News Update by CMA H Padmanabhan (01-01-2019)


Update for the Day 1st January 2K19

Over dozen CPSEs evince interest in raising funds via debt ETF next fiscal 

Over a dozen CPSEs have evinced interest in raising funds through the finance ministry’s maiden debt exchange-traded fund (ETF) to meet part of their capital expenditure needs next fiscal, an official said. To start with, the finance ministry will provide a platform for only ‘AAA’ and ‘AA’ rated Central Public Sector Enterprises (CPSEs) to raise funds by way of bond issuance using the debt ETF route. 

“As many as 10-15 CPSEs have shown interest to try the debt ETF route for fund raising .. 

India’s external debt declines 3.6% to $510.4 billion at Sept-end 

The country’s external debt fell by $19.3 billion, or 3.6 per cent, to $510.4 billion during the six-month period ended September, due to a decrease in commercial borrowings, non-resident Indian (NRI) deposits and valuation effect. “At end-September 2018, India’s external debt witnessed a decline of 3.6 per cent over its level at end-March 2018, on account of a decrease in commercial borrowings and non-resident Indian (NRI) deposits. 

“The decrease in the magnitude of external debt was primarily due to valuation gains resulting from the appreciation of the US dollar against the Indian rupee and major currencies,” the RBI said Monday. 

Banks’ bilateral exposure to financial system at 46.5%: RBI 

Banks lending to and borrowing from all other entities in the financial system stood at 46.5 per cent of total lending and borrowings in the financial system, as on September 2018, RBI report showed. 

Financial institutions establish links with other financial institutions for efficiency gains and risk diversification, but these same links lead to risk transmission in case of a crisis, RBI said in its Financial Stability Report released Monday. 

IL&FS puts commercial, residential properties up for sale 

The debt-laden IL&FS group has further put up its properties for sale to garner funds in order to settle loan dues. It has invited bids from interested buyers for properties (commercial and residential) in Mumbai and one in Kolkata. 

Properties on sale include a 1,376 square feet residential property located at upscale Malabar Hill besides three commercial properties in Mumbai and one commercial space in Kolkata. 

The embattled infrastructure and financial sector major has asked bidders to submit their bids on or before January 15. The Infrastructure Leasing & Financial Services (IL&FS) group has loans due of nearly Rs 91,000 crore. 

IL&FS effect: RBI to relook at financial conglomerates’ oversight 

The IL&FS crisis points out to risk to systemic stability from financial conglomerates (FCs) and there is a need for “closer attention” on their oversight framework, the Reserve Bank of India (RBI) said Monday. 

In its half-yearly Financial Stability Report, the RBI said FCs pose “clear risks” as intra-group transactions “create opportunities for regulatory arbitrage” through bypassing regulations related to exposure norms. 

Banking sector on course to recovery as NPAs recede: RBI 

The banking sector is on “course to recovery” as the afflicting non-performing assets recede, but state-run lenders need reforms in governance, Governor Shaktikanta Das said Monday. 

The weaker ones among the public sector banks need to be supported through recapitalisation, the Governor said in his foreword to RBI’s half-yearly financial stability report (FSR). 

Angel tax continues to haunt startups 

The ghost of angel tax may continue to haunt startups for some time despite New Delhi’s assurances against potential coercive measures. 

About a week after the government sought to calm an agitated industry, the tax authorities have started issuing demand notices to startups to pay the angel tax by end-March.

Government sets up export promotion cell for MSMEs 

The MSME ministry has established an export promotion cell to create a sustainable ecosystem for micro, small and medium enterprises (MSMEs), Parliament was informed Monday. 

The benefits likely to accrue from the setting up of the cell include integration MSMEs into global value chain, evaluation of readiness of MSMEs to export their products and services, and recognition of areas where improvements are required in order to be able to export effectively and efficiently. 

New year cheer for banks, NPAs see first fall since 2015 

The Reserve Bank of India, which has been relentlessly pushing banks to recognise bad loans, believes that they may be over the worst with the industry likely reporting a decline in non-performing assets (NPAs) in the current fiscal year for the first time since 2015, when the regulator began tightening norms. 

The central bank forecast gross bad loans will decline to 10.3% of total loans by March 2019 from 10.8% at the end of September 2018 and 11.5% in March 2018. The net NPA ratio also registered a decline during the period. 

“In a sign of possible recovery from the impaired asset load, the GNPA (gross non-performing assets) ratio of both public and private sector banks showed a half-yearly decline, for the first time since since March 2015, the financial year-end prior to the launch of asset quality review,” RBI said in its 18th Financial Stability Report, the first since Shaktikanta Das became governor in December following Urjit Patel’s departure. “The banking stability indicator (BSI) shows that asset quality of the banks has improved, although profitability continues to erode.” 

EPFO may give subscribers option to increase stock investments in new year 

Subscribers of the retirement fund body EPFO may get an option in the new year to invest more of their savings in equity market, besides a host of other social security benefits and digital tools to manage their funds. 

At present, the Employees’ Provident Fund Organisation (EPFO) invests up to 15 per cent of its investible deposits into the exchange traded funds (ETFs) and so far such investments total about Rs 55,000 crore. 

However, the ETF investments do not reflect in members’ account and they do not have an option to increase the proportion of their retirement savings to be invested into stocks. 

The EEFO is now developing a software that would help show retirement savings in cash and ETFs components separately. At present the account only shows the savings as gross cash component. 

23 goods and services to get cheaper from January 1 as reduced GST rates kick in 

In a new year gift to the common man, the government has notified reduction in GST rates on 23 goods and services, including movie tickets, TV and monitor screen. 

The consumers will pay less for these items of common consumption as the incidence of Goods and Services Tax (GST) on them will come down from Tuesday. 

The GST Council on December 22 decided to cut tax rates on 23 goods and services, including movie tickets, TV and monitor screens and power banks and exempted frozen and preserved vegetables from the levy. 

The Council had rationalised the 28 per cent slab and restricted the highest slab to luxury, demerit, and sin goods, besides cement, large screen TV, Air Conditioners and dishwashers. 

RBI favours liquidity limit on income, liquid funds 

The Reserve Bank of India (RBI) has suggested the regulators concerned impose a minimum liquidity limit on fixed-income and liquid fund schemes of mutual funds. The suggestion comes after the IL&FS debt crisis exposed gaps in the mutual fund industry’s approach to valuing fixed-income securities. 

In its Financial Stability Report, RBI said that the valuation and maturity restrictions for these instruments are under review by SEBI. A mandatory liquidity limit may also be considered by the capital-markets regulator, it said. In this regard, RBI is working on strengthening the asset-liability management guidelines for the non-banking financial (NBFC) sector. 

NBFCs borrow around 25%-30% of their funds from mutual funds. A report by Credit Suisse had said that fund exposure t o NBFC debt, at 30% of assets under management, is rather outsized and unlikely to sustain. Of this debt, 55% is of short tenor

Thanks & Regards

CMA H Padmanabhan