Financial Awareness-January(11-20) 2017

  1. RBI chief Urjit Patel urges govt to be mindful of debt levels (Source: BS)
  • Reserve Bank of India (RBI) governor Urjit Patel urged the government to make progress in reducing high federal and state government borrowing. Patel said the government debt to gross domestic product (GDP) ratio was also constraining the country’s sovereign ratings.
  • India’s total fiscal deficit, which is targeted at 6.4% of GDP in 2016/17 when combining the levels of the federal and state governments, is among the highest in G20 countries, Patel said.

2. ICRA launches new credit rating system for infrastructure (Source: BS)

  • Rating agency ICRA Ltd on January 11 announced the country’s new credit rating system for the infrastructure sector, in line with the announcement made in the budget 2016 document.
  • “The new rating framework will be a comment on the expected loss of a project entity, which would factor in the probability of default and the recovery prospects,” the agency said.
  • The new credit system was part of the 2016 budget announcements made for the infrastructure sector. The new system was to give emphasis to various inbuilt credit enhancement structures instead of relying upon a standard perception of risk which may result in mispriced loans due to a lower credit rating.

3. World Bank cuts India’s GDP growth forecast to 7% for FY17 (Source: BL)

  • The World Bank has sharply cut its economic growth forecast for India to 7 per cent in 2016-17 after taking into account the impact of demonetisation and the fall in private investments. This growth forecast is lower than the 7.6 per cent growth projected in the middle of last year.
  • The World Bank report said that weak industrial production and manufacturing and services purchasing managers’ indexes suggest a setback to activity in the fourth quarter of 2016-17.
  • The World Bank sees GDP growth rebounding in 2017-18 to 7.6 per cent, a tad lower than the 7.7 per cent projected earlier. It has also made a 0.1-percentage-point increase in the growth forecast for 2018-19 to 7.8 per cent. India is expected to maintain this growth in 2019-20.

4. Airtel payments bank offers highest savings deposit rate (Source: BS)

  • Bharti Enterprises chairman Sunil Bharti Mittal launched India’s first payments bank – Airtel Payments Bank – giving a 7.25% interest on savings accounts, which makes it the highest interest rate on offer. Most public sector banks, flush with deposits now, offer 3-4% interest on savings deposits, while a few private sector banks go up to 6%.
  • Besides the lucrative interest rate, the bank also offers personal accidental insurance of Rs1 lakh with every savings account and free talktime equaling the amount deposited in the payments bank-saving account. · The fully digital and paperless bank aims to take basic banking services to the doorstep of every Indian by leveraging Airtel’s vast retail network.

5. Import cover of forex reserves rises to 12 months (Source: BL)

  • The import cover of India’s foreign exchange reserves has increased to 12 months as on September-end 2016 from 10.9 months as on March-end 2016, according to the Reserve Bank of India.
  • The other components — ratio of short-term debt to reserves and ratio of volatile capital flows — that indicate adequacy of foreign exchange reserves have shown improvement in the reporting half year (April-September 2016). According to the RBI’s half-yearly report on management of foreign exchange reserves, the ratio of short-term debt to foreign exchange reserves, which was 23.1 per cent at end-March 2016, declined to 21.8 per cent at end-September 2016.
  • Gold, as a share of the total foreign exchange reserves in value terms (US dollars), stood at about 5.75 per cent as of endSeptember, 2016, compared with about 5.6 per cent as of end-March, 2016.

6. Headline CPI eases; core inflation sticky (Source: MINT)

  • Inflation measured by the Consumer Price Index (CPI) eased to 3.41% in December versus 3.63% seen in November 2016. The decline in headline CPI inflation was mainly due to softening of food prices. Prices of vegetables and pulses slipped month-onmonth— the former by 11.7% and the latter by 1.6%.
  • Though prices of these items tend to soften during winter months, this time around demand took a beating as consumers were still coping with the cash crunch on account of demonetisation. However, the stickiness in core CPI inflation seen in the December 2016 print indicates this component has not seen much of a reaction due to the note ban.
  • Meanwhile, surging crude oil prices have started to reflect in higher fuel prices. Going ahead, expectations are that CPI or retail inflation would see an increase but is likely to remain under RBI’s projection

7. Capital infusion in state-run banks may exceed Rs25,000 crore (Source: MINT)

  • The finance ministry is likely to finalise capital infusion plan for public sector banks (PSBs) this week based on the request of various lenders which have been impacted by demonetisation amid rising bad loans.
  • The capital infusion would be more than Rs25,000 crore announced in the earlier budget and the additional requirement would reflect in the final batch of supplementary demand for grants to be presented in the upcoming budget session.
  • Saddled with rising bad loans, banks have already made a case for higher capital infusion and it is reflected in their demand sent to the ministry. Besides, their normal business has hit during the demonetisation period.
  • The government has already announced fund infusion of Rs22,915 crore, out of the Rs25,000 crore earmarked for 13 public sector banks (PSBs) for the current fiscal. Of this, 75% has already been released to them.

8. Government in talks with start-ups to push contactless payment (Source: MINT)

  • The government is in talks with technology providers to encourage the adoption of new cashless technologies such as contactless payments that use sound waves and near-field communication.
  • The government is in talks with technology providers that can enable a simple mobile phone to become a mobile point-of-sale (mPOS). An mPOS is a smartphone, tablet or dedicated wireless device that performs the functions of a cash register or electronic point of sale (PoS) terminal.
  • mPayGo, a fintech start-up, has launched an mPOS service that lets a merchant accept credit, debit card and net banking payments on their smartphone without the use of any external equipment like a dongle/terminal. ToneTag is a contactless payment app that uses sound waves to enable offline, proximity-based contactless payments on any device.

9. The soon-to-be-launched Aadhaar Pay will let you make purchases using your fingerprint (Source: ET)

  • Paying for your groceries and other goods by using your biometrics instead of an e-wallet, debit card or cash seems to be the next phase in the Centre’s ambitious push to shift the country to a “less cash” economy, as its mandarins term it.
  • Ajay Bhushan Pandey, CEO of the Unique Identification Authority of India (UIDAI), says it will be rolling out Aadhaar-enabled payment system, or Aadhaar Pay, for merchants in the next few weeks. This will be an app for merchants that enables them to receive payments through biometric authentication of the customer, provided their bank accounts are linked to their Aadhaar number. “A pilot is under way in fair price shops in Andhra Pradesh where shopkeepers are accepting payments from PDS beneficiaries. The results are very encouraging,” says Pandey.
  • The limits for transactions using AEPS, such as the number of daily transactions, will be left to the discretion of the banks. In the long term, the AEPS will be migrated to the BHIM (Bharat Interface for Money) platform but the rollout of Aadhaar Pay will happen before that.

10. Economic activity falters after demonetisation (Source: BS)

  • Leading indicators suggest economic activity has been disrupted after demonetisation. Vehicles sales plummeted in December. This decline was driven largely by a fall in sales of two-and three-wheelers and medium and heavy commercial vehicles.
  • Surprisingly though, sales of passenger vehicles contracted by a mere 1.3 per cent in December, suggesting that perhaps urban demand may have remained resilient in the face of demonetisation.
  • Bank credit to industry slowed sharply after demonetisation. This suggests that corporate credit demand, a function of both capacity utilisation and domestic demand, continues to remain low.
  • Nikkei’s purchasing managers index (PMI) also points to a sharp slowdown in economic activity. Both manufacturing and services PMI fell below 50, indicating contraction.
  • Indirect tax revenues slowed in November and December. But it is interesting to note that despite tax growth slowing, the numbers don’t seem to indicate as severe a disruption as some had expected.
  • While the ongoing results season will provide an indication of how much companies’ top line has been hit, margins are likely to have been hit as wholesale prices have edged upwards.

11. Limited room to reduce fiscal deficit to 3% in FY’18: Moody’s (Source: BL)

  • The government is likely to achieve its fiscal deficit target of 3.5 per cent of GDP in the current fiscal but higher infrastructure spending will limit the room to reduce it further to 3 per cent in 2017-18, Moody’s said.
  • It said in an environment of lacklustre global trade and with economies globally facing increasing risk of protectionism, India’s large domestic markets provide a relative competitive advantage when compared to smaller and more trade-reliant economies.
  • The implementation of the pending GST and other measures aimed at enhancing income declarations and tax collection will help widen India’s tax base and boost revenues, it said, adding that such a boost will, however, only materialise over time, with the magnitude uncertain at this point.
  • With increased infrastructure spending and higher outgo due to Pay Commission recommendations, Moody’s said, the general government deficit will remain sizable and any reduction in India’s government debt burden will largely rely on robust nominal GDP growth.
  • After a temporary dampening effect on consumption and investment in the medium term, demonetisation will likely strengthen India’s institutional framework by reducing tax avoidance and corruption and should support efficiency gains through a greater formalisation of economic and financial activity.

12. Borrowers may switch old loans from base rate to MCLR, says ICRA (Source: BL)

  • With the differential between base rate and marginal cost of funds-based lending rate (MCLR) rising to about 100 basis points (bps), credit rating agency ICRA expects a number of borrowers to switch to MCLR.
  • Currently, MCLR-linked advances are estimated to be 15-20 per cent of the total banking sector advances, with the rest being linked to base rate.
  • The agency assessed that while the marginal cost of funds for banks has declined post-demonetisation, the decline in their overall cost of funds has been much lower at about 65 bps during January 2015 to September 2016 on account of the time lag in repricing of old deposits.



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