Financial Awareness-December(21-31) 2016

  1. PSU banks seek higher capital infusion from govt (Source: Mint)
  • Facing temporary disruption in business due to demonetisation, state owned banks have sought higher capital support from the government. Reserve Bank of India (RBI) too has endorsed their view of higher capital infusion, sources said.
  • Under the Indradhanush roadmap announced last year, the government will infuse Rs25,000 crore in public sector undertaking (PSU) banks during the current fiscal. The government in July had announced the first round of capital infusion of Rs22,915 crore for 13 PSU banks. Of this, 75% has already been released to these banks.

2. Bad debt provisioning: RBI urges govt to give full tax deduction to banks (Source: BL)

  • The Reserve Bank of India December 20 urged the Finance Minister Arun Jaitley to allow banks to get full tax deduction on the provisions made towards bad debts.
  • Such a facility of full tax deduction will shore up banks, which face challenges from demonetisation and sluggish loan recoveries in the ongoing third quarter.
  • During the meeting, banks also pitched for extension of the additional 60-day window granted to them for recognition of a loan account as sub-standard. The RBI had on November 21 temporarily relaxed prudential norms for banks and non-banking finance companies, allowing short-term deferment of classification of loan dues of small borrowers as sub-standard.
  • As far as the tax break on bad debt provisioning goes, banks can currently get a deduction only up to 7.5 per cent of the total income. The RBI and some bankers (who attended the meeting) urged Jaitley to allow 100 per cent deduction on bad debt provisioning in the upcoming Budget, sources added.

3. Banks expected to make Rs. 38,200-crore treasury gains in FY17: India Ratings (Source: BL)

  • Softening of yields due to surplus liquidity is likely to help Indian banks book Rs. 38,200 crore of treasury gains in FY17, according to India Ratings.
  • This would be significantly higher than the profit made by banks in total (profits from lending plus trading plus fees) at Rs. 23,600 crore last fiscal, the report said, adding that public sector banks had reported losses worth Rs. 17,700 crore last fiscal.
  • A surge in deposits, due to demonetisation, will increase demand for government and high-rated corporate bonds, and is likely to put downward pressure on yields given the current tepid credit-demand scenario.
  • Banks which hold about Rs. 29 lakh crore of government bonds (as on November 11, 2016) are poised to benefit from the softening of yields.

4. Time period for interest on crop loan of farmers extended by 60 days: Government (Source: FE)

  • In a major relief to the farmers, mid continuing distress following the ban on currency notes, the government had, on Dec. 20th, announced an extra 60 days for availing of prompt repayment incentive of three per cent, for those whose crop loan dues between November 1 to December 31, this year.
  • While, under the government implemented scheme, farmers get the short term crop loan up to Rs 3 lakh for a year at the interest rate of 7 per cent, the farmers paying their debt on time get the loan at an interest rate of just 4 per cent.

5. World Bank business rankings: Govt plots 8-point strategy to reach top 50 (Source: Mint)

Here’s a list of eight key decisions taken at a meeting chaired by finance minister Arun Jaitley to make it easier to do business in India-

  1. eBiz portal will be mandated for starting a business.
  2. Work towards reducing the number of procedures for starting a business to four.
  3. Shram Suvidha Portal will be the only portal for filing the return and challan.
  4. Cost and time to export and import to be reduced substantially to bring India’s rank within top 50.
  5. Provisions as recently enabled under the Insolvency and Bankruptcy Code to be implemented through the National Company Law Tribunal (NCLT).
  6. Integrating the CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) database with the Registrar of Company (ROC) to create a single registry of assets, to improve ‘Getting Credit’ ranking,
  7. To improve ranking under ‘Enforcing Contracts’ indicators, eCourts would be expedited for electronic filing of complaints, summons and payments especially in the commercial courts.
  8. On ‘Construction Permit’, the procedures will be brought down to eight within 60 days.

6. Economists tell govt to increase spending (Source: BS)

  • Economists and experts told Finance Minister Arun Jaitley, in pre-Budget consultations on Dec. 20, to present an “out of the box” Budget, ensuring focus on heathcare, job creation and infrastructure.
  • They also advised the government that the Budget should carry forward the work done through demonetisation and push for greater digitisation in the economy.
  • They added that despite years of effort to rein in fiscal deficit, the rating agencies the rating agencies had not upgraded its long-term sovereign ratings. In such a scenario, and at a time when major developed and developing economies were increasing federal spending, India should do the same.

7. RBI monetary policy panel puts focus on inflation as global risks mount (Source: BL)

  • Indian central bank’s monetary policy committee (MPC) has shifted its focus towards inflation while playing down concern about economic growth, minutes from its meeting this month showed.
  • The minutes showed that all members of the committee considered that the impact on growth of Prime Minister Narendra Modi’s demonetisation of large denomination bank notes would be transitory. · They all expressed concern about the rising risk of inflation from global oil prices, as well as domestic non-oil and non-food inflation.
  • The MPC, which has three members from the RBI and three academics appointed by a government panel, said the stance of policy should be geared to achieving a medium-term inflation target of 4 per cent and a more immediate 5 per cent target by March’ 17.

8. BNP Paribas makes first real-time blockchain payments for clients (Source: MINT)

  • France’s BNP Paribas said it had processed its first live payments in various currencies for two corporate clients via blockchain technology, in a further sign of the growing importance of the new technology for major banks.
  • Blockchain is a web-based transaction-processing and settlement system, whose efficiency banks say could slash costs. It creates a “golden record” of any given set of data that is automatically replicated for all parties in a secure network, eliminating any need for third-party verification.
  • In October, Commonwealth Bank of Australia and Wells Fargo said that the first cross-border transaction between banks using multiple blockchain applications had taken place, resulting in a shipment of cotton to China from the United States

9. Public want Budget to focus on curbing black money (Source: BL)

  • Ahead of Budget 2017-18, the suggestions, submitted on, range from demonetising even small-denomination currency and issuing fresh notes to making banking or digital payments mandatory for all purchases of gold, cars and foreign travel tickets.
  • There were also suggestions that the government scrap additional merchant charges on purchases by debit/credit cards and waive charges on NEFT payments. One suggestion was for having ‘promotion of cashless transactions’ as an eligibility criterion for getting a ‘smart city’ tag. Among the suggestions this year were for higher income-tax on those earning over Rs. 1 crore as well as for levying a banking cash transaction tax.

10. State-run banks saw a big drop in retail loan demand after note ban (Source: Mint)

  • The days following Prime Minister Narendra Modi’s demonetisation announcement on 8 November have seen a drop in demand for retail loans, including home loans.
  • For public sector lenders, average daily enquiries for retail loans between 9 and 30 November dipped to nearly half of what they were in the first eight days of the month, according to data points shared by Indiabulls Housing Finance Ltd in an update to stock exchanges.
  • Quoting data from credit information company CIBIL, the update said that the average daily enquiries at state-owned banks dipped to 23,660 in the days between 9 and 30 November, as compared with 46,784 in the first eight days.
  • Home loan enquiries at government banks dipped to 4,876 in the month after demonetisation, as compared with 8,690 in the first eight days, the data showed.
  • The drop in demand for other lenders in the system was less dramatic though.

11. RBI numbers show drop in digital commerce, firms talk of record growth (Source: BS)

  • The RBI numbers suggest a decline in digital transactions after demonetisation, digital wallet and payment companies argue that the central bank has failed to capture the full universe.
  • RBI gave out the number of transactions and transaction value details of eight prepaid payment instruments (PPIs) which includes mobile wallets, smart cards, online bank accounts for the month of November. It said that the transaction value of top eight players was around Rs 1,320 crore via 59 million transactions during the month.
  • However, mobile wallets such as Paytm, Freecharge, Mobikwik, Oxigen and some others have claimed big numbers in the same period, pegging the growth at 300 per cent over the previous months.
  • RBI has counted the e-commerce transactions, while not taking into account the transactions via money transfer, said an analyst explaining the discrepancy between the two sets of data.
  • The RBI numbers for the previous months of September and October seem to be for the complete digital ecosystem (money transfer as well as e-commerce) and that is why those are higher at around Rs 6,000 crore, according to an industry expert.

12. P-Notes investments fall to 33-month low at 1.8 lakh crore in November (Source: FE)

  • Investments in domestic capital markets through participatory notes (PNotes) plunged to its lowest level in nearly three years to Rs 1.79 lakh crore in end-November.
  • P-Notes are typical instruments issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to participate in Indian markets without registering themselves directly in the country to save time. But they still need to go through a proper due diligence process.
  • According to the data available with Sebi, the total value of P-Notes investment in Indian markets — equity, debt and derivatives — fell to Rs 1,79,648 crore in November-end, from Rs 1,99,987 crore at the end of October. · This was the lowest level since February 2014 when the cumulative value of such investments stood at Rs 1,72,738 crore. In June, P-Notes investments plunged to Rs 2.10 lakh crore, which was the lowest in nearly two years, owing to a tight vigil on funds coming through the route.
  • The quantum of FPI investments via P-Notes decreased to 7.5 per cent in November, from 7.8 per cent in the preceding month.
  • The share of P-Notes has been falling over the years as Sebi tightened disclosure norms and other related regulations. It used to be much higher at 25-40 per cent in 2008, while the reading was as high as 55 per cent at the peak of the stock market bull run in 2007.

13. Global steel output rises 5% in November (Source: Mint)

  • Global crude steel production continues to increase, rising by 5% in November, the highest so far in 2016, according to the World Steel Association.
  • Since May, steel production has been rising continuously, reversing a decline seen in early 2016 and all of 2015. Year to date, output is up by 0.4%. Negative growth last year also explains some of the higher growth this year.
  • China leads this reversal in output and, in November, its output growth matched global growth. That is important as it contributes to 50% of global steel output in 2016 so far, slightly above last year’s level.
  • India, too, has played its part, with a 10.7% growth in November and 7.1% in the year so far.
  • With output rising, capacity utilization should have risen. Now, utilization did increase sharply at the start of the year, but peaked in June and has declined since.
  • More capacity has been added, partly due to new plants coming on stream, ramping up of existing capacity and, perhaps, restarts of idled capacity. This could be a warning sign for steel prices.

14. Plunging exports may force govt to cut $900-billion target for 2020 (Source: BL)

  • India’s dismal export performance in the past two years owing to lacklustre global demand has forced the government to consider pruning the goods and services export target of $900 billion fixed for 2020. · The mid-term review of the five-year foreign trade policy, to be announced in 2017, is likely to set a much lower target, which will be determined after sectoral consultations.
  • The government’s demonetisation drive, too, is likely to have a dampening effect on export numbers over the next few months as exporters find it difficult to pay workers’ wages and buy raw material, given the cash withdrawal limit of Rs. 50,000 per week.
  • The focus in such challenging times should be on marketing with proactive support from the government.

15. Demonetization impact on banks: Asset quality risks will show only in Q4. (Source: BS)

  • The asset quality problems for banks and finance companies are rising as small customers continue to struggle with the adverse effect of demonetisation.
  • But, it might show up only in the fourth quarter numbers, as the RBI has given an additional 60 days for lenders to classify accounts as nonperforming.
  • According to public sector bank executives, the work pressure from managing deposits and cash withdrawal is coming down and banks have begun to assess the impact of demonetization on the loan side – both asset quality and demand for credit. Risks of slippages have increased and a picture will be clear at the end of the financial year.

16. ICICI Bank registers the first case under the bankruptcy code. (Source: Mint)

  • ICICI Bank Ltd has filed an application in the National Company Law Tribunal (NCLT) against Innoventive Industries Ltd to initiate a corporate insolvency process under the new bankruptcy law.
  • This is the first case in India filed under the Insolvency and Bankruptcy Code, 2016, and it will provide a primer on how the new law will help tackle the banking system’s nearly Rs 6.7 trillion of bad loans.
  • The Pune-based steel products maker, which had debt of Rs 955 crore at the end of September, has contested the petition. It said that it is not in default because the industries, law and labour departments of the Maharashtra government had notified a suspension of the firm’s liabilities from 22 July 2016 to 21 July 2017

17. India to clock gross value added growth of 6.6% this fiscal: ICRA. (Source: BL)

  • India’s gross value added growth is likely to be at 6.6 per cent in 2016-17 as economic activity will take more time to normalise following the government’s move to demonetise high-value notes, rating agency ICRA has said.
  • It said the pace of revival of economic activity in the fourth quarter is likely to take a cue from how quickly currency in circulation gets replenished and digital transactions become more widespread. Between November 10 and December 19, banknotes of Rs 5.9 lakh crore were issued to the public through the banking system, as indicated by the Reserve Bank, equivalent to 38 per cent of the value of currency that ceased to be legal tender.
  • “The loss of income in some sectors and deferral of consumption are likely to weigh on capacity utilisation in the second half of 2016-17, delaying capacity expansion plans,” the report said.
  • If this pace of release of cash is maintained and the proportion of fresh notes remains the same, currency liquidity is likely to improve considerably by the end of January 2017, prior to the presentation of the Budget for 2017-18 and the next monetary policy review, the agency said.

18. India Inc nets Rs 6.3-lakh crore from markets. (Source: BS)

  • Betting big on capital markets for raising funds, Indian companies have garnered an estimated Rs 6.3 lakh crore from the marketplace in 2016, with debt instruments being the most favoured route to raise money for their business needs amid volatile trends in equities.
  • Experts believe the corporates will continue to prefer debt route over equity markets for raising capital in the new year as well, in the wake of the fall in interest rates, surplus liquidity in the banking system and an easier regulatory framework for issuance of debt securities.
  • Sentiments in equity markets have also weakened due to the demonetization move and experts believe this trend may continue at least for the initial part of 2017.
  • Out of the cumulative total of Rs 6.3 lakh crore garnered this year from capital markets in 2016, a large chunk or more than Rs 5.5 lakh crore has been mopped up from debt market.

19. SBI banks on Microsoft ‘white space’ for rural push. (Source: BS)

  • The country’s largest lender, SBI, is in talks with Microsoft to utilize technology that will enable digital banking in rural areas with little access to telecom networks.
  • Microsoft’s Chief Executive Officer Satya Nadella is looking at the country as a major market to implement its so-called “white space” and “wide area WiFi or Wide-Fi” technologies — a concept that taps unutilized spectrum of television stations and cable TV network for internet access.
  • SBI officials said the bank was also experimenting with other technologies as well to reach out to places where there are no reliable connectivity options. For example, in the initial phases, the bank could take the help of V-Sat, or satellite technology, which already runs ATM networks across the country, to carry out digital banking. It is also experimenting with radio frequency (RF) technology to enable connectivity.

20. UPI crosses 1 mn hits mark; value soars to Rs 457 cr (Source: FE)

  • Transactions on the UPI platform have crossed the one million-mark in December. Moreover, in just over a month of its launch, SBI Pay—State Bank of India’s UPI app —has seen 5,00,000 downloads.
  • Data from RBI show total UPI transactions between December 1 and December 22 at 1.2 million valued at Rs 457.07 crore. This is up from 0.3 million transactions in November valued at Rs 90.5 crore. While digital payments have increased post the withdrawal of high currency notes on November 8, the jump in UPI-based transactions can be partly attributed to the fact that two large lenders—SBI and HDFC Bank — joined the platform on November 23.
  • With this, 33 banks have joined the platform and 27 banks have their own UPI apps.

21. GST will result in higher tax burden for consumers initially. (Source: BL)

  • The Goods and Services Tax (GST) is not something that consumers could care to wait for as tax practitioners foresee a higher tax burden initially.
  • “Tax rates may come down later. But in the initial two years, it would put additional burden on consumers,” MVK Murthy, National President of AIFTP, said.
  • The federation felt that implementation of GST from April 1, 2017, was not possible. “It might happen in September,” he said.
  • Stating that there won’t be much difference between the Value-Added Tax (VAT) that was in vogue and GST, he said both systems had multiple tax rates on goods. “Multiple tax rates could lead to disputes on classification of these goods. Also, they have left liquor, tobacco and petroleum, which attract higher tax rates, out of the purview of the GST,” he said.
  • The services component of GST could end up with higher tax rates for consumers as the initial rate proposed was higher than that charged now.

22. Big setback for start-ups in India, investment plunge 44% in 2016: VCCEdge Study (Source: FE)

  • Investments in start-ups declined significantly in volume (28%) and value (44%) in calender 2016. The deal sizes got smaller as angel and early-stage funding dominated and late stage funding took a backseat, said VCCEdge in its year-end analysis.
  • In 2016, start-ups witnessed a 44.3% decline in investments at $1.452 billion from 928 deals compared with $2.606 billion from 1,026 deals in 2015, the analysis said.
  • Investors continued to back start-ups till Q12016. However, the value of investment has dropped significantly across all quarters this year compared with 2015. Investors seem to be sitting on the sidelines, being selective in making investments and focusing more on realising investments. Given the fact that both the volume and value of deals continue to slip across the early-stage spectrum, the trend clearly suggests that investors have started writing smaller cheques. Hence, clearly raising capital was not at all easy this year.

23. ICICI Bank unveils cashless payments app Eazypay (Source: BL)

  • The government’s push for cashless payments has brought in yet another app to the market. The country’s largest private lender ICICI Bank has launched ‘Eazypay’, a mobile app to enable merchants, retailers and professionals accept instant payments on mobile phones from their customers through multiple digital modes.
  • With the app, customers can use their mobile phones to pay through unified payment interface (UPI), any credit/debit card and Internet banking and ‘Pockets’ the digital wallet of ICICI Bank.
  • Any current account holder of ICICI Bank can instantly download ‘Eazypay’ and start using it.
  • The app is available on smartphones with Android operating system, and will be shortly available for smartphones using the iOS.

24. RBI allows FPIs to transact in securities directly (Source: BS)

  • Reserve Bank has eased norms for foreign portfolio investors to transact in securities other than shares by allowing them to trade directly in such instruments.
  • “With a view to providing flexibility in regard to the manner in which non-convertible debentures/bonds issued by Indian companies can be acquired by FPIs, it has now been decided to allow them to transact in such instruments either directly or in any manner as per the prevalent/approved market practice,” the RBI said in a notification.
  • SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs), registered Foreign Portfolio Investors (FPIs) and longterm investors are allowed to purchase securities on repatriation basis, and subject to such terms and conditions as may be specified by SEBI and the Reserve Bank from time to time, it said.

25. Prepaid Payments Instruments: RBI allows banks to include unlisted companies, public entities (Source: ET)

  • Easing rules on issuance of prepaid payments instruments (PPIs), Reserve Bank today allowed banks to facilitate such devices to unlisted corporates, public entities like municipal corporations and urban local bodies to deepen digital transaction system.
  • Earlier, companies were required to be listed on any of the stock exchanges in India to be eligible to get prepaid instruments issued by banks.
  • The central bank also instructed banks to issue PPIs to only those entities or employers that have a bank account with them and also upon an undertaking that they do not avail this facility from any other bank.

26. Ratan Watal panel calls for updated law to boost digital payments (Source: Mint)

  • The Payment and Settlement Systems Act, 2007 should be replaced by an updated law, according to the report of the Watal Committee, set up by the government to overhaul the digital payments infrastructure.
  • The amendment bill to legislate the Act will be finalized and presented before the cabinet in the next 30 days.
  • The committee has suggested two options for regulating digital payments— either create an independent payments regulator within the framework of the Reserve Bank of India (RBI) or make the RBI’s Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) more independent. The committee had recommended giving independent status to BPSS, to be called the Payments Regulatory Board (PRB), the structure of which will be finalized in the next 30 days.
  • Apart from this, it had also suggested interoperability between banks and non-bank digital payment gateways/entities as well as within non-banks. National Payments Corp. of India (NPCI) has been asked to enable this on its platform over the next 60 days.
  • RBI has also been asked to upgrade the existing real-time gross settlement system (RTGS) and National Electronic Funds Transfer (NEFT) systems so that they operate on a 24/7 basis.

27. RBI extends loan repayment window to 90 days (Source: Mint)

  • In further relief to people hit by demonetisation, the Reserve Bank of India (RBI) on December 28 gave borrowers another 30 days over and above 60 days for repayment of housing, car, farm and other loans worth up to Rs1 crore.
  • So, borrowers together get 90 days breather from getting the account classified under non-performing asset (NPA) category. The above dispensation will apply to dues payable between 1 November and 31 December 2016, the notification said.
  • The apex bank further said that all regulated entities are permitted to defer the downgrade of an account that was standard as on 1 November, but would have become NPA for any reason between November and December by 90 days from the date of such downgrade. The additional time of 90 days will only apply to defer the classification of an existing standard asset as sub-standard and not for delaying the migration of an account across sub-categories of NPA.
  • Dues payable after 1 January 2017 will be covered by the instructions for the respective entities.

28. Twitter partners with ICICI Bank for advanced customer care (Source: ET)

  • Twitter and ICICI Bank announced a partnership on December 27 that is aimed at integrating additional digital customer care support features to benefit customers with direct online response to their queries and feedback in real-time, Twitter said in a statement.
  • The social networking platform said ICICI Bank is the first bank in India to implement the new features to its Twitter account @ICICIBank_Care for social customer care.
  • Customers can now use these functions to communicate, navigate as well as resolve their banking related queries with improved convenience and speed on the bank’s Twitter handle for queries, @ICICIBank_Care
  • Twitter said it has introduced the following new customer care features for businesses: Display a ‘Message’ button on their profile for customers to send a Direct Message, Indicate to customers that the business provides support on Twitter, Guide users from a public conversation to a private message with one button, Get instant Customer Feedback after a service interaction.

29. FRBM panel seeks RBI views, to submit report next month (Source: BL)

  • The government panel set up to review the working of FRBM Act has sought views of the Reserve Bank on the fiscal consolidation path and will submit its report next month.
  • In May, the government formed a five-member committee under former Revenue Secretary N. K. Singh to review the working of the 12-year-old FRBM Act and examine the feasibility of a fiscal deficit range instead of a fixed target.
  • The FRBM Panel is likely to submit its report by January 13. The panel has sought RBI’s view on fiscal consolidation path. The panel may also suggest deviating from the current 3 % fiscal deficit target in 2017—18 and suggest a specific target for fiscal deficit instead of range.
  • Among other things, the Committee will examine the need and feasibility of having a ‘fiscal deficit range’ as the target in place of the existing fixed numbers (percentage of GDP) as the goal.

30. RBI asks banks to enhance working capital limit for MSMEs (Source: Mint)

  • In a relief to small and medium enterprises hit by demonetisation, Reserve Bank of India (RBI) on December 29 said banks may provide “additional working capital limit” to micro, small and medium enterprises (MSME) borrowers.
  • This would be a one-time measure up to 31 March, and should thereafter be normalised in fresh working capital assessment cycle, it said.

31. IDS II to fund Pay Commission, PSB recapitalisation: Bank of America Merrill Lynch (Source: ET)

  • The government is expected to raise Rs 1,00,000 crore of additional taxes under the Income Disclosure Scheme II (IDS II), which in turn will help in containing the 2017-18 fiscal deficit, says a report.
  • According to Bank of America Merrill Lynch (BofA-ML), besides containing the fiscal deficit, the additional taxes under the IDS II would fund the 7th Pay Commission as well as recapitalise PSU banks without cutting back on public capex.
  • “We continue to expect the government to raise about Rs 1,000 billion/0.7 per cent of GDP of additional taxes under Income Disclosure Scheme II,” BofA-ML said in a research note.
  • It further noted that “this should allow Finance Minister Jaitley to hold the FY18 fiscal deficit at 3.5 per cent of GDP – same as FY17’s – and at the same time fund the 7th Pay Commission and recapitalise PSU banks, without cutting back on public capex”.


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