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Top News This Week: RBI Planning to Put Distressed Private Banks to Auction, Iran-US Tensions Send Oil Prices Soaring

Professor of Financial Economics and Part-time Value Investor, Transfin.
Jan 12, 2020 9:52 AM 9 min read

World Bank forecasts 5% growth in FY20 for India in Global Economic Prospects report. Facing revenue shortfall, Government might seek another interim dividend from the RBI. India's services sector activity rises to five-month high in December. RBI planning to auction distressed private banks. Government planning to come up with export financing scheme for small businesses. Telecom revenues likely to exceed target by ₹50,000cr in 2019-20. Cabinet clears strategic disinvestment of five small PSUs. Iran attacks US military bases, sends oil prices soaring.




World Bank forecasts 5% growth in FY20 for India in Global Economic Prospects report.

It Feels Like We Only Go Backwards: In its latest edition of the Global Economic Prospects report, the World Bank has projected a 5% growth rate for India in FY19-20. Growth in the following financial year, it said, is likely to rise to 5.8%.


Among large economies, India’s growth forecast stands at number two, behind China’s. The World Bank blamed "weak confidence, liquidity issues in the financial sector" and "weakness in credit from non-bank financial companies" for the ongoing slowdown. "In India, activity was constrained by insufficient credit availability, as well as by subdued private consumption." CNBC TV18


Globally, economic growth is forecast to be 2.5% in 2020 as investment and trade slowly recover from 2019’s shocks and uncertainties. But risks of a downturn persist.


The US economy is projected to slow to 1.8% while the Euro area will witness growth of 1%. China is forecasted to see the swiftest growth among large economies. BS


You can read the entire World Bank report here.


India's services sector activity rises to five-month high in December.

On A Rising Tide: India's services sector activity rose to a five-month high in December, propelled by new business orders that boosted output as well as employment.


The IHS Markit India Services Business Activity Index improved from 52.7 in November to 53.3 in December, raising hopes of an economic recovery. Firstpost


The news comes on the heels of the manufacturing PMI data released last week, which showed that India's factory activity accelerated at the fastest pace in seven months in December.


Government planning to come up with export financing scheme for small businesses.

Paving Way: In a bid to boost exports, the Government is planning to come up with an export financing scheme, which would offer lower interest rates in rupee and dollar terms as well as reduced premium cost for small businesses.


Under the Niryat Rin Vikas Yojana (Nirvik) scheme, interest rates will likely fall to 3.15% for export credit in dollar terms and 7.35% in rupee terms, according to the proposal moved to the Cabinet. Currently, the interest rates are pegged at 3-6% for credit in foreign currency and around 10 per cent in rupee terms.


Exports had declined for the fourth successive month in November by 0.32%. BS


Facing revenue shortfall, Government might seek another interim dividend from the RBI.

The Sequel's Already Here: As the economic slowdown, below-the-mark tax revenue and unmet disinvestment targets bite into state revenues, the government is reportedly considering turning once again to the RBI to seek an interim dividend to prevent the fiscal deficit from going haywire.


The likelihood of this happening again increased after the recent National Statistical Office report that pegged the expected nominal GDP at ₹204.6trn ($2.88trn), lower than the ₹211trn ($2.97trn). This alone could widen the fiscal deficit to 3.44% of GDP against the 3.34% target.


Not Long Ago: Earlier this fiscal, the Central Bank had transferred ₹1.48trn ($20.83bn) - the biggest-ever annual transfer of such a kind. The RBI paid ₹28,000cr ($3.9bn) as interim dividend from its 2018-19 fiscal accounts (July-June) in February, which helped the government contain the deficit at 3.4% in the last fiscal. Financial Express



RBI planning to auction distressed private banks.

Letting Go: As per a Business Standard report, the RBI is planning to auction distressed private banks that have been placed under the Prompt Corrective Action (PCA) framework for a prolonged period.


This can be seen as part of the RBI's plan to adopt a  differentiated regulatory regime for public- and private-sector banks under the PCA framework.


At present, there are six lenders under the RBI’s PCA framework that includes two private banks — IDBI Bank and Lakshmi Vilas Bank.


Central Bank gives first 'in-principle' nod to convert an urban cooperative bank into a small finance bank.

The RBI has granted ‘in-principle’ approval to Saharanpur-based Shivalik Mercantile Cooperative Bank to convert into a Small Finance Bank (SFB) on January 6th, making it the first such lender to have opted for the transition.


"On being satisfied that the applicant has complied with the requisite conditions laid down by it as part of “in-principle” approval, the RBI would consider granting it a licence for the commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949 as an SFB,” the regulator said. Moneycontrol


Category–I banks to offer foreign exchange prices to customers beyond market hours.

Trading Day and Night: The Central Bank has permitted category–I banks to offer foreign exchange prices to users at all times, out of their Indian books, either by a domestic sales team or through their overseas branches.


The move is likely to help traders hedge their bets on the domestic front. ET Markets Forex



Telecom revenues likely to exceed target by ₹50,000cr in 2019-20.

Beyond All Expectations: The Government could possibly surpass its budgetary target for revenues from the telecom sector for 2019-20 by anything between ₹13,000cr and ₹50,000cr, depending on the review petition with the SC, which had imposed a ₹1.47tr bill on telcos in the form of licence fees and spectrum user charges (SUCs).


Zooming Out: In its July Budget, the government had targeted more than ₹50,500cr in revenue in 2019-20 from the telecom sector, a 28% increase Y-o-Y. An increase in revenue was expected to come from licence fees, SUCs, and deferred payment for spectrum bought earlier. BS


Industry reports 4.5% fall in AGR in Q2.

Down and Down: Telecom industry reported 4.5% fall in Adjusted Gross Revenue (AGR) to ₹37,338cr Y-o-Y in Q2, on the back of seasonal weakness in call volumes and the shutdown of mobile services in Jammu and Kashmir. ET Telecom News


Airtel launches QIP worth $2bn.

Gathering Monies: Telecom operator Airtel has launched a qualified institutional placement (QIP) worth $2bn at a floor price of ₹452 per share. Alongside this, a separate fundraise exercise is also being undertaken through issue of foreign currency convertible bonds (FCCBs) of up to $1bn.


The proceeds from the fundraise is likely be used to meet the ₹35,586cr-worth AGR dues the operator is supposed to pay the Department of Telecommunications (DoT) by 24 January. Business Today


Top News This Week: RBI Planning to Put Distressed Private Banks to Auction, Iran-US Tensions Send Oil Prices Soaring


Extra Crunch: Total voice volumes on Airtel’s network grew 5.9% sequentially last quarter. In the September quarter they had dropped 2.8%. The growth comes in the backdrop of Jio’s decision to charge for outgoing voice calls, which seems to have boded well for Airtel. Click link here to know how Jio’s extra levy for outgoing calls could have benefitted Airtel, Vodafone Idea.



Cabinet clears strategic disinvestment of five small PSUs.

Private Matters: The Union Cabinet has cleared the proposal for the strategic disinvestment of five small PSUs. These are Neelachal Ispat Nigam Ltd, Minerals and Metals Trading Corporation Ltd, National Mineral Development Corp, MECON and Bharat Heavy Electrals Ltd. Business Today


Government panel approves rolling out of 150 private trains on 100 routes.

Train for Speed: A high-powered panel set up by Railway Minister Piyush Goyal has approved the rolling out of 150 private trains on 100 routes, including Mumbai-Delhi and Howrah-Delhi sectors. 


According to the plan, private operators will be free to fix the fare, decide on halts and procure coaches and engines from any source as long as they comply with the railways' standards. The private players will have to deploy all the trains within five years of award of contract, and the time taken by a train to complete a journey will be comparable with the fastest train operated by the Indian Railways on that route. 


The recommendations put out for stakeholder consultations have proposed that Indian as well as global players, with experience in railway and tourism sectors be permitted, provided they have a minimum net worth of ₹450cr. Other parameters such as a maximum-permissible 15-minute delay, beyond which passengers will have to be compensated, have also been proposed. ET Railways


Might consider pushing stake sale in BPCL and Concor to next FY.

Your Order Will Be Delayed: The Government recently held roadshows for the stake sale in Bharat Petroleum Corporation (BPCL) and Container Corporation (Concor). Despite the fact that these roadshows were conducted without an information memorandum (IM) and a data room, BPCL roadshows in the UK, the USA and the UAE attracted attention from global oil and gas majors like Shell, Chevron, Conoco Philps, Saudi Aramco, Rosneft and Exxon Mobil. Roadshows for Concor gathered attention from companies such as D P World and Adani Group. 


However, almost all those interested indicated that the March 31st deadline for the stake sale was a hurdle. As a result, it is believed that the government might consider pushing the stake sale to the next financial year. A deep dive into the matter here.


Coal mining opened further.

Opening Up: In an attempt to attract investments in coal mining, the Cabinet has approved the promulgation of Mineral Laws (Amendment) Ordinance 2020, which will allow any company, other than those present in steel and power to mine coal. The ordinance also does away with the captive end-use criteria. The move is likely to help create an efficient energy market, induce healthy competition and reduce coal imports, also putting an end to state-run Coal India Ltd’s (CIL’s) monopoly. Livemint



US-Iran tensions send oil prices soaring.

Tomorrow is a Mystery: This week, the already-delicate situation in the Middle East worsened. The US conducted an airstrike in Iraq that killed Qasem Soleimani, a senior Iranian General. In retaliation, Iran abandoned the remaining vestiges of the Iran Nuclear Deal and the Iraqi Parliament voted in favour of removing all American troops from their country. And now, Iran has hit US military bases with ballistic missiles. The bases housed American troops, but none of them were reportedly killed.


Top News This Week: RBI Planning to Put Distressed Private Banks to Auction, Iran-US Tensions Send Oil Prices Soaring


Following news of the attack - and fears of imminent US retaliation and a full-fledged military confrontation - Indian markets experienced volatility. Crude oil crossed $70 to a Dollar while gold hit fresh highs. Indian markets are presently trading near record highs and a 5-6% correction could be a good entry point for long-term investors, experts say. Moneycontrol


Why another conflict in the Middle-east could hurt India's economic recovery.

Delhi's Dilemma: An escalation of conflict in the Middle-east does not bode well for the struggling Indian economy. While India has stopped importing oil from Iran, conflict in the region will spike oil prices further - which means a strain on India's exchequer since it imports its oil needs. And trade ties between the two nations have strengthened in recent years. In FY19, India’s exports to Iran shot up 18% while imports surged by 20%. Vegetables, sugar and animal fodder are the items that witnessed the highest growth in exports whereas mineral fuels, oils and chemicals remained the highest imports from Iran to India. Financial Express


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