India’s Forex for the first time crosses $400-billion mark

The forex exchange reserves of India for the first time crossed $400-billion mark on September 8. It showed  $400.727 billion as per Reserve Bank of India data. It almost took a decade for the RBI to shore up by $100 billion to cross $400 billion from $300 billion.

The Foreign Currency Assets (FCAs) which mainly accounts purchase and sale of foreign exchange by the RBI, income arising out of deployment of foreign exchange reserves, external aid receipts of the government and revaluation of assets, increased by $2.568 billion to $376.209 billion.

FCAs are expressed in US dollar terms and also include the effect of appreciation or depreciation of non-US dollar currencies, such as the euro, the pound and the yen held in the reserves.

Gold reserves remained stable at $20.69 billion. Special drawing rights (SDR) from the International Monetary Fund, an international reserve asset created by the IMF and is allocated to its members in proportion of their quota at the multilateral agency, rose by $14.2 million from the previous week to $1.52 billion.

Interestingly, India has seen the third-highest reserves accretion globally after Switzerland and China so far in 2017.

 

Sources: Financial Express, NDTV

Image Source: defence.pk

RBI Annual Report FY 2016-17 – An Overview

Reserve Bank of India in its annual report stated that fiscal consolidation may come under threat both at the central and state level due to the immediate effects of the goods and service tax (GST), loan waivers and pay revisions, putting pressure on the overall growth matrix.

 

 

According to the report, public administration, defense, and other services mainly stifled the growth number. PADO added 2.2% points to the growth of real GVA in the services sector and 1.4 % points to the growth of overall GVA of 6.6% during the year.

In terms of production, agriculture and other allied activities recovered sharply in 2016-17. This was mainly facilitated by adequate monsoons as well as a considerable amount of increase in pulses’ minimum support prices (MSPs) that augmented the sector’s growth.

RBI said that there were uncertainties in regard to revenue mobilization, subsequent to the implementation of the goods and services tax along with increasing committed liabilities of states could led to a possible breach of fiscal deficit targets.

“In the fiscal sphere, while the gains in growth, efficiency and tax buoyancy over the medium term from the recent implementation of GST are unequivocally recognised, near-term uncertainties with regard to revenue mobilization therefrom – which could impact fiscal consolidation at both centre and state levels – cannot be ruled out as this fundamental reform gains pan-India traction,” RBI said in its annual report

The State finances have also deteriorated on account of the UDAY (Ujwal Discom Assurance Yojana) scheme aimed at reviving poor power distribution companies (discoms) and revenue falling short despite cutbacks in capital expenses. Additionally, four state governments – Uttar Pradesh, Maharashtra, Punjab, and Karnataka — are likely to face challenges as the farm loan waiver could derail the fiscal discipline.

 

Infrastructure saw many firsts

Stalled projects declined by 40% in terms of value and 37% in terms of number, according to the RBI’s annual report.
The financial year saw the highest ever awarding and construction of national highways. Also, capacity addition in all the major ports was also the highest during this year. India for the first time turned from a net importer to a net exporter of electricity.

 

Aggregate Demand Suffered

During the financial year 2016-17, GDP weakened due to the slowdown in Gross capital formation (Net increase in physical assets in the financial year) as a result of sluggish business confidence and lowering in the entrepreneurial spirit took a toll on the new investment.Gross fixed capital formation contributed barely 0.7 percentage points to the real GDP growth of 7.1% in FY17, despite accounting for around one-third of real GDP.
RBI’s assessment reflects the real GDP growth was largely sustained by private and public spending. In fact, in the absence of factors like the 7th Central Pay Commission hikes and the one-rank-one-pension for defense services, real GDP growth would have been lower by 2 percentage points, the regulator noted.

The RBI said Private consumption spending alone contributed two-thirds of the growth in aggregate demand.

On Demonetisation

The RBI reported that 632.6 crore notes of Rs 1,000 denomination in circulation, 8.9 crores have not been returned post the note ban on 8th November 2016. Thus, only 1.3% of Rs 1000 notes didn’t return after the demonetization exercise. The printing cost of new notes doubled to Rs 7,965 cr in the financial year 2017 from Rs 3,421 cr in the financial year 2016 on account of new currency printing post note ban.

Source – RBI Annual Report

http://www.moneycontrol.com/news/business/economy/only-1-3-of-rs-1000-notes-didnt-return-after-demonetisation-rbi-report-2373311.html

Economic Times- http://economictimes.indiatimes.com/news/economy/finance/fiscal-consolidation-may-be-derailed-due-to-gst-loan-waivers-and-pay-revisions/articleshow/60294821.cms

Image source- Financial Express

RBI rate cuts: If you were thinking good times were upon us, think again

So, the rate cut has come, and it’s a full 25 bps. In all likelihood, that should be all from the inflation-targeting rate panel this year. What’s next? The struggling industries must be happy having  to get the ‘miracle cure’ they terribly wanted. Now that a 25 bps cut has come, it seems banks will finally start lending to them after consistently not doing so over the past several years. 

The 25 bps RBI is not going to make life easier for any of us. The talk of big gains that the rate cut will bring to the world is, at best, a joke. The reality is: Wednesday’s rate cut is not going to make banks restart giving loans for the good of the society any better than what they have been already doing. This is because of the simple reason that high lending rates aren’t quite the reason why lending is not happening, particularly to industries.

The issue lies with low demand from corporations and extremely high bad loans that the banks are stuck with. They are also wary about the stricter scrutiny of every big loan deals they enter into.

New projects aren’t coming up in a big way and many projects where banks have already made financial commitments are stuck for a verity of reasons. The only area where the lending is happening is for the retail borrowers, such as housing and auto loans. Until economic reality changes on the ground, this scenario wouldn’t change. The industry lobbies which have been making a ruckus for the RBI’s rate cut should actually pay attention to the Wednesday’s policy document a bit closely.

Big corporations have already moved to the money market where interest rates are lower. But, smaller companies with lower credit ratings aren’t that lucky. They will have to still depend on banks’ money. But, the lenders seem to be reluctant to look at this category of customers since these firms are perceived as a high-risk category. It’s time the rate-cut lobby did a serious rethinking and called for more fiscal reforms.

Sources-

  1. Firstpost- http://www.firstpost.com/business/rbi-slashes-rate-to-6-lowest-since-nov-2010-do-we-expect-more-cuts-will-it-boost-realty-experts-decode-3887559.html

2. Economic Times-http://economictimes.indiatimes.com/markets/stocks/news/if-rbi-cuts-rates-today-these-12-stocks-will-be-sureshot-winners/articleshow/59875471.cms

Image Source-

Reuters

RBI stops printing Rs 2000 notes and focuses on new Rs 200 notes

According to Livemint, the Reserve Bank of India (RBI) has stopped printing Rs 2000 notes for the current fiscal year. The notes were introduced post the demonetisation drive on November 8, 2016; in a bid to quickly increase currency in circulation. The RBI has not printed Rs 2000 notes for the past five months from its Mysuru mint; instead is expected to release new Rs 200 notes by next month.

RBI data reveals, eight months post demonetisation, the currency in circulation was only 86% at Rs 15.55 trillion as on July 14 in comparison to Rs 17.7 trillion on November 4, 2016. In majority, so far, nearly 14 billion pieces of new Rs 500 notes have been printed (close to 90% of the current currency circulation).  However, sounding cautious the SBI chief economist Soumya Kanti Ghosh said, “RBI is possibly keeping the supply of Rs 2000 bank notes low to get a right mix.”

Further, a report dated July 19, 2017 by SBI’s economic research wing shows banks with 5.4 per cent of currency in circulation, versus 3.8 per cent before demonetisation. This means that most ATMs or bank branches have excess cash lying with them, which can probably be Rs 2000 bank notes. The report also highlighted the mismatch in distribution of currency towards smaller denomination as the presence of Rs 2000 denomination straight after Rs 500. The introduction of Rs 200 notes aims to address this gap.

Sources: Livemint, Business Standard

Kotak Mahindra Bank’s first quarter Net Profit rises

India’s fourth largest private sector lender by assets, Kodak Mahindra Bank publicly announced a 23% jump in its first quarter net profit on Thursday, June 20, 2017. The core income which the bank earns by giving out loans, increased 17%, that is Rs. 245.55 crores. Other incomes have also shown a hike of Rs. 906.88.  As reported by the TOI, analysts on an average had expected the bank to make a net profit of Rs. 16.24 billion. But, the quarter year ending on June 30, gave even better figures. Provisions for bad loans and contingencies is Rs. 203.74 crores for the June quarter.

The RBI had identified the four of the twelve accounts, where this bank has a total exposure of Rs.236 crores for insolvency proceedings. During the merger in 2015, Kotak Mahindra inherited these four accounts from ING Vysya Bank.

Some market experts believed that asset quality of the bank will probably remain the same, while Gross Non-Performing Assets (NPA) will show an increase. Likely, gross advances of NPA rose to 2.58% from 2.50%, as of the June quarter, at the same time net NPA rose from 1.21% to 1.25%, as reported by the TOI.

 

Source: TOI, Reuters

Gujarat High dismisses Essar Steel’s petition against RBI

Gujarat High court has dismissed the petition of Essar Steel filed against RBI challenging the initiation of banking proceedings against itself. This clears the deck for key lenders like SBI and Standard Chartered Bank to move against the company in NCLT under Insolvency and Bankruptcy (IBC) act in the move towards resolving the bad loans issue clogging banks.

Essar Steel, in its petition before Gujarat high court, challenged the missive by RBI in which the central bank directed banks to refer a dozen cases directly to NCLT. Essar contested a line in the RBI statement which said NCLT will accord priority to these cases. It also objected to being clubbed with the 11 other defaulters and said it had been in inconclusive discussion with banks to restructure debt when the directive was issued. Essar Steel claimed it had paid over three thousand crores to creditors between April 2016 and June 2017 and that there had been a substantial improvement in all operating parameters. The company said it should have been given more time to complete its debt restructuring. Essar Steel said it should have been included in a second category of defaulters that had been given six months to restructure debt, failing which they would be taken to the NCLT for the start of bankruptcy proceedings. This Claim was however turned down by the court. This judgement is likely to push the resolution  of bad loans to a fast track process.

 

News Sources- LiveMint, Reuters

Government extends deadline for banks to deposit old notes at RBI

The government announced on Wednesday, June 21, that it has opened a second window for banks, post offices and cooperative banks to deposit old notes with the RBI. The earlier window – till December 31, 2016 – has been extended to July 20, reported PTI.

A recent notification from the Department of Economic Affairs said,” Such specified bank notes may be deposited by such Bank, Post Office or District Central Cooperative Bank, as the case may be, in any office of the Reserve Bank, within a period of 30 days from the commencement of these rules.”

Prime Minister Narendra Modi had demonetised Rs 500 and Rs 1000 notes from November 8, 2016 to curb corruption and eliminate the circulation of fake Indian currency notes. The government had permitted commercial banks and post offices to accept the old notes from the public till December 30. District central cooperative banks were allowed to accept them till November 14.

According to Business Line, the finance ministry has allowed RBI to accept any banned notes from banks and post offices till July 20, only if they were collected by December 30, 2016.  The same extension was available to cooperative banks provided they collected the junked notes by November 14.

However, banks and post offices will have to cite reasons for non-deposit of the specified bank notes within the time period “subject to the satisfaction of the RBI”.

As of November 8, 2016, a total of Rs 17.7 lakh crore was in circulation, which included the banned notes of Rs 500 and Rs 1000.

The last official count released by RBI on December 13 revealed that banks had collected Rs 12.44 lakh crore in old currency notes till December 10.

Sources: PTI, The Hindu Business Line