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Top News Today: Why is RBI Planning to Put Distressed Private Banks to Auction and More

Professor of Financial Economics and Part-time Value Investor, Transfin.
Jan 8, 2020 11:57 AM 6 min read

Why is the RBI planning to auction distressed private banks in India? Government Panel approves rolling out of 150 private trains on 100 routes. Trade Unions in India protest against privatisation and impact of a slowing economy on jobs. 



Iran attacks US military bases, sends oil prices soaring.

Tomorrow is a Mystery: Today, the already-delicate situation in the Middle East worsened. A few days ago, 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.


Following news of the attack - and fears of imminent US retaliation and a full-fledged military confrontation - Indian markets were off to a volatile start. 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



Trade unions in India protest against privatisation and impact of a slowing economy on jobs. 

Pushback: More than 10 national trade unions across India held strikes today disrupting transport and banking services in a protest against some of the government's policies such as privatisation of state-run companies Air India and BPCL, as well as a merger of public-sector banks. These have a substantial impact on jobs, especially in the backdrop of a slowing economy. 


Meanwhile, the government has warned its employees that participation in the strike in any form would lead to deduction of wages and “appropriate disciplinary action”. Reuters


Q3 growth expected to remain subdued for FMCG companies.

Slow Moving Consumer Goods?: Fast Moving Consumer Goods (FCMG) companies are expected to post a subdued growth in Q3 on the back of muted demand. Impact of floods persisted in the early part of Q3 along with liquidity concerns and weak rural demand.


Volume growth is expected to be in low-to-mid single digits. The news comes after FMCG volumes had hit a two-year low in Q2 FY20. The Asian Age



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.


In the Past Lies The Future: In the last such instance, the RBI had put a moratorium on the erstwhile United Western Bank (UWB) in September 2006, considering its poor capital base. Following this, 17 entities had submitted an expression of interest and the RBI decided to merge UWB with IDBI, after imposing a month’s restrictions on operations. In 2004 too, it had merged private lender Global Trust Bank with state-owned Oriental Bank of Commerce after imposing a three-month moratorium. However, no weak private bank has been auctioned so far.


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



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.


Opens up coal mining 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



Reliance Industries plans to raise $2bn via foreign loans for capex.

Outside In: In what would be one of the largest fundraising efforts by an Indian company in FY20, Reliance Industries Limited (RIL) is reportedly planning to raise as much as $2bn (₹14,370cr) via overseas syndicated loans to fund routine capital expenditure in its telecommunications and petroleum businesses.


RIL is in talks with at least a dozen banks including Barclays, Citigroup, JP Morgan, Morgan Stanley and MUFG. The formal process to raise funds will begin mid-February and could be raised in one or two tranches. ET Markets


Karvy clients challenge IBC amendments on individual creditors.

Meanwhile: Clients of Karvy Private Wealth who saw defaults on their loans to builders introduced by Karvy have challenged recent amendments to the Insolvency and Bankruptcy Code (IBC). The concerned amendments had imposed requirements of at least 100 creditors or 10% of a class of creditors in order for a petition to be filed. This, according to the Karvy clients, places unreasonable requirements on individual financial creditors. Livemint


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