Banking News Dated 4th September 2018

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Banking News: September 4, 2018


SBI bets big on digital revolution, to continue  offering zero balance online accounts

SBI bets big on digital revolution, to continue
offering zero balance online accounts

The ET-Now News
Published on September 3, 2018

New Delhi, September 3:  Betting big on digital service platform, State of India (SBI) chairman Rajneesh Kumar has clarified that the zero balance facility for accounts opened using YONO — an acronym for You Only Need One — will continue till March 2019. “Considering that it is a digital-only product and has received very good traction, we might continue with the zero-balance feature,” Kumar told the Times of India in an exclusive interview.

Kumar further mentioned that SBI opens 60,000 savings accounts daily. Out of this, around 25,000 accounts are opened online. Of late, online account opening has picked up pace because of the ease and the offers that come with YONO account, and that is what customers want today.

He told the publication that the country's largest bank has approximately 17.4 crore account holders in the 18-35 age group and another 13 crore in the 33-55 bracket. Around nine crore customers are over 55 and about 41 per cent of customers are below 35.

Last month, SBI launched the new Multi Option Payment Acceptance Device (MOPAD) in an attempt to provide digital convenience to customers and merchants. Under this latest digital initiative, a customer will be able to make payments through cards, Bharat QR, UPI and SBI Buddy on a point of sale (PoS) terminal.

The state-controlled lender mentioned that the latest product takes forward bank’s objective of “Cash ki Aadat Badlo”. For all transactions, customer gets a charge-slip as a proof of payment. This is not available for traditional Bharat QR / UPI / SBI Buddy transactions, the bank had said in a release.

The state-run bank also entered into a digital partnership with Reliance Jio to increase its digital customer base. It is worth mentioning here that SBI posted Rs 4,876 crore loss for the April-June quarter despite reporting higher net interest income (NII) as provisions for bad loans increased.


Aadhaar: SBI Disables ‘Pay to Aadhaar’
Functionality from its BHIM UPI

The Moneylife News
Published on September 3, 2018

Mumbai, September 2:  State Bank of India (SBI), the country's largest lender has removed pay to Aadhaar functionality from its BHIM SBI Pay app citing regulatory guidelines.

However, several banks like Bank of India, Bank of Baroda, and United Bank of India have yet removed Aadhaar pay functionality from their BHIM UPI apps.

In fact, National Payments Corp of India, which developed and promotes Unified Payments Interface (UPI) and Bharat Interface for Money application (BHIM), has itself not disabled Aadhaar pay from its 'BHIM Making India Cashless' app.

Explaining new features of BHIM SBI Pay, the lender had stated, "Due to regulatory guidelines pay to Aadhaar functionality has been removed."

Earlier in July 2018, NPCI has asked banks to discontinue Aadhaar-based payments through the UPI and Immediate Payment System (IMPS) channels. Pay to Aadhaar is an additional functionality in UPI and IMPS where the payer can transfer funds to the beneficiary using Aadhaar number.

"Aadhaar number is a sensitive information and the revised framework about its usage in the payment landscape is still evolving. With this background, we proposed removal of ‘Pay to Aadhaar’ functionality in both UPI and IMPS before the steering committee (meeting held on 5 July 2018). The proposal of removing the Aadhaar number functionality was approved by the steering committee,” NPCI had said in a circular issued on 17 July 2018.

From 31 August 2018, the 'Pay to Aadhaar' function would be removed from both UPI and IMPS. “All member banks should remove this functionality both as remitter and beneficiary. Also, all interfaces currently offering this functionality, such as UPI apps and third-party apps, should remove this option from their respective apps by 31 August 2018,” the circular from NPCI says.

When checked on Google Play, several public sector banks (PSBs) like Bank of India, Bank of Baroda and United Bank of India were still providing Aadhaar pay functionality from their BHIM UPI apps. In fact, Bank of India's 'BHIM BOI UPI' app was updated on 30 August 2018, but still offers pay to Aadhaar facility. NPCI also has not bothered to remove pay to Aadhaar from its own app.

IDFC Bank Ltd, which updated its 'BHIM IDFC Bank UPI' App on 31 August 2018, also has not mentioned anything about removing Aadhaar pay functionality. On the other hand, 'iMobile' app by ICICI Bank Ltd only talks about payments through UPI. It does not mention Aadhaar anywhere in its app.

Last year, NPCI, which is set up as a Section 25 company under the Companies Act 1956 (now Section 8 of Companies Act 2013), and is seen promoting its UPI- based BHIM app, had clarified that it should not held responsible for any loss, claim or damage suffered by the user.

In its terms and conditions for use of the BHIM UPI app, the company, promoted by 10 banks, had stated, "NPCI does not hold out any warranty and makes no representation about the quality of the UPI services or BHIM application. The user agrees and acknowledges that NPCI shall not be liable and shall in no way be held responsible for any damages whatsoever whether such damages are direct, indirect, incidental or consequential and irrespective of whether any claim is based on loss of revenue, interruption of business, transaction carried out by the user, information provided or disclosed by issuer bank regarding user’s account(s) or any loss of any character or nature whatsoever and whether sustained by the User or by any other person".

An Aadhaar number becomes a financial address when an Aadhaar is “seeded” into a table called the “NPCI mapper” by anyone linking the Aadhaar to a bank account. This mapper is a directory of Aadhaar numbers and Institution Identification Number (IIN) numbers used for the purpose of routing transactions to the destination banks. The IIN is a unique 6-digit number issued by NPCI to any participating bank.

If you or anyone else link your Aadhaar with another bank account, the NPCI mapper is overwritten with the new banks’ IIN. Money transferred to an Aadhaar number using the AEPS gets transferred to the bank account linked to the Aadhaar number at the branch recognised by the IIN.

This idea of a mapper, as used by NPCI’s AEPS, does not allow for instructions from sender about the account to deposit money, but relies on periodic update of IIN in the NPCI’s table mapping Aadhaar numbers from banks. This mapping is volatile because multiple banks periodically update the Aadhaar numbers linked with accounts held by them. Neither the banks, the NPCI nor you have control on where you would like your payments to go. 

According to Dr Anupam Saraph, a renowned expert in governance of complex systems, money launderers exploit this volatility to make money transfers untraceable. "A money launderer can transfer money to an account linked to an alternate IIN and then re-seed the NPCI’s mapper with the original IIN for the Aadhaar number, completely wiping out any trace of money to the alternate IIN. Like transactions of bearer shares in Panama, such money transfers become no different from a hawala transaction between real parties who remain anonymous or benami."


Employee Stock Option Plans by
PSU Banks See Mixed Response

Pallavi Nahata
The Quint
Published on September 3, 2018

New Delhi, September 3 (Bloomberg): An attempt by some of India’s public sector banks to put in place performance-linked incentives via stock options has seen mixed response.

Four public sector banks are at varying stages of putting employee stock option plans in place. But neither employees nor analysts expect these plans to see much success. This, more than 18 months after the finance ministry gave an in-principle approval for such plans.

Allahabad Bank was among the first to announce an employee share purchase plan in February. As part of the plan, it offered five crore shares at Rs. 53.94 a piece – a discount of 25 percent to the prevailing market price at the time. The bank eventually issued 4.38 crore shares, raising Rs 315 crore in the process. Shares of Allahabad Bank have fallen sharply since then.

United Bank of India too had announced an employee stock options at about the same time as Allahabad Bank but has failed to close the issue to so far. On 20th August, the bank informed stock exchanges that it was extending the availability of the plan till end-August.

The bank had fixed issue price at a discount of five percent on the average of the weekly highly and low of the closing share price two weeks prior to the offer. The bank could not be reached for a comment on the final outcome of the offer.

The other two banks which have board approvals for ESOPs in place include Canara Bank and Punjab National Bank. While Canara Bank plans to issue six crore equity shares, PNB plans to issue 10 crore equity shares through the scheme.

Progress made on these plans has been slow, though.

T N Manoharan, Canara Bank’s Chairman, said that the bank has only received shareholder approval and nothing is final as yet. The management of Punjab National Bank did not respond to calls and emails.

Anil Gupta, who heads financial sector ratings at ICRA, does not expect these schemes to be a run-away success among employees.

Given the weak financial profile of these banks and the outlook of weak profitability, an active interest of the employees in subscribing to these stocks remains unclear, unless they are offered much below the current market price said Mr. Anil Gupta, Sector Head - Financial Sector Ratings, ICRA Ltd.

The Public-Private Gap

India’s government owned banks employ over 8 lakh people across categories. Their job descriptions may be similar to their private sector peers. Their benefits are anything but.

For years, it has been argued that HR reforms are important to improve the performance of public sector bank. Among these suggested reforms has been a move towards performance basedincentives, which could help in retaining good talent.

A 2010 committee headed by veteran public sector banker A.K. Khandelwal had noted that issues linked to human resources are the biggest risk to the government owned banking system.

The committee had recommended stock option plans for the top performing 15 percent of a bank’s employees. Subsequently, the Banks Board Bureau (BBB) had also argued for performance linked incentives. Vinod Rai – the first chief of the BBB – had noted that while changing fixed salary structures will take longer, stock option based incentives are easier to offer. In March 2017, the government had given an in-principle approval to stock option plans.

Such incentives could help narrow a very wide gap between salaries of public and private bank employees. While salaries at starting levels do not differ as widely, the compensation gap for senior and specialized employees is enormous.

For instance, the chief of State Bank of India earned Rs 28.3 lakh in cash in 2017-18, while Aditya Puri, the CEO of HDFC Bank, earned Rs 9.56 crore. The gap differs at various stages of a banker’s career but is notable at almost all levels. A relationship manager at a foreign bank can earn four to six times the salary drawn by an employee at the State Bank of India with similar experience in the same city.

With such wide pay gaps, its no surprise that public sector banks often lose good talent to their private peers.

Lalitabh Shrivastawa, who heads research for banking, financial services and insurance (BFSI), at Sharekhan, thinks stock option plans are worth a shot. He believes that ESOPs can help with this problem of employee retention.

The schemes will help PSU banks retain talent and introduce higher accountability. Free float in these stocks is limited and employees may benefit with an improving scenario. Maybe, issues such as the recent bank strike could also be taken care of to some extent said Lalitabh Shrivastawa, Assistant Vice President - BFSI Research, Sharekhan.


RBI to beef up cyber security in fiscal year 2019, protection against cyber-crimes tops priority list

The Press Trust of India
Published on September 3, 2018

Mumbai, September 3 (PTI): In view of growing incidents of cyber frauds, the Reserve Bank of India is working towards further enhancing security mechanism as part of its agenda for this fiscal, especially when digital transactions are witnessing a significant rise.

"With the emerging threat landscape, where organised cybercrime and cyber warfare are gaining prominence, the Department (of Information Technology) is working towards ensuring continuous protection against the changing contours of cyber security threat," as per the RBI's annual report.

The RBI's report said the 2018-19 agenda include taking effective steps to "further enhance" the levels of protection against cyber risks.

The RBI will proactively initiate the process of developing a cyber security culture, endeavour to make cyber security a responsibility and ensure confidentiality, integrity and availability of information system and resources.

"An Audit Management Application portal to handle various supervisory functions of the cyber security and information technology examination cell in the Reserve Bank and to fully automate monitoring of returns has been envisaged in order to facilitate consistency and efficiency of the offsite monitoring mechanism," the report said. New private sector and foreign banks accounted for 36 per cent each of all cyber frauds reported in debit, credit and ATM cards, among others.

"In an endeavour to strengthen the cybersecurity posture of Indian banks, focused and theme-based IT examinations are planned during 2018-19. Targeted scrutiny, as and when required, would also be conducted for appropriate policy and supervisory intervention," the RBI said.

It further said that given the increasing popularity of digital payments, data protection and cybersecurity norms were strengthened, and Know Your Customer (KYC) norms were modulated further to make them more effective.

"In order to secure consistency and improve the efficiency of the offsite monitoring mechanism, an Audit Management Application portal to facilitate various supervisory functions of the Cyber Security and Information Technology Examination (CSITE) Cell and to fully automate monitoring of returns has been envisaged, which will be operationalised by March 2019," it said.


RBI data: Loan defaults by
MSMEs doubled in last fiscal

The Financial Express
Published on September 4, 2018

Mumbai, September 3:  Micro, small and medium enterprises (MSMEs) seem yet to recover from the twin shocks of demonetisation in 2016 and a chaotic introduction of goods and services tax (GST) last year as the loan defaults margins of small businesses almost doubled in the last financial year ending on March 2018 to Rs 16,118 crore from Rs 8,249 crore by March 2017, according to a report by The Indian Express.

The data collected by The Indian Express under the Right to Information (RTI) act showed that MSMEs registered their non-performing assets or bad loans at Rs 98,500 crore in the last financial year from Rs 82,382 crore in the previous financial year ended on March 2017. MSMEs are the units where the investment in machinery and plants is above Rs 25 lakh but does not exceed Rs 5 crore.

Of the total loan defaults during the period, public sector banks accounted for about 65.32% in outstanding loans to small units. This however was down marginally from 66.61% last year.

While credit growth picked up significantly, the outstanding advances to micro and small units rose by 6.72% during the period to Rs 10,49,796 crore from Rs 9,93,655 crore in the previous fiscal ended on March 2017, the data showed.

It is noteworthy that for the first quarter of current financial year 2018-19, the government on Friday announced a GDP growth of 8.2%. In the same period last financial year, GDP growth was recorded at 5.7%, mainly in the wake of the sudden move by the government to withdraw old Rs 500 and Rs 1,000 bank notes on November 8, 2016.

Most of the micro and small units were affected the most by the note ban and reported huge losses even after 21 months. In a separate study on MSMEs two weeks ago, the RBI noted that the sector was hit hard because of two major reasons – demonetisation and GST. Smaller districts were affected the most due to the cash crunch during demonetisation compared with the lager centres, it added.

SMERA Ratings Ltd conducted a survey recently wherein it found that over 60% of the respondents realised that their systems were not ready for the new tax regime.

Meanwhile, a separate study by the Small Industries Development Bank of India showed that the relative credit exposure post demonetisation though dropped significantly and turned negative for most MSMEs, it fully recovered by March 2018.


Housing Industry: A 10 lakh crore industry
may face acute turmoil soon

The Times-Now News
Published on September 4, 2018

New Delhi/Mumbai, September 3:  In what seems to be a blow to the housing and real estate sector, the Supreme Court has banned construction in parts of the country, thus making it difficult for such companies to deliver on projects, reported ET.

The top court’s decision to impose a blanket ban on construction in parts of several states including Maharashtra, Uttarakhand, Chandigarh and a few more. Not only will it delay the delivery of projects but will also harm the construction industry, which employs millions of labourers.

Not just real estate but several other ancillary industries will also bear the brunt of the move, said Niranjan Hiranandani, President, National Real Estate Development Council or NAREDCO. Commenting on the development, he said the real estate industry is being punished for “state inaction over solid waste management”.

Listing the consequences, he said the move will “choke supply, and impact home seekers in the states where a construction ban has been imposed. Worth mentioning that Hiranandani has pinned the blame on the state government for not taking adequate measures for solid waste management.

“The intention behind the order is good from a long-term perspective, but a blanket ban stopping all construction will have a negative impact on housing,” he told ET.

It may be noted that the top court’s decision to impose a ban on construction in several states and union territories came as they have not taken the matter of solid waste management seriously. The biggest loss out of this move will arise in Maharashtra, which is home to the most high-value properties in the country, with most located in Mumbai and Pune.

However, Maharashtra is believed to have come up with a policy to uplift solid waste management and may be able to secure an exemption from the ban, according to developers who spoke to the publication.

Commenting on the development, Pankaj Kapoor, MD, Liases ForasReal Estate Rating & Research pointed out that overall annual real estate industry size in India is close to 10 lakh crore, adding that at least Rs 1.5 lakh crore to Rs 2 lakh crore is contributed by Maharashtra alone. He went on to explain that over 1,000 allied industries will also be affected by the move.

Major allied sectors such as banking, cement, sanitary, tiles and electrical equipment supplying industry will also bear the full brunt of the move. From a economic point of view, he suggested that the move will lead to a number of job loss, and may lead to an overall slowdown on development.


Rising Petrol & Diesel Prices:
Can the Govt Solve the Puzzle?

The Moneylife News
Published on September 3, 2018

Mumbai, September 3: With the price of petrol and diesel, scaling new heights there is concern about what would be the steps taken by the government to control the same. Petrol has crossed Rs 86 per litre and diesel Rs 75 per litre in Mumbai. Factors, which drive the retail price of petrol and diesel, are crude oil price and currency exchange rate, which are out of bound for the government. In this situation, the only option is reduction in taxes, says a research report.

In the report, CARE Ratings says, "...there is little that can be done in terms of influencing the global price, which will be driven by external factors. The currency too is beyond the purview of the government and will be driven by both fundamentals and extraneous forces. The choices are, reduction of excise duty or VAT by the central and state governments or provide a subsidy on these products to buffer price increase."

Reduction of excise duty or value added tax (VAT) by the central and state governments will mean lower revenue collections. In July 2018, the consumption of petrol and high-speed diesel stood at around 8,900 thousand tonnes. If the excise duty is reduced by Re 1 per litre, it might lead to reduction in revenue collections of around Rs 7,000 to Rs 8,000 crore on an annualised basis.

Prices of petrol and diesel, already at unprecedented levels in the country, rose for the ninth consecutive day on Monday.

In the national capital, petrol was sold at Rs 79.15 per litre, up from Rs 78.84 on Sunday. In Kolkata, Chennai and Mumbai, the fuel was priced at Rs 82.06, Rs 82.24 and Rs 86.56 per litre respectively, all a new record, against Rs 81.76, Rs 81.92, Rs 86.25 on Sunday.

Which is the relevant price for India?

The Indian crude basket is a combination of Oman, Dubai and Brent varieties and the average price in July 2018 was around $73.5 per barrel (bbl). To this should be multiplied the exchange rate which has been depreciating of late to over Rs 71 per US dollar. Government taxes at both the central and state levels are then added besides commission to the dealers for arriving at the final price.

The surge in fuel prices is largely attributed to the rise in crude oil prices and high rate of excise duty in the country. Brent crude oil is currently priced over $78 per barrel.

The recent slump in rupee also has lifted the import cost of crude oil, subsequently raising fuel prices.

How important is crude oil for the government?

Petroleum and petroleum products are an important source of revenues for the government -both central and states as these taxes are discretionary and most of the products are out of the purview of GST. The revenue earned in FY18 (P) is given in the Table below.


Central Government Revenue       Rs 2.84 Lakh Crore
   Of which excise                           Rs 2.29 Lakh Crore (share:81%)
State Government Revenue          Rs 2.09 Lakh Crore
   Of which VAT/Sales Tax             Rs 1.84 Lakh Crore (share:88%)
Total Revenue                                Rs 4.93 Lakh Crore

According to the ratings agency, the petroleum complex is a very important avenue of revenues for the government. "Of the Rs 8 lakh crore of excise, service tax and GST collected last year by the central government around 36% was accounted for by this complex. Around 20% of states’ own tax revenues was accounted for by these products. Therefore, there is a major interest of both the levels of government in these products," it added.

What are the tax rates on petrol & diesel?

The central government excise rate is fixed and is around Rs20 per litre on petrol and Rs 15.25 on diesel. The VAT or sales tax rates vary from 16% in Goa to 38.5% to 39.5% in Maharashtra for petrol. In case of diesel, it varies from 22% to 25% in Maharashtra to 11.5% in Chandigarh. As petrol and diesel are out of the GST framework, there is no compulsion to lower these rates.

The table below gives the build-up in prices of these two products in Delhi as of 3 September 2018.

Rs/litre                                                           Petrol            Diesel

Dealer Price                                                    Rs 39.21       Rs 42.85
Excise Duty                                                     Rs 19.48       Rs 15.33
Commission to dealer                                    Rs   3.63       Rs   2.51
Excise/VAT                                                     Rs 16.83       Rs 10.46
Final retail Price                                             Rs 79.15       Rs 71.15
Retail price as proportion of dealer price     Rs   2.01       Rs   1.66

According to CARE Ratings, the curious part of the pricing of these two products is that the final mark up for petrol is 100% of the cost for petrol and around two-third higher for diesel. "Clearly, the assumption is that consumption would not come down substantially as can be seen from the revenue collections by the government. This also means that the taxes are higher on petrol, which is still considered to be a luxury good relative to diesel. The dealer price is otherwise lower in case of petrol," it added.

How is inflation impacted?

An increase in the price of crude oil influences both the wholesale price index (WPI) and consumer price index (CPI) inflation. Petrol and diesel have a combined weight of around 4.7% in the WPI. In case of CPI around 3% is directly impacted in terms of petrol and diesel and the changes in the derivatives like transport and, airfares.

The impact of fuel price hike on inflation can be gauged by the following example: the price of petrol in Delhi was around Rs 70 per litre, which is now around Rs 78.80. The price increase of above 10% would mean that WPI would have increased by around 0.5% (assuming the same holds for diesel too) on this score. In case of CPI (assuming all derivative prices went up by 10%), the increase would be 0.3%.

"With inflation already rising, especially on the non-food part for both the CPI and WPI, higher fuel prices will mean that the Reserve Bank of India (RBI) would have to take action on interest rates and there would definitely be another rate hike of at least 25 basis points (bps). It is however, open to conjecture whether this would be taken as a pre-emptive measure or a remedy for higher inflation," the ratings agency concludes.


Why rupee fall remains a worry

Sandeep Singh & Sunny Verma
The Indian Express
Published on September 4, 2018

Fuel prices jump as rupee hits another low, driven by rise in global crude prices and political uncertainty. How do these factors impact the national economy, what are India’s options for addressing the situation?

New Delhi, September 3: Amid a rise in global crude oil prices, geopolitical uncertainty and a decline in the rupee, fuel prices across the country have witnessed a sharp spike over the last one month. While the petrol price in Delhi jumped 3.5% from Rs 76.5 per litre on August 3 to Rs 79.15 Monday, the price in Mumbai is now Rs 86.56 per litre. Brent crude trading at around $78 per barrel and the rupee trading below 71 to a dollar are a growing concern for the economy, affecting the country’s import bill and the current account deficit. A look at the fast-changing external environment and its impact on the domestic consumer and the Indian economy:

What has changed recently?

The Indian rupee, which hovered around 68.50 to a dollar until a month ago, suddenly went into a decline, falling by nearly 4% over the last one month leading to the low of 71.21 Monday. While rising crude oil prices were already having an impact on the rupee, a free fall of the Turkish lira following an economic crisis in that country impacted emerging economy currencies, which lost ground against the dollar. Concerns over US-China trade talks, too, have had an impact on emerging market currencies over the last couple of months. A weak rupee not only hurts the country and its importers on account of a higher import bill and current account deficit but also tends to be inflationary. The situation will be keenly watched by the Reserve Bank of India.

Why have crude prices gone up?

Concerns around US sanctions are a rising threat to oil supplies, leading to a spike in crude prices. While Brent crude was trading at levels of $80 per barrel in May, the prices softened over the next two months as the major oil producers, at their meeting in Vienna in June, decided to ramp up production. Although prices remained volatile and hovered between $70 and $75 per barrel between June and August, they have risen particularly sharply over the last couple of weeks to hit $78.12 Monday.

While there are disruptions to crude supply from Iran and Venezuela, there is widespread concern that the global oil market will get squeezed over the next few months as US sanctions restrict crude exports from Iran. Even as Saudi Arabia and some other major oil producers could raise their output, the market feels that it may not be enough to offset declines in Iran, Libya and Venezuela that are grappling with crises. The situation is expected to remain tight and oil prices may continue to rule high.

How do higher fuel prices impact the economy?

Inflation: High fuel prices have a direct bearing on the non-food parts of CPI (Consumer Price Index) and WPI (Wholesale Price Index) inflation and it may have a bearing on the RBI’s decision to go for another interest rate hike in its efforts to contain inflation. “RBI would have to take action on interest rates and there would definitely be another rate hike of at least 25 bps (basis points). It is, however, open to conjecture whether this would be taken as a pre-emptive measure or a remedy for higher inflation,” said Madan Sabnavis, chief economist at Care Ratings.

There is nothing the government can do to check the rise in global crude oil prices, nor can it do much to check the fall of the rupee as it is driven mostly by external factors. The RBI, however, intervenes intermittently to check excessive volatility in the currency market. A report released by Care Ratings notes that while the government can go for a reduction of excise duty or VAT by central and state governments to bring down the fuel price burden on consumers, “it would mean lower revenue collections. In July ’18, the consumption of petrol and high-speed diesel stood at around 8,900 thousand tonnes. If the excise duty is reduced by Rs 1/litre it might lead to reduction in revenue collections of around Rs 7,000-8,000 crore on an annualized basis”.

Current Account Deficit: This is a measure of country’s trade, when the value of goods and services it imports exceeds the value of goods and services it exports. The current account also includes net income, including interest and dividends, and remittances. A high CAD can create macro-economic vulnerability in an economy, especially affecting stability in currency markets. India’s CAD is typically vulnerable to any rise in international crude oil prices as the country imports around 85% of its oil requirements. Rising global oil prices, when coupled with a sharp depreciation in the rupee, creates a double blow for the CAD as the country’s import bill spikes even though the volume of import may remain the same.

CAD is measured as a percentage of the Gross Domestic Product. In 2011-12 and 2012-13, when oil prices shot up and the rupee fell, India’s CAD jumped from 2.7% in 2010-11 to 4.2% in 2011-12 and 4.7% in 2012-13. Since 2013-14, when international crude oil prices started declining sharply, the CAD too fell in tandem, to 1.7% in 2013-14, 1.3% in 2014-15, 1.1% in 2015-16 and a low of 0.6% in 2016-17. In 2017-18, with the increase in oil prices, the CAD jumped to 1.9% in 2017-18. The widening of the CAD was mainly due to a higher trade deficit brought about by a larger increase in merchandise imports relative to exports. India’s trade deficit increased to $160.0 billion in 2017-18 from $112.4 billion in 2016-17. In 2012-13, when the CAD shot up to 4.7%, India had to resort to severe restrictions on gold imports and raise foreign currency deposits at higher rates to protect the macro-economic health of the country.

Going forward, should a similar situation arise and the rupee continue to depreciate, the government could look at raising funds through issuance of NRI bonds to stabilise the currency.


Corporate stress remained
elevated in Q1: Credit Suisse

The Business Line
Published on September 4, 2018

Mumbai, September 3:  Despite attempts being made to resolve the high debt levels across the corporate sector, overall corporate stress remained elevated in the first quarter of this fiscal year. Share of debt with companies having interest cover (IC) less than 1 increased to 43 per cent compared to 41 per cent in the fourth quarter of the previous fiscal. An interest coverage ratio below 1 indicates the company is not generating sufficient revenue to pay interest on loans.

According to a Credit Suisse report titled ‘India Corporate Health Tracker’, the share of chronic stress has remained stable with 60 per cent ( Rs. 8.4 lakh crore) of debt with companies having IC less than 1 for the last 8 quarters and 55 per cent ( Rs. 7.6 lakh crore) of debt has had IC less than 1 for 11 of the last 12 quarters.

Overall corporate profitability growth remained strong in Q1, though aided by a low base. EBITDA increased 21 per cent year-on-year and 1 per cent quarter-on-quarter basis. Aggregate interest cover also continued to increase to 2.6x, which is the higher level seen in the last four years.

“While overall profitability has continued to improve, performance of weaker companies remained weak, as companies with IC less than 1 in Q4 saw sales decline 7 per cent and EBITDA fall 26 per cent YoY and they continue to report losses,” the report said.

Credit Suisse had earlier filed a report titled ‘House of debt’ which had named some of the large corporate houses with huge debt. In its latest report, Credit Suisse said that some of the companies in the house of debt, particularly the metal companies (JSW Steel) continue to see strong improvement in operating performance, with debt to EBITDA falling to 2x and interest cover well above 1x.

“Adani Power’s profitability continued to weaken and interest cover is down to 0.4x and debt-to-EBITDA is 12x. Aggregate losses excluding JSW Steel continued to widen. Reliance Infra has also seen a fall in profitability and has recently defaulted on payments on NCDs, post which it was downgraded to ‘D’ by Crisil. Videocon continued to report huge losses and is currently under the NCLT process, as are Lanco Infra and the Jaypee group,” the report said.

It said that the new bankruptcy process remains the sole credible resolution structure for the banks. “We estimate that through this process in the past year, banks have seen Rs. 55,000 crore of recoveries at an average 50 per cent haircut. The pick-up in recoveries to 4 per cent of loans in Q1 was also primarily on account of IBC-led resolutions,” it said.


DRI investigation into coal importers: Conspiracy to
slow down probe, SIT should take over: Congress

The Indian Express
Published on September 4, 2018

New Delhi, September 3: The Congress on Monday claimed that the DRI investigation into some prominent coal importers for alleged overvaluation of coal imports from Indonesia has not made much headway in the last four years, and demanded handing over the case to a special investigation team (SIT).

It alleged that the probe is not moving fast because the companies being probed included some of the “favourite capitalists” of the Narendra Modi government.

The DRI is probing at least 40 companies, including a few Adani Group firms, two companies of the Anil Dhirubhai Ambani Group (ADAG), two Essar Group firms and a few public sector power firms for alleged overvaluation of coal imports from Indonesia, collectively pegged at Rs 29,000 crore, between 2011 and 2015.

Senior Congress leader Jairam Ramesh said the probe by the DRI had begun way back in October 2014. “I think an SIT must be set up… Time has shown that that is the only alternative,” he told reporters.

Ramesh said there was a “conspiracy” to slow down the probe as companies being probed include the Adani group. He alleged that the resolution of the “scam” was held up because the State Bank of India (SBI) had declined to provide to the DRI information lying with its Singapore branch pertaining to coal imports from Adani firms.

Ramesh released a letter that, he said, was written in 2016 by the then Revenue Secretary Hasmukh Adhia to SBI Chairman Arundhati Bhattacharya requesting her to ensure that “the documents as sought by the DRI are made available to them, at the earliest.”

He also released Bhattacharya’s reply stating that “our Singapore operations got the issue legally examined and based on the regulations and the legal opinion, they were unable to share the documents”.

“This is an extraordinary situation. With this, I think the very sanctity of the Government of India is being called into question,” he said, adding “all because of Adani.”

The Indian Express had reported on June 20, 2016, that three state-owned banks declined to provide the DRI information lying with their overseas branches regarding transactions by companies in connection with the coal imports case.

Ramesh said the Congress was not against corporate India. “The Congress stands for a healthy corporate India, a strong corporate India… a corporate India that functions according to rules and regulations and not on political whims and fancies… but when there is evidence of a nexus… evidence that laws have been broken, then action must be taken against the corporate sector, however influential they are,” he said.

Source: Internet Newspapers and anupsen articles


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