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RBI Holds Rates, Chanda Kochhar Quits, IL&FS Gets New Crew et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 7, 2018 2:02 PM 3 min read
Editorial

It has been a particularly turbulent week for the domestic markets (notwithstanding the National Holiday right at the onset). The Indian Government seems to be trying everything which could salvage the economy at this time of duress. Taking charge of the debt-laden IL&FS, revising asset-liability management norms for NBFCs and holding the repo rate unchanged - all seem to be a part of the grander scheme of things.

 

The top articles this week also reflect this sentiment.

 

Nikhil’s article on India and Crude Oil Price discussed how while internal factors like loss of faith in financial stocks post IL&FS do play a role, the looming externality lately characterizing the Indian Economy is the result of Crude Oil prices going out-of-control.

 

The fall of IL&FS has had a direct impact on NBFCs. We keep hearing that a potential funding crunch would hit/has already hit India's shadow banking sector. Monday’s LongShorts discussed Why the Fall of IL&FS Makes The NBFC Nervous?

 

The Global Economy is likewise threatened by a flattening yield curve - often indicative of an upcoming recession. Thursday’s LongShorts was an attempt to understand how the yield curve could be fundamental in shaping the future of the global economy.

 

This week also saw the second article of the Guide to Exercise series, discussing How We Get Health and Fitness Wrong?

 

Moving on to this week's Top Business News:

 

RBI maintains repo rate at 6.5%.

RBI’s Monetary Policy Committee held the repo rate unchanged at 6.5% in its fourth bi-monthly Monetary Policy Review, contrary to market expectations. RBI also retained the country’s GDP growth estimate at 7.4% for FY19.

 

Govt's 6-member board takes control of IL&FS. On agenda incl. appointment of new CEO & CFO, immediate liquidity support, and restructuring. SFIO starts investigation.

MCA has petitioned NCLT to seek relief for IL&FS Group and its newly-formed Board from any civil or criminal proceedings for decisions and actions taken by the ousted board. RBI to revise asset-liability management norms for NBFCs following IL&FS default.

 

Chanda Kochhar quits as ICICI Bank’s MD & CEO

The move comes after the Board of Directors accepted her request for an early retirement. She will no longer hold a seat on the Bank Board as well as its subsidiaries. Sandeep Bakshi, Head of ICICI Prudential Life Insurance, has been appointed MD and CEO for a period of five years, starting 3rd October 2018.

 

US, Canada, and Mexico reach trade deal to keep NAFTA alive.

Following an year of intense negotiations, US, Canada and Mexico have finally reached an agreement to update the North American Free Trade Agreement. The new deal to be known as the United States-Mexico-Canada Agreement or “USMCA” will govern more than $1.2tr worth of trade among the three nations.

 

EU to offer UK a 'super-charged' free-trade deal.

EU to offer UK a 'super-charged' free-trade deal. It would accommodate “about 30-40%” of Theresa May’s pitch for a wide-ranging trade and security deal, but would not allow completely frictionless trade, because that would undermine the integrity of the single market. In return the EU will demand stronger “level playing field” conditions to ensure the UK does not gain a competitive advantage in areas such as regulatory standards, employment law and state aid.

 

China to sell $3bn in USD bonds amidst trade tensions with US.

In a move to lure foreign investors, China plans to sell $3bn in USD bonds this month, to calm turbulence in its stock market. Shanghai Composite Index has been down 15% since year beginning. This USD-bond sale would be China’s second within a year, if successful.

 

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