RBI Cuts Repo Rate by 25 Bps, Relaxes Norms For Stressed Assets, Waives Off Charges NEFT & RTGS, Renault-Fiat Chrysler Merger Collapses, Facebook Cryptocurrency and Other Top Business News This Week

RBI cuts repo rate by 25 bps, third time in a row, changes stance to “accommodative”. Relaxes norms for stressed assets, replaces one-day default rule. Waives off charges on NEFT & RTGS. Global growth to slow down in 2019, Forecasts for India through 2021 intact, says World Bank. India's Services PMI hits 12-month low, thanks to electoral disruptions. Renault-Fiat Chrysler merger collapses, French government blamed. Facebook, Amazon, Netflix, and Google lose $137bn in stock market value on back of regulatory concerns. Main progress on US-China trade to be at Trump-Xi summit. US reaches agreement with Mexico to reduce the flow of migrants to the southwestern border, Trump calls off plan to impose tariffs on Mexico.

 

Moving on to the top Business news of the week. 

 

 RBI 

 

RBI cuts repo rate by 25 bps, third time in a row, changes stance to “accommodative”. Relaxes norms for stressed assets, replaces one-day default rule. Waives off charges on NEFT & RTGS. 
 

 
Third In A Row: The Reserve Bank of India (RBI), for the third time in a row, on Thursday cut the repo rate by 25 bps to 5.75%, changing its monetary policy stance to “accommodative” from “neutral”

 
In Unison: All six of the MPC members voted in favor of a 25 basis points cut.


As Expected: The move, much along expected lines, came as the growth in the gross domestic product (GDP) declined to a 21-quarter low to 5.8% in Q4FY19.


Every Action Has an Equal and Opposite Reaction: Following the announcement of the rate cut, the 10-year benchmark bond yield fell to 6.89% from 7% before the policy announcement. The Rupee strengthened to 69.28 per dollar from 69.36 earlier.


Read the second bi-monthly Monetary Policy Statement here

 

New Framework: The Reserve Bank of India (RBI) on Friday issued a new prudential framework for the resolution of stressed assets, replacing the February 12, 2018 circular that was recently struck down by the Supreme Court.

 

Because the Devil is in the Details: Some major changes in the new circular are:
 

  • It replaces the one-day default rule, and makes it voluntary for lenders to take defaulters to the bankruptcy court, giving them 30 days to start working on a resolution plan from the day of default
  • The new framework applies to larger universe of lenders, including small banks and non-banking finance companies (NBFCs)
  • Introduction of penal provisions for lenders

 
Here’s a closer look at the new framework.


Waiving Off: RBI is set to remove charges on bank transfers carried out either through National Electronic Funds Transfer (NEFT) or Real Time Gross Settlement System (RTGS), in an attempt to boost digital transactions in the country. 


The Central Bank also announced that it is setting up a panel to review charges imposed by banks on ATM withdrawals.

  

The announcements were made at the end of the RBI's bi-monthly monetary policy meeting.

 

More on this here.

 

 ECONOMY 

Global growth to slow down in 2019, Forecasts for India through 2021 intact, says World Bank. India's Services PMI hits 12-month low, thanks to electoral disruptions.

 

What?: World Bank recently released its June 2019 Global Economic Prospects (GEP) Report, which maintained that Global growth has continued to soften this year, downgrading real GDP growth to 2.6% for 2019, down 0.3% points vs its prior forecast in January.  

Why?: Subdued investment in emerging market and developing economies (EMDEs) cited as principal drivers. Outlook deemed as negative, possibly due to escalating trade tensions. Rising debt to make recovery increasingly challenging. 

India: India's growth projections in FY19/20 maintained at 7.5%, unchanged from previous forecasts. Strengthening credit growth and accommodative monetary policy of the RBI to provide support. Outlook for South Asia at-large positive, barring risk of military escalations.

 
PM what?: PMI, standing for Purchasing Managers' Index, is a "sentiment tracking" measure which looks at intensity of business activity / new orders. PMI gives a sense of contraction or expansion of a particular sector. 

 
May 2019: India's services sector activity increased at its slowest pace in a year in May, falling to 50.2 in May, from 51.0 in April, pointing to the slowest growth rate in the current 12-month stretch of expansion. "India's dominant service economy again suffered the impacts of election disruptions, with growth of both new work and business activity softening for the third straight month," said Pollyanna De Lima, Principal Economist at IHS Markit, and author of the monthly report.

 
But: "Signs that we may see a revival in the service sector in the near-term were, however, evidenced by a pick-up in hiring activity and improved sentiment. Also supportive of greater client spending and investment among businesses is the evident lack of inflationary pressures," Lima added.

 
Data: To get a full sense of where the numbers stack, check out India's Services PMI data mapped since June 2018.  

  

 TECH 

 
ShareChat may raise $100m from Twitter and Hillhouse Capital. Facebook plans to unveil cryptocurrency “Libra” on June 18.
 
 
New Investors: Indian regional language social platform ShareChat may raise $100m at a valuation of $600m-$650m from new investors, Twitter and investment management firm Hillhouse Capital, backed by other existing investors, including Xiaomi, Shunwei Capital and Morningside Venture Capital.
 
 
As per reports, Twitter is likely to invest more than $50m in ShareChat's part of the deal. 

 
Benefits: ShareChat, a platform that allows users to create, discover, and share content with each other is accessible in 18 languages and had over 8 million daily active users by the end of 2018. With ShareChat’s strength being its popularity in Tier 2 and 3 cities, the investment may help Twitter to further expand its market share in India, beyond the metro cities.

 
Codename “Libra”: Facebook has scheduled a white paper release on June 18 to reveal details about its cryptocurrency, Libra. 

 
The launch of “Libra” could unlock a new era of commerce and payments for the social network. It could be used for low or no-fee payments between friends, for remittance of earnings from migrant workers to their families living abroad, as a cheaper alternative to credit cards in traditional e-commerce, and for facilitating micro transactions or tipping of content creators. 
 
 
 COMPANIES 


Renault-Fiat Chrysler merger collapses, French government blamed. Facebook, Amazon, Netflix, and Google lose $137bn in stock market value on back of regulatory concerns.

 
Collapsed: Fiat Chrysler has withdrawn its proposed €33bn merger with Renault on Wednesday, after an intervention from the French government, which is also Renault’s biggest stakeholder. 

 
Renault has said that its Board was unable to press ahead with the deal because the representatives of the French government had requested a postponement of the vote.

 
Bruno le Maire, the French Finance Minister stated on Thursday that the government wanted guarantees over Renault jobs, a headquarters in Paris and corporate governance. According to him,  the French state had engaged constructively with all partners in the negotiations, but that agreement had not been reached on all the government’s conditions for a deal.

 
The Other Side: Fiat Chrysler stated on Wednesday, “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully."

 
Shares in Renault fell nearly 7% in Paris on Thursday after the proposal was withdrawn. Fiat Chrysler stock dropped 1.6% in Milan.

 
The deal would have created the world's third-largest car-maker, only behind Volkswagen and Toyota.
 
  
 
Deep Dive: Facebook, Amazon, Netflix, and Google (FANG) together lost over $137bn in stock market value amid news of antitrust scrutiny by the U.S. Federal Trade Commission into Facebook and the Justice Department into Google.
 
 
Facebook lost $41bn and Google $52bn as its stock fell 6.9%, on pace for the lowest close since January 3. Despite not being directly affected, Netflix and Amazon’s stocks also fell by 1.6% and 4.7% respectively.
 
 

 US 

 
Main progress on US-China trade to be at Trump-Xi summit. US reaches agreement with Mexico to reduce the flow of migrants to the southwestern border, Trump calls off plan to impose tariffs on Mexico.
 
 
Next Big Thing: On the sidelines of the G20 finance leaders meeting in Japan, US Treasury Secretary Steven Mnuchin said on Saturday he would discuss trade issues with People’s Bank of China Governor Yi Gang, but the main progress in the US-China trade dispute would take place later this month at a meeting between President Donald Trump and Chinese President Xi Jinping.
 
 
Sigh of Relief: US President Donald Trump backed off his plan to impose tariffs on all Mexican goods and announced via Twitter on Friday night that the United States had reached an agreement with Mexico to reduce the flow of migrants to the southwestern border.
 
 
Trump had last week said that the US will impose a 5% tariff on all Mexican imports from June 10, and duties of up to 25% will be added in the coming months if Mexico does not take action to “reduce or eliminate the number of illegal aliens” crossing into the US.
  
 
 
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