coverage ratio (ICR) could be material for certain corporates given the extent of MCLR cut; and hence the non-performing loans (NPL) outlook could turn slightly better for the banks.
  • According to Jefferies, in the medium term, the key to the performance of the banking sector is demand recovery and an uptick in capacity utilisation in the core-sector.

6. Subdued demand is the biggest risk for corporates: RBI (Source: FE)

  • Over the last one year, there have been some improvements in corporate balance sheet leverage and their interest coverage. However, the muted demand environment has kept turnover growth for corporates in the lower single digits. This sluggish demand has resulted in a halt in corporate capex.
  • Deleveraging of corporate balance sheets, halt in fresh capex, and increased access to corporate bond market, have led to a negative growth in banks’ credit to corporates (y-o-y bank credit growth as of Nov’16: Industries -3.4%, Services 7.1%).

7. GDP growth to slow to 7.1% in FY17: Govt (Source: MINT)

  • India’s economic growth is likely to decelerate to 7.1% in 2016-17 from 7.6% the previous year, chiefly due to an industrial slowdown, according to the growth projection by Central Statistics Office (CSO) released on January 6, sidestepping the possible impact of demonetisation.
  • Chief statistician of India T.C.A. Anant said that for the most part, data up to October had been used while in a few cases November data has also been incorporated. The government invalidated Rs500 and Rs1,000 banknotes with effect from 9 November.
  • Anant clarified that for the financial services sector, which is estimated to grow by 9%, compared with 10.3% last year, growth in bank deposits and credit data for November had not been factored in on account of the demonetisation drive.
  • Buoyed by a normal monsoon and encouraging sowing data, the farm sector’s growth is projected to accelerate to 4.1% this financial year from 1.2% last year.
  • However, slower growth in manufacturing (7.4%) and the construction sector (2.9%) and contraction in the mining sector (–1.8%) is expected to drive down overall growth.
  • Among the services sectors, public expenditure, which has been the key driver of growth this year, is expected to grow 12.8% compared with 6.6% last year. Growth in the trade, hotels and transport sector—the largest services segment—is expected to slow to 6% from 9%.
  • While private consumption is expected to continue to decelerate (6.5%), investment demand is set to enter negative territory (-0.2%), signalling the dire state of private investment demand.
  • Another measure of economic activity—gross value added (GVA)—showed the economy growing 7% in 2016-17, compared with 7.2% last year.

.8.  Govt relaxes Companies Act norms for IFSC firms (Source: MINT)

  • The central government has granted certain exemptions to private companies being set up in international financial services centres (IFSC) from the norms of the Companies Act 2013.
  • The IFSC companies can make private placement offers. An extract of the annual return of the company will not have to be included in the board’s report. IFSC companies will not have to comply with the secretarial standards prescribed by the ICSI. IFSC companies only need an internal audit if their articles of association provide for the same. IFSC firms can make investments through more than two investment companies.

9. Ease of doing business: DIPP calls for fast-track commercial courts (Source: MINT)

  • The industry department has asked the law ministry to bring an ordinance to allow the government to open fast-track commercial courts in Delhi and Mumbai to improve India’s record in enforcing contracts. · The move is aimed at improving India’s ranking in the World Bank’s Doing Business report. India ranks 172 out of 190 countries under the “enforcing contracts” indicator in the latest report.
  • Parliament enacted the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act in December 2015 for speedy and time-bound disposal of commercial disputes. The commercial courts are to be constituted at the district level by state governments after consultation with the high court concerned.
  • However, the law provided that no commercial court will be constituted for the territory over which high courts have exclusive civil jurisdiction to hear commercial matters, such as in Delhi, Mumbai, Kolkata and Chennai, which were presidencies or special administrative divisions during the British rule. · The department of industrial policy and promotion (DIPP) wants to introduce the ordinance to amend this provision so that district commercial courts could also be set up in Delhi and Mumbai, the two cities that are used as samples for ranking India under the World Bank’s Doing Business report.

10. Tax buoyancy improves, thanks to indirect levy (Source: BL)

  • The growth in tax collection in relation to GDP growth has improved over the past couple of years under the Modi regime. In 2013-14, tax buoyancy hit a four-year low at 0.71. Since then, it has improved to 1.23 in 2014-15 and 1.35 in 2015-16. While the improvement is good for the economy, the reliance on indirect taxes to improve tax buoyancy is not comforting.
  • Tax buoyancy is an important indicator of the efficiency and responsiveness of tax revenue mobilisation to GDP growth. It is calculated as a ratio of percentage growth in tax revenues to growth in nominal GDP for a given year. Tax is said to be buoyant if the gross tax revenues increase more than proportionately in response to a rise in GDP figures.
  • Having a tax buoyancy figure of more than one has a salubrious impact on the fiscal deficit ratios, finds a study. A 2014 IMF study of 34 OECD nations found that about half of them who were able to improve their deficit ratios had long-term tax buoyancy figures above one.

 

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