RBI surplus to Centre likely to impact economy markets and banks
RBI’s decision to transfer ₹991 bn to the government, while higher than expected, is still within the realms of keeping the contingency risk buffer at 5.5% of the RBI’s Balance Sheet. RBI has ensured that the additional liquidity that it’s bringing into the system through the government’s balance sheet is coming at a time when inflation is low. This is a huge positive for the Economy, as it gives levers for the government to front-end spending especially towards infrastructure growth, post addressing the spending on Covid. The additional amount would help the government offset the impact of lower tax collection due to on-going restrictions, and support the divestment program which slowed down due to Covid.
How big has the fall in Investments been in FY21
The poor figure of investments can be primarily attached to the lockdown imposed early in the pandemic to curb the spread of cases. New project announcements in India for the financial year 2020-21 to the lowest in at least 17 years. India saw new projects worth ₹5.18 Lakh Crore, the lowest since FY05. CARE said that for a revival of investments to take pace, there would need to be a surge in demand as factories are still not running at full capacity. This year, too, a recovery in investments is unlikely as many states have imposed lockdowns as deadly second wave ravage the country.
Japan Exports Surge as Global Trades show signs of rebounds
Japanese exports jumped again, climbing in April by more than a third from last year’s levels. Surging car and auto parts shipments helped power a 38% rise in Japan’s exports from a year earlier. Although the data give an inflated view of the strength of exports because they are based on a comparison with 2020’s low figures, the report still shows trade bouncing back. Shipments climbed almost 8% compared with 2019.
- Last month’s trade increase showed a broad-based recovery in the world economy. Shipments to the U.S. and Asia rose the most since 2010, while those to the EU climbed the most since 1980.
- Demand itself is very strong led by the U.S. and Chinese exports.
- A drop in the yen’s value gives Japan’s exporters another tailwind. The currency has fallen roughly 6% versus the dollar so far this year, increasing the value of repatriated profits for companies from Toyota to Hitachi.
Banks Likely to transfer about 80 Large NPA accounts to NARCL
National Asset Reconstruction Company (NARCL) is the name coined for the bad bank announced in the Budget 2021-22. Banks are likely to transfer about 80 large NPA accounts for the resolution which is expected to be operational by next month. The size of each of these NPAs accounts is over ₹500 crore and the banks have identified about 70-80 such accounts to be transferred to the proposed bank. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realization. NARCL will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be government-guaranteed security receipts.