byfintooJanuary 12, 2021
Government’s consideration in increasing FDI limit to 74% in Insurance sector
- The government is considering increasing the limit of foreign investment in the insurance and pension sectors, which is currently pegged at 49% of paid-up equity capital, to a higher limit of 74%, at par with that for private banks. In recent years, the Insurance sector has shown promising potential for growth, a significant contributor to the economy in the recent past, and even during the testing times of the pandemic.
- There is a view that both the insurance and pension sectors can be further opened up with existing clauses that management control is held by Indians, as applicable in banks. This decision is in line with the government’s plans to explore further easing the foreign direct investment (FDI) limit in insurance. The Insurance Regulatory and Development Authority of India (IRDAI) has also backed an increase in the limit to 74%.
- Impact: This move would help insurers attract more capital to expand the business, while it would also potentially boost the government’s divestment program.
Largecap Funds facing redemption pressure in this bull run
- The redemption pressure on large-cap funds has increased over the past two months even as the benchmark equity indices are scaling new heights. The ratio of gross purchases and gross sales for the category, remaining between 0.45 and 0.47 for the past two months, has remained below one for the seventh month in a row. The major reasons for the redemption pressure have been: the profit-booking by investors due to double-digit returns in the past year; underperformance of large-cap funds to their benchmark indices; and the rising popularity of exchange-traded funds.
- A surge in the gross inflow of sectoral funds in December has pushed large-cap gross inflows to the lagging spot. In December 2020, the sectoral funds had the highest gross inflow of Rs. 7,439 crore, which is over two times the large-cap inflow, while on the other hand, the large-cap funds reported the highest outflow of Rs. 13,254 crore among all the fund categories in the past two months.
The input tax credit scam impact on GST Collection
- The GST Council has recently achieved a new high in December 2020 with the government netting close to Rs. 1.5 Lakhs crores in GST collection. This growth in GST collection has been primarily attributed to an increase in business activity and festive season sales and the government’s measures against tax evaders. In fact, the government has initiated action against some 7,000 offenders and arrested 187 individuals in the past weeks.
- While, according to officials, fraudsters had been floating dummy companies using bogus addresses and issuing fake GST invoices for a commission, running a racket based on the premises of input tax credit. The GST officials have unearthed a fake invoice racket worth Rs. 11,500 crores, contributing to nearly 10% of the GST collections realized.
12 new unicorns, IPO pipeline to strengthen in 2021: Nasscom
- As per the report from NASSCOM, the Indian technology startup ecosystem continues to be on a growth trajectory on the back of rapid digitalization and tech adoption, during the emergence from the pandemic. In 2020, a record of 12 unicorns (valued at least at $1 billion) was added, the highest ever in a calendar year, with 58% of these being B2B tech start-ups, including Razorpay, PineLabs, Zerodha, and Postman, while fintech startup Paytm being India’s highest-valued unicorn at $16 billion, followed by ed-tech startup Byju’s. At least 12 more startups could join the unicorn club in 2021. The potential unicorn pipeline remains strong with 1.5X growth since 2019, as per the report by NASSCOM.
- As per the reports, the companies in the technology and e-commerce space are looking at a stock exchange listing between the year 2021-22, including the e-commerce leaders such as Flipkart, Zomato and Pepperfry along with cosmetics e-tailer Nykaa. The IPO pipeline among startups will also strengthen in 2021-22, with a number of profitable firms like Freshworks, Druva, PolicyBazaar and Delhivery announcing plans to list their shares in the near future.
- According to the report, deep-tech adoption is increasing and is expected to accelerate further, leading to significant momentum in the deep-tech space with increased interest from Venture capitalists and funding agencies to invest in deep-tech start-ups, where 14% of total investments in 2020 were in deep-tech start-ups, up from 11% in 2019. Further, 87% of all deep-tech investments were in Artificial Intelligence/Machine Learning start-ups in 2020.
Axis Bank announces no penalty on premature closure of Fixed Deposits
- In a first-of-its-kind move, the private lender Axis Bank announced that it has removed the penalty on premature closure of all new retail term deposits which are booked on or after December 15, 2020, for a tenure of 2 years or more. This has been a unique move for customer acquisition in the competitive banking sector, focusing on the customer-centric benefits with the objective of the feature being inculcating and encouraging retail customers to go for long-term savings without worrying about liquidity pressure, and offering flexibility and convenience, while also improving our book quality. The new rule will be applicable on all new fixed deposits and recurring deposits.
- For new term deposits booked for a tenure above 2 years, there will be nil premature penalty if the entire deposit is prematurely withdrawn post 15 months of booking. The new feature also offers the benefit of no penalty on the first withdrawal of up to 25 per cent of the term deposit principal value.
RBI Governor warns that rising bad loans may impact Banks by 2021
- The RBI in its Financial Stability Report (FSR) has flagged a warning about a possible rise in non-performing assets (NPAs) at Indian banks by September 2021, indicating that bank NPAs may spike sharply by September 2021 as bad loans continue to pile up, ascertaining that the ratio of gross bank NPAs (GNPA) could rise from 7.5 percent in September 2020 to 14.8 percent by September 2021 in a ‘severe stress scenario’.
- The stress tests highlighting how bank asset quality will be affected under the baseline scenario and three adverse scenarios — medium, severe and very severe. Though the results of the stress tests cannot be taken as forecasts, the fact that the central bank has highlighted the matter shows that it is concerned about a possible spike in NPAs due to regulatory forbearances such as moratorium, unclarity on asset classification and loan restructuring process.
- The RBI fears that the data on fresh loan defaults reported by banks does not reflect the true state of banks’ portfolios. The report said that public sector banks will be impacted badly under the severe stress scenario with a possibility that their GNPA ratio will rise to a staggering 17.6 percent, compared to the 8.8 percent projected for private sector banks and 6.5 percent for foreign banks. While the report also highlighted that the capital adequacy ratio (CAR) of banks may drop from 15.6 percent in September 2020 to 14 percent in a period of one year under the baseline scenario and to 12.5 percent under a severe stress scenario.