Franklin Templeton AMC slapped with a fine of 5 crore; Banned from launching new debt mutual funds
The SEBI has banned Franklin Templeton AMC from launching debt schemes for the next two years. Rs 5 crore penalty has been levied for “several irregularities” in the running of its six debt schemes that were wound up in April 2020. The irregularities extend to failures to exercise adequate due diligence, carry out valuation of securities as per the principles of fair valuations and ensure a robust risk management framework.
A refund of Rs 451 crore management and advisory fees with 12% interest has also been ordered along with separate adjudication proceedings against the CEO & Directors.
SEBI asks mutual funds to classify debt schemes on credit, interest rate risk basis
AMCs will have to classify all debt schemes in terms of a potential risk class matrix, based on interest and credit risk, SEBI announced. AMCs will have full flexibility to place single or multiple schemes in any cell of the Potential Risk Class matrix.
Interest rate risk will be now categorized into three buckets. The lowest risk bucket Class I with a Macaulay Duration of up to a maximum of 1 year, Class II-moderate risk bucket to have MD up to 3 years and the class III can have MD above 3 years. Class I schemes will have debt paper with a maximum residual maturity of 3 years and Class II schemes with a maximum residual maturity of seven years, while maximum residual maturity has not been fixed for Class III. Credit risk will also be divided into three categories- greater than 12, greater than 10 and less than 10.
It is another progressive step to ensure the potential risks in a debt scheme are appropriately revealed to the investors and support informed decision-making.
Piramal Group Likely To Complete DHFL Takeover By August
The NCLT has approved a resolution plan submitted by Piramal Group. Piramal Group’s resolution plan, which offered Rs 37,250 crore for DHFL, was approved by the committee of creditors in January with a majority. Once this happens, the equity of existing shareholders is said to be written down to zero and DHFL shares to be delisted.
DHFL’s fixed depositors are part of the committee of creditors and those with dues up to Rs 2 lakh will receive full payment on their principal amount. Depositors with dues between Rs 2-10 lakh will get 40-43% of their principal outstanding. Those with dues higher than Rs 10 lakh are likely to be repaid through a mix of cash and securities on a pro-rata basis.
RBI implements operational flexibility for reporting FPI deals in G-Secs
The RBI is to provide operational flexibility for reporting Over the counter transactions in Government securities transactions undertaken by the Foreign Portfolio Investors . The new rules will come into effect from June 14.
Due to this announcement, the information about trades undertaken by domestic counterparties with FPIs must be disseminated by the Clearcorp Dealing Systems India Ltd (CDSL) after one part of the trade is reported on the NDS-OM platform by the domestic counterparty with a suitable qualifier to indicate that the trade is awaiting counterparty confirmation.
Rising fuel prices in India- reasoned by Union Petroleum and Natural Gas Minister Dharmendra Pradhan
The recent surge in global crude oil prices is the major cause of the fuel price hikes in India. Its price has gone over USD 70 (per barrel) in the international market. This negatively impacts consumers here, as India imports 80 percent of its oil requirement.
He added, it is up to the GST Council to decide whether fuel should be brought under the Goods and Services Tax, which, many believe, would substantially bring down prices.
FIIs Invest 3K Crore in First 4 Days of June After Withdrawing 18K Crore in April
FIIs have net invested Rs 3,049.81 worth of Indian equities in the first four trading days of June. It is too early to make a call with certainty but this data shows that FIIs might be changing their outlook to India to a more positive one as COVID 19 infections drop and the vaccination drives in various states gather pace.
Economies across the world have also opened up and exports from India are going up with Indian merchandise exports up 67.39% to $32.21 billion in May compared to May 2020 and goods exports are up 195.7% in April 2021 compared to 2020.
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India’s GDP grows 1.6% in fourth quarter, contracts 7.3% in FY 20-21
Amid the coronavirus pandemic, India’s gross domestic product (GDP) grew at 1.6% in the January-March quarter of fiscal year 2020-21, but witnessed a contraction of 7.3 per cent for the entire fiscal year.
This is the first full-year contraction in the Indian economy in the last four decades since 1979-80, when GDP had shrunk by 5.2%. This is also the second straight quarter of expansion since India exited a rare recession.
India’s GDP figures showed the growth at 3% in Q4 of FY20, while growth for FY20 came at 4%, an 11-year low.
Sector wise Q4 FY20 GVA Growth Analysis:
- “Manufacturing sector”- accelerated to 6.9% in Q4 FY20 compared to a contraction 4.2% a year ago.
- “Farm Sector”- down at 3.1%, compared to 6.8% a year ago.
- “Construction Sector”- grew by 14.5% from 0.7% a year ago.
- “Mining Sector”- shrank by 5.7 per cent, as against a contraction of 0.9% a year ago.
- “Electricity, gas, water supply and other utility services Sector”- grew by 9.1%, against 2.6% expansion a year ago.
- “Trade, hotel, transport, communication and broadcasting services Sector”- contracted by 2.3% from 5.7% growth earlier.
- “Financial, Real estate and Professional services Sector”- grew by 5.4% from 4.9% growth a year ago.
- “Public administration, defence and other services Sector”- growth fell to 2.3% from 9.6% a year earlier.
RBI Governor-led Shaktikanta Das Monetary Policy Committee, in its first bi-monthly monetary policy review for FY21, retained its GDP growth projection at 10.5% for FY21.
The economy, which was facing a slowdown even before the pandemic, now confronts a crash of consumer demand – constituting over 55% of the economy – as household incomes and jobs have declined. Unemployment soared to a near one-year high of 14.73% in the week ending May 23, according to the Centre for Monitoring Indian Economy, a Mumbai-based private think tank
Finance Minister Nirmala Sitharaman, who said on Friday that “no decision has been taken for another stimulus package”, has limited space due to a fall in tax collections and rising public debt.
11 year low growth in GDP, one-year high unemployment of 14.73%, no signs of stimulus package from government due to falling tax collections & rising public debt, seems to worsen the situation going forward for next year. Though GDP growth in Q4 has given hopes & experts are still positive while making optimistic Growth projections for the upcoming year.
Government approves four firms under PLI scheme for bulk drugs
The government has given approval to four waitlisted firms under the Production Linked Incentive (PLI) scheme for domestic manufacturing of bulk drugs.
The companies which have been given approval are — Solara Active Pharma Science Ltd, Rajasthan Antibiotics Ltd, Dhatri Lab Pvt Ltd and Vital Laboratories Pvt Ltd.
It envisages setting up greenfield plants in four different target segments with a total outlay of Rs 6,940 crore for the period 2020-21 to 2029-30.
The “PLI scheme” was launched by Department of Pharmaceuticals for promotion of domestic manufacturing of critical bulk drugs- KSMs/APIs. With this, a total of 46 applications with committed investment of Rs 5,355.44 crore and expected employment generation of about 11,210 have been approved by the government so far under the PLI Scheme for Bulk Drugs. Setting up of these plants will make the country self-reliant to a large extent in respect of these bulk drugs
“Solar active Pharma science Ltd.” is the only listed company out of the 4 approved companies. Due to the approval by the government under PLI scheme for domestic manufacturing, we can expect the positive growth in share prices of Solar active Pharma science Ltd in the longer term.
PSU banks plan Rs. 8,500-9,000 crore of QIPs
Public sector banks are expected to launch qualified institutional placement (QIP) offerings worth ₹8,500-9,000 crore in the next quarter amid a rebound in equity markets, according to sources in the know.
“Indian Bank”, “Bank of Maharashtra”, and “Canara Bank” expected to launch their offerings between July and September.
These QIP offerings are going to boost the PSU Banking sector. Such offering is also expected to provide cushion for further declines in the performance of the PSU banks. The launch of Rs 8,500-9,000 crore of QIPs can be considered as the relieving news for the investors. And the stocks of Indian Bank, Bank of Maharashtra, and Canara Bank should be kept on watchlist as with the execution of expected launch of offering between July & September has fair amount of chance to increase market shares.
Auto companies prepare financial packages to help dealerships
Several of India’s leading automakers are working on or rolling out incentive packages to support their dealers who have been hit hard by lockdowns in states to check the spread of the Covid-19 pandemic.
These incentives being planned or offered by “Maruti Suzuki”, “Tata Motors”, “Renault India”, “Toyota Kirloskar Motor”, “Daimler India Commercial Vehicles” and “Honda Motorcycle” & “Scooter India” include financial support to offset interest cost on inventory during the lockdown, extension in credit periods, insurance cover, salary support and vaccination expenses.
Companies are also working at quick resolution of claims to facilitate cash flow at dealerships, as retail outlets gradually open up with several state governments expected to ease restrictions over the next few weeks, as the number of Covid-19 cases falls.
These incentives are expected to help the dealers, who were badly affected by the pandemic, to improve their operation and sales & in-turn these are expected to help the auto companies to achieve growth in the net revenues.
Banks begin process of restructuring of loans up to Rs 25 cr
To provide support to small businesses hit by the second coronavirus wave, banks have initiated the process of restructuring pf loans up to Rs 25 Crore in line with the Covid-19 relief measures announced by the RBI earlier this month. Many lending institutions have got board approval for the resolution framework and eligible borrowers are being contacted For example, “Bank of India” has already sent messages to its eligible customers, meanwhile “Punjab & Sind Bank’s” debt recast plan has been approved by the board.
With this the Banking Sector can be expected to perform good at least for THEnext Quarter, though chances can’t be neglected to see the sector again in trouble 2-3 Quarters down the line.
Has RBI really endorsed crypto transactions in India?
Hours after major Indian banks, including State Bank of India (SBI) and HDFC Bank sent emails to customers warning against using their services to trade in crypto currencies, the Reserve Bank of India (RBI) has clarified that banks cannot cite the 2018 circular for such communications. This is because the circular was quashed by the Supreme Court of India on a petition filed by Internet and Mobile Association of India in March, 2020.
Clearly, the clarification doesn’t mean that the RBI is endorsing crypto trading. The regulator, in fact, has not taken any position on the validity and legality of cryptocurrency transactions in India. It has only avoided a potential legal hazard—inviting contempt of the apex court by maintaining silence when a clutch of banks has used its old, invalid circular to keep the crypto lobby away. The RBI has only asked banks not to shoot from its shoulder. The language indicates high caution. Banks will not have the backing of the regulator and will have to deal in crypto at their own risk.
Pepperfry expects to join unicorn club soon, to launch IPO after booking profit
Online furniture company Pepperfry would be in the unicorn club – companies with a valuation of more than USD 1 billion – by the time its initial public offer hits the market,
The company has raised USD 235 million till date from Norwest Venture Partners, Goldman Sachs, Bertelsmann Investments India (BII).
Pepperfry announced plans to add 200 offline studios on FOFO (franchise owned franchise operated) across tier 2 and tier 3 towns. Studios contribute 30 per cent in the overall business. With new studios coming up, their contribution in business should be going to upwards of 40 per cent. The stores will come up with at least 100 new cities. The company has already opened over 70 studios across 40 cities in the last six years out of which 32 are based on the FOFO model.
Currently the online business model contribute to 70% in overall business, which is the main reason that amid the coronavirus pandemic, the company’s business is still in good position and it is further expected to grow once planned addition of 200 offline studios on FOFO model starts contributing to the overall business.
Work From Home (WFH) leads to surge in demand for office furniture rentals: Industry experts
Corporates and independent consumers are renting ergonomic curated products to make working from home more efficient, especially in metro cities, resulting in surge in furniture rentals, according to industry players.
Many companies have also tied up with “Fabrento” for providing a comfortable office set up to their employees, as told by Fabrento founder Sidhant Lamba.
“City Furnish” company has witnessed 40 per cent increase in demand for WFH solutions like study tables and chairs, announced by founder and CEO Neerav Jain.
In the Furniture Sector, such online rental marketplaces like Fabrento & City Furnish are expected to see high consumer demand and good profit-making opportunities for the next 6 months till WFH continues.
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.
Inflation and its impact on an overall economy
Retail Inflation in April is 4.3% which is well within the range of RBI. Inflation is measured by the CPI and the wholesale price index (WPI). The CPI measures changes in prices of essential commodities at the consumer level, while the WPI notes changes at the producer level.
The commodities considered for measuring the WPI are manufactured products (63.75% weightage), primary articles such as food (20.02%), and fuel and power (14.23%).
For the CPI, the commodities are food and products (45.86%), housing (10.07%), clothing (6.53%), and fuel among others. Inflation is indicative of the decreasing purchasing power of the country’s currency and vice versa.
Inflation is indicative of decreasing purchase power of the country’s currency and vise versa.
It is basically the cost of production which is passed on to the consumers.
In the Monetary Policy Committee meeting of February 2021, Government specified that for the next 5 years they will not be focusing on maintaining the inflation rate. There is a possibility in the near future for the inflation rate to go higher.
In increasing inflationary conditions, the RBI adopts a contractionary monetary policy. In case of a slow-down, it adopts an expansionary monetary policy, which leads to the increased money supply, lower interest rates, lower borrowing costs, and increasing aggregate demand thereby giving a boost to the economy.
RBI has increased Gsec buying in the past 2 weeks
The central bank of India net purchased Rs. 34,175 crore of sovereign papers between April 22 and May 4 from the secondary market to ensure lower borrowing cost in the second wave that would derail the economic recovery.
The usual efforts through Open market Operation and Government Security Acquisition Program is a corrective measure that the government has been taking to control the rise in bond yields and lower the borrowing cost. The Government principal money manager is said to have bought T bills and long-term papers in 7 tranches in the past two weeks.
Due to the following action, the bond yields have reduced to 0.03 basis points to 6.02%.
Tata Motors Posts $1 billion loss as Jaguar Costs hot bottom line
Tata Motors announced a ₹ 7,600 crore ($1 billion) loss on Tuesday despite a strong performance in the first quarter of 2021 as restructuring costs related to its British luxury car brand Jaguar Land Rover (JLR) hit the automaker’s bottom line.
The company reported losses for three consecutive quarters last year, as the pandemic hammered demand in domestic and international markets.
The standalone business including joint operations reported profit at Rs 1,645.69 crore in Q4FY21 against a loss of Rs 4,871.05 crore in the year-ago quarter and clocked a massive 106 percent year-on-year growth in revenue at Rs 20,045.9 crore during the quarter, driven by strong passenger vehicle demand and recovery in commercial vehicle demand.
The commercial vehicle business consistently posted sequential quarter-on-quarter growth on the back of improved consumer sentiments, buoyancy in e-business, firming freight rates, and higher infrastructure demand including road construction and mining.
WFH promotes tier 2 cities as talent hub and Unemployment in Rural India
Due to work from home policy tier, 2 cities like Kochi, Guwahati, Jaipur, Indore, and Mysore are said to have emerged as talent hubs.
According to Talent500, there has been a 30-40% increase in demand for workforce in tier-2 cities within tech teams across sectors.
Covid has made us all work remotely. In a post-pandemic world, remote won’t just be the new normal, but instead, be a strategic advantage for companies as they build out their teams.
On the other hand, we see rural unemployment has nearly doubled in a week as lockdowns and surging covid infections in villages brought economic activity to a halt. Rural unemployment shot up to 14.34%. The MSMEs (micro, small and medium enterprises) are in bad shape, and the informal jobs market, as well as self-employment in rural India. The situation may get worsened over the next few weeks if we don’t manage to tackle the pandemic in rural India.
Competition Commission of India (CCI) agreed to the proposal of acquisition of an additional 25% stake of Adani Krishnapatnam Port Ltd By Adani Port SEZ
Adani Port SEZ holds 75% shareholding; the proposed combination will lead to acquiring 100% shareholding and complete control.
In April, Adani Ports and Special Economic Zone had said it had acquired a 25 percent stake of Vishwa Samudra Holdings in Krishnapatnam Port for Rs 2,800 crore. Krishnapatnam Port, located on the east coast of India in the Nellore district of Andhra Pradesh, is an all-weather, deep water port with a multi-cargo facility with a current capacity of 64 million tonnes per annum.
12 Drugmakers and Healthcare companies are planning IPO in 2021
Covid-19 has increased investor demand for promising companies in sectors like Pharmaceuticals, healthcare, and related businesses that are beneficiaries of the pandemic.
In the past five years, only seven companies involved in the sector have hit the IPO
Companies like Glenmark Lifesciences, Supriya Lifesciences, Krsnaa Diagnostics, Krishna Institute of Medical Sciences KIMS, Tatva Chintan Pharma, Sigachi Industries Windlass Biotech have already filed their draft paper switch SEBI.
The four companies i.e Emcure Pharma, Wellness Forever, Vijaya Diagnostic, and Star Health Insurance have initiated the process for filing IPO.
It looks like there will be a massive change in the Indian Healthcare system because of covid -19 and demand for drugs, vaccines, diagnostic medical equipment, hospital, and other related services will increase over the period.
Value Stocks vs Growth Stocks – US Markets
Value stocks have beaten the growth stocks by about 13% in the latest data as per the Russell 1000 Value Index vs Russell 1000 Growth Index. The reason for the outperformance could be the lower valuation and lower PE that the value stocks were trading at.
Alternatively, there exists a massive opportunity in the technology space and bluechip stocks of the US Markets, namely Apple, Netflix, Tesla as they have seen some correction and there seem to be better days ahead due to the strong market share and fundamentals they command.
Also read: RBI Monetary Policy – Fintoo Blog
Global Cues – USA , China and Australia
The USA markets over the past few days have seen some downturn mainly due to worse than expected inflation data (rise in consumer prices) and the possibility of withdrawing some Fed Policies which were initially introduced. The USA markets staged a late recovery yesterday and ended on a positive note.
China on the other hand could not meet their quarterly GDP forecasts which led to selling in their market
Australian markets have been volatile due to its tug of war with China and the sharp fall in iron ore price could prove to be an economic disaster for Australia as they are an exporter of Iron ore to China
GO AIR IPO
The Wadia group-owned Go Air has filed the Draft Red Herring Prospectus for its initial IPO. They would be raising Rs3600 Cr via fresh issue of shares
The airline had started its operations in 2005 and has just over 50 aircrafts in its fleet.
The aviation sector is facing some tough challenges and amidst this chaos , it is to be seen how this IPO fares.
Rise in Unemployment Rates
India’s unemployment rate has increased to 8% in April 2021 as compared to 6.5% in March 2021.
Restrictions that were imposed by various State Governments due to the second wave of Covid 19 and the inability of the economy to absorb the labor force has resulted in about 7.35 million job losses.
EPFO Update – Insurance Cover upto 7 Lakhs
The Employee Provident Fund Organisation has announced that if an active salaried individual dies of Covid19, their family members will be offered a sum of up to 7lakh rupees as insurance cover.
This cover is provided under the EDLI scheme and the ceiling is Rs. 15000 for the purpose of calculation.
RBI cancels license of United Co-operative Bank
RBI has canceled the license of United Co-operative Bank based in West Bengal. Through an order dated 10th May, the central bank has prohibited the co-operative lender from carrying out banking business.
The reason for canceling the license was that the Bank did not have adequate capital and earning prospects were slim. The bank also failed to comply with various regulatory requirements. In its present capacity as well, the bank would be unable to pay its depositors in full and its continuance would further prejudice the interest of the depositors.
S&P 500 Index down 1% on 22nd April. The Dow Jones Industrial Average and NASDAQ Composite both moved backwards –
- Joe Biden is seeking to raise taxes on millionaire investors to fund education and another spending on welfare to recover the U.S. economy.
- Biden is proposing to increase the capital gains tax to 39.6% for those Americans earning more than $1 million. The current capital gains tax rate and the top individual tax rate is 37%
Indian Cellular and Electronics Association (ICEA) seeks to include mobile phones, laptops and other information and communications technology (ICT) products in essential services list –
- Since the sale of these devices is happening via e-commerce platforms, the industry body has sought permission to include the above products in the list of essential services.
- ICEA has also asked for the service and maintenance of these products to be included in the government’s essential services list during the lockdown period.
- The government has included telecom, internet services, broadcasting, and cable services under essential services right now.
- The major reason behind seeking permission to include these products in essential services is only because the electronics industry in India has come to a standstill. Manufacturing has come to a halt because of shut down of factories.
Ola Electric to set up 100,000 strong network of EV chargers (Hypercharger Network)
- The company said it will install 5,000 chargers in the current financial year, including a few hundred chargers ahead of the launch of its first electric two-wheeler – due in July this year.
- The estimated cost of this is $2 billion will consist of two formats – Vertical tower-based chargers as well as standalone chargers installed at public spaces such as malls, IT parks, and cafes.
Glenmark Life Sciences – IPO
- The wholly-owned subsidiary of Glenmark Pharmaceuticals, Glenmark Life Sciences has filed a draft red herring prospectus with the SEBI for an initial public offer.
- The offer comprises a fresh issue of up to Rs 1,1160 crore and an offer for sale of up to 73.05 Lakhs shares of Rs. 2 each.
Indiabulls Housing Finance partners with HDFC Limited to offer home loans
- Indiabulls no longer wants to be a lender, instead, it will now be an originator of loans for the industry.
- The company has taken a decision to no longer expand its balance sheet but instead earn income by originating loans for HDFC.
- The reason behind taking this move is only because Indiabulls think that this business is a liability management business. The company made two attempts to get a deposit-taking license and got hit badly when both did not happen.
- The two firms will frame a common credit policy with Indiabulls Housing Finance originating retail housing loans. HDFC will retain 80% of any such credit on its book, the rest 20% will go to Indiabulls’s loan book.
Mirae Asset has launched two passive funds
- Investment Managers has launched two passive funds that will track the NYSE FANG+ ETF index, which consists of the most innovative technology and consumer companies.
- The Mirae Asset NYSE FANG+ ETF is an open-ended scheme tracking the FANG+ Total Return Index while the NYSE FANG + ETF Fund of Funds (FoF) will predominantly invest in Mirae Asset NYSE FANG+ ETF.
- The NYSE FANG+ Index is an equal-weighted index designed to represent the technology and consumer discretionary sectors consisting of highly traded growth stocks. Its constituents include Facebook, Amazon, Apple, Netflix, Alphabet (Google), Tesla, and Twitter, among others.
Discretionary consumers goods have taken a bad hit in terms of sales
- Weekly sales of discretionary consumer goods including ice cream, beverages, packaged snacks, refrigerators and ACs have dipped sequentially by up to 50% due to localized lockdowns, weekend and night curfews.
- The out-of-home consumption category has also taken a bad hit.
- Dairy products used by hotels and restaurants have declined by almost 30-40%.
- Sales of home appliances such as refrigerators, ACs, and washing machines have dipped up to 50% because of cuts in production due to a drop in demand.
RBI puts curbs on dividend payouts by banks
- The RBI had curbed banks’ dividend-paying ability in the FY 2020-21 because of the second wave of covid.
- Banks may pay dividends on equity shares from the profits for the FY 2021-21 provided the amount of dividend should not be more than 50% of the amount determined as per the dividend payout ratio.
- The dividend payout ratio shall not exceed 40%.
- This step has been taken in view of the continuing uncertainty caused by the ongoing second wave of COVID-19 as it is very crucial for banks to proactively raise and protect capital against unexpected losses.
- RBI did not permit any banks to pay dividends in 2019-20.
The Monetary Policy Committee is entrusted with the responsibility of deciding the different policy rates including MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility. Monetary Policy Committee (MPC) has six members and the main objective of this body is to maintain price stability and boost up the growth rate of the country’s economy.
The MPC also maintained an accommodative stance “as long as necessary to sustain growth on a durable basis” and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward
The RBI MPC decided to keep the repo rate unchanged at 4 percent on the back of rising COVID-19 cases, imposition of restrictions, and lockdown in the state of Maharashtra. The reverse repo rate remained changed at 3.35 percent and the marginal standing facility (MSF) rate and the bank rate at 4.25 percent. The projection of real GDP growth for FY22 is retained at 10.5 percent because of the ongoing vaccination program, the gradual release of pent-up demand, and the investment-enhancing and growth-supportive reform measures taken by the government
The Government Security Acquisition Programme GSAP will reduce some of the uncertainties created by long-term bonds. It is very simple to understand that the Government wants to acquire high yield long-term bonds to reduce the debt burden for a longer period of time and also this will help to pump into the ecosystem.
Related Article: Rules that will knock your pocket from 1st April 2021
RBI has extended NEFT and RTGS facilities to non-bank payment system operators. So far, only banks were allowed to use these facilities. With RBI’s announcements, prepaid payment instrument (PPI) issuers, card networks, White label ATM operators, and Trade Receivables Discounting System (TReDS) platforms can also use these facilities. Also in an attempt to promote digital transactions, RBI has proposed to increase the limit of the outstanding balance to Rs 2L from Rs. 1L
In order to maintain Liquidity RBI Governor announced liquidity support of Rs 50,000 crore for fresh lending during 2021-22. RBI will provide Rs 25,000 crore to Nabard (National Bank for Agriculture and Rural Development); Rs 10,000 crore to National Housing Bank (NHB); and Rs 15,000 crore to Sidbi (Small Industries Development Bank of India).
The entire RBI Monetary policy indicates that the Government is focusing on maintaining liquidity that seems necessary for economic activity. It is striving to keep the cost of funds low by anchoring bond yields. These measures are aimed at keeping financial conditions agreeable, ensure orderly evolution of the yield curve and support the ongoing recovery.