Financial Awareness-June(1-10) 2017

1. Govt may merge PSU banks without waiting for improvement, indicates Jaitley (Source: MINT/ ET)
• The government on June 5th said it is examining the possibility of further consolidation in the public sector banking space without waiting for their finances to improve.
• “Internally there was a thinking after the SBI amalgamation took place to wait for the rest till the health of the banks improve. “We have now relooked at the whole system and there are some institutions within the public sector banks which can be consolidated even in the present circumstances. We are seriously examining them,” finance minister Arun Jaitley told.
• According to experts, Punjab and Sind Bank can be merged with Punjab National Bank, while other big lenders like Bank of Baroda can take over some banks in the southern region such as Indian Overseas Bank. Similarly, Dena Bank could be merged with some large banks like South Indian bank.

2. RBI clarifies ‘prompt corrective action’ is aimed at improving banks’ health (Source: BS/ MINT)
• The Reserve Bank of India (RBI) has clarified that prompt corrective action (PCA) is aimed at improving banks’ health, and asked the public to continue their banking relations with lenders placed under PCA.
• So far, IDBI Bank, UCO Bank and Dena Bank have been placed under PCA because of high net non-performing assets (NPA) and negative return on assets. The RBI had revised the PCA framework on 13 April 2017.
• The RBI’s clarification comes in the wake of misinformation about the PCA framework, with messages asking people to withdraw their deposits and warning against opening new fixed deposits.

3. SBI launches largest-ever QIP at a share price of Rs287.58 (Source: MINT/ BS)
• State Bank of India (SBI) launched the country’s largest institutional share sale programme on June 5th, aiming to raise up to Rs15,000 crore as it looks to strengthen its capital base to increase loan growth as well as cushion the balance sheet from bad loans.
• SBI said the floor price for the so-called qualified institutional placement (QIP) has been set at Rs287.58 per share. The bank is open to offering up to a 5% discount on the floor price. SBI shares closed little changed on Friday at Rs287.35. At the floor price, SBI will issue 521.6 million shares if the issue is fully subscribed

4. SBI now expects to recover only part of Kingfisher dues, to take hit of Rs 900 crore (Source: ET)
• A State Bank of India internal report said there was little hope of recovering anything substantial from the grounded Kingfisher Airlines. The country’s largest bank expects to take a hit of about Rs 900 crore on this account.
• The total exposure of the SBI-led consortium of 14 banks to the Vijay Mallya-promoted airline is more than Rs 5,000 crore, excluding accrued interest. SBI’s fund-based exposure stands at over Rs 1,200 crore, the bulk of which is considered unrecoverable.

5. HDFC Bank to charge for UPI transactions from 10 July (Source: MINT)
• HDFC Bank Ltd, one of India’s largest private sector banks, will start charging its customers for transactions made via the Unified Payments Interface (UPI) from 10 July.
• For a transaction amount of upto Rs25,000, the fee will be Rs3 plus taxes, and for a transaction amount of Rs25,001 to Rs100,000, the bank will charge Rs. 5 plus taxes.
• According to NPCI, banks may levy charges on UPI transactions but only those pertaining to P2P transfers

6. SBI to organise mega farmers’ meet on June 8 (Source: ET)
• Ahead of the kharif season, State Bank of India said it will meet nearly 10,000 farmers to understand their credit need and provide finance. The meeting will be organised at the bank’s 15,500 rural and semi-urban branches across the country on June 8. During the meet, branches will receive applications for fresh loans as well as for renewal or enhancement of existing loans.

7. Axis Bank’s bio-degradable gift card (Source: BL)
• Axis Bank has launched a bio-degradable plastic card, offering its customers a simple way of contributing towards environment-friendly payment solutions.
• These cards offer customers an electronic option for gifting besides also being used as a reward tool for corporates.

8. RBI sets up committee to focus on bad loan resolution at banks (Source: MINT)
• The Reserve Bank of India (RBI) has identified some large stressed loan accounts for resolution as it steps in to directly fix the bad loan menace at Indian banks, after it was empowered by a recent banking ordinance to do so.
• An internal committee of the central bank’s independent board directors will meet soon to decide which accounts should be restructured and which should go under the insolvency and bankruptcy framework.
• The central bank has also proposed expanding the oversight committee from its current size of two members so that the panel can constitute separate benches to deal with the huge number of cases expected. The oversight panel will look at cases beyond S4A (Scheme for Sustainable Structuring of Stressed Assets)

9. Lowering SLR will not nudge banks to raise lending (Source: BL)
• The RBI lowering the total SLR requirement (statutory liquidity) by 50 basis points to 20 per cent, offers leeway to banks to free up funds and deploy in lending.
• But banks are unlikely to do so immediately. By keeping the ceiling on the amount of SLR securities that can be held under the ‘Held to Maturity’ (HTM) category unchanged at 20.5 per cent, the RBI has also not made it less viable for banks to stock up excess government securities than mandated.
• On the housing loan front, however, lowering risk-weights in certain buckets and reducing the standard provisioning requirement from 0.4 per cent to 0.25 per cent, should prompt banks to push forth lending in this segment.
• The RBI’s reduction in risk-weights are for home loans in the Rs. 30-75 lakh and above Rs. 75 lakh categories. This will have two implications. One, banks with relatively weak capital position can now look to incrementally lend to the housing segment. This will lead to increased competition in the space, benefiting customers. Two, the savings on the capital front arising from lower risk-weights and across-the-board reduction in standard provisioning, can be transmitted to home loan borrowers in the form of lower lending rates.

10. YES Bank gets shareholders’ nod to raise Rs. 20,000 cr (Source: BL)
• YES Bank has received shareholders nod to raise funds in Indian/foreign currency by issue of debt securities, including but not limited to non-convertible debentures, medium term notes and bonds up to a total amount of Rs. 20,000 crore.

11. RBI puts restrictions on masala bond issuance (Source: BS)
• The Reserve Bank of India (RBI) has brought in some restrictions on issuance of rupee-denominated bonds, or masala bonds, by harmonising the issuance norms on a par with those for external commercial borrowings (ECBs). Now, there will also be a cap on how much interest can be paid on these bonds.
• The central bank said any proposal to issue these bonds will be examined at the RBI’s foreign exchange department. Since these bonds are issued in rupee, the issuer is not exposed to currency risks. However, some lower rated firms have issued these bonds, potentially raising concerns.

12. Government banks need up to Rs95,000 crore capital infusion: Moody’s (Source: MINT/BS)
• Moody’s Investor Service said India’s large state-owned banks will need up to Rs95,000 crore of equity capital, highlighting a key challenge facing the country’s banking system, 70% of which is accounted for by state-owned banks.
• Moody’s expects the stock of bad loans at these banks to rise in the next two years, squeezing profits further.
• According to a report issued by Moody’s, capital infusion from the government will be the only viable source of external equity capital for state-owned banks, given their low equity valuations.
• According to Moody’s, gross non-performing assets (NPAs) for the industry, which stood at 9.5% at the end of the March quarter, are expected to increase to Rs8.2-8.5 trillion or 9.9-10.3% by March 2018.

13. RBI to leave rates unchanged in FY18: Nomura report (Source: MINT)
• The Reserve Bank of India (RBI) is expected to leave key interest rates unchanged in the current financial year despite low inflationary pressures and might go for a cumulative 50 bps rate hike next April, says a Nomura report.
• According to the Japanese financial services major, headline CPI inflation is expected to remain low in the near-term on low food prices. Moreover, core inflation is also expected to stay low on still lingering disinflationary effects of demonetisation and the negative output gap.
• However, it said: “We currently expect the RBI to leave rates unchanged through March 2018, which would then be followed by a cumulative 50 bps of rate hikes starting April 2018.”

14. IDBI Bank sets up debt to manage bad loans (Source: ET)
• IDBI Bank has created a special department for managing bad loans and monitoring credit after taking a series of hits which include being put “under watch” by RBI and a downgrade by credit rating agency Icra.
• Besides, in an attempt to fulfill capital conservation buffer norms, it may raise about Rs 5,000 crore by selling non-core assets in the current fiscal.

15. Tata Consultancy Services launches app development kit for banks (Source: ET)
• Tata Consultancy Services (TCS) has launched “BaNCS App Development Kit” (ADK) that will enable banks to fast design and build their own apps and deploy it across devices and desktops seamlessly.
• “BaNCS ADK” will help banks to design and deploy both enterprise and consumer apps in a hybrid architecture, adopting modern principles of responsive web design.
• While “BaNCS ADK” comes with its own array of widgets, controls and components, banks can add their existing or new widgets at will and has the opportunity to open it to their ecosystem.

16. Farm loan waivers to be 2% of GDP by 2019 polls: BofAML (Source: MINT)
• Farm loan waivers will amount to 2% of GDP by 2019 polls as other states may follow BJP’s Maharashtra and UP governments, says a Bank of America Merrill Lynch report.
• This covers bank loans to farmers with up to 5 acres of land. The report said the Ministry of Finance will have to fund farm loan waivers by UDAY-type bonds to limit market impact. On Saturday, the Maharashtra government waived loans of Rs300 billion/0.2% of GDP owed by farmers with up to 5 acres of land by October.
• Earlier, in April, the UP government had announced a Rs360 billion/0.3% of GDP farm loan waiver. The Indian economy is expected to see a consumption driven growth rather than investment and farm loan waivers is likely to add to this trend by stimulating rural demand.
• Three other factors, lower lending rates, 7th Pay Commission Award and better monsoons — are expected to aid consumption-driven economic growth.

17. World Bank projects 7.2% growth rate for India in 2017 (Source: BL)
• Noting that India is recovering from the temporary adverse effects of demonetisation, the World Bank has projected a strong 7.2 per cent growth rate for India this year against 6.8 per cent growth in 2016.
• Even as the World Bank has revised the country’s growth figures by 0.4 percentage point compared to its January forecast, India remains the fastest growing major economy in the world, the World Bank officials said.
• The growth projections for China remains unchanged at 6.5 per cent for 2017 and then 6.3 per cent for 2018 and 2019. The World Bank in its latest Global Economic Prospects, projects India’s growth at 7.5 per cent in 2018 and 7.7 per cent in 2019.

18. Banks’ telecom exposure not large enough to pose systemic threat: Fitch (Source: BL)
• Indian banks’ exposure to troubled telecom companies is not large enough to pose a systemic threat, but defaults could add to problems at banks with weak balance sheets, said Fitch Ratings.
• “The credit profiles of Indian telecom companies are under pressure from fierce competition stemming from the entry into the market of Reliance Jio last year and rising CapEx required for the roll-out of 4G services. Some companies could find it difficult to service their debt and we have the sector on a negative outlook,” the credit rating agency said in its report.
• Fitch observed that Indian banks already have significant asset quality issues that could be made worse by stress in the telecom sector. However, total debt owed by telecom companies to banks is only Rs. 91,300 crore ($14 billion), accounting for just 1.4 per cent of all bank loans, according to the Reserve Bank of India

19. Farm loan waivers may harm fiscal discipline; stoke inflation: RBI (Source: BS)
• The Reserve Bank of India (RBI) warned that large-scale farm loan waivers by state governments will severely harm the country’s fiscal health and may spur inflation. RBI Governor Urjit Patel said unless state governments’ budgets allow that fiscal space to go in for a loan waiver, it would be risky to tread on that path.
• The risk of fiscal slippages, which by and large can lead to inflation, has risen with the announcements of large farm loan waivers. The risk of going down the “slippery path” of waiver could dissipate the important gains that the states made in fiscal rectitude over the past two-three years, Patel said.

20. Economy headed for consolidation: RBI survey (Source: BS)
• The economy will gradually consolidate growth in the current financial year, predicted 28 forecasters surveyed by the Reserve Bank of India.
• According to the survey result posted on the RBI website, real GDP (gross domestic product) and real GVA (gross value added) are expected to grow by 7.4 per cent and 7.2 per cent, respectively, in 2017-18 and consolidate further by 40 basis points (bps) and 50 bps, respectively, in the following year.
• According to the forecasters, retail inflation is expected to gradually rise to 5 % by the fourth quarter of 2017-18.
• On the external front, they expect foreign trade to shed its recent sluggishness as there is a “greater optimism” around growth of both exports and imports.

21. Value of digital transactions rose marginally in May, RBI data shows (Source: MINT)
• Digital transactions in May increased slightly from the previous month in terms of value, provisional data by the Reserve Bank of India (RBI) showed.
• The month saw total digital transactions worth Rs111.09 trillion, up 1.4% from Rs109.60 trillion in April, according to the data. However, the number of digital transactions declined marginally to 851.1 million in May from 853.1 million in April. The highest volume was recorded in December at 957.5 million. Digital transactions include those conducted via credit and debit cards, unified payments interface (UPI), unstructured supplementary service data (USSD), prepaid payment instruments (PPIs), Internet banking and mobile banking.

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