Daily Financial News Analysis – 12th Mar’20 – Free PDF Download

Yes Bank rescue plan

• HDFC: ₹2,000 crore
• Kotak Mahindra Prime Ltd: ₹2,000 crore
• State Bank of India: ₹2,450 crore
• As per the plan, Yes Bank needs to raise capital of ₹20,000 crore in the next six months, which will be infused in stages.
• A draft recapitalization plan outlining the initial investment was submitted to the RBI and the Union finance ministry.
• Once the ₹10,000 crore is raised, outside investors such as private equity funds will be asked to participate for the balance ₹10,000 crore.
• At the heart of Yes Bank’s troubles is its capital inadequacy and the inability to raise enough funds to boost its Common Equity Tier 1 (CET1) capital.
• JPMorgan estimates the total known stressed exposure of Yes Bank at ₹41,000 crore.
• The stressed pool is made up of largely four key accounts —Essel Group, Anil Ambani-promoted Reliance Group and now Vodafone Idea Ltd, besides a large commercial real estate book, according to the report.

Reforming Banks

• The Centre needs to fast-track long-pending
  1. banking sector reforms
  2. complete with focused revamp of governance standards
  3. Merge 10 public sector banks into 4
• And the fiasco at Yes Bank busts the myth that private ownership is a sure-fire guarantee of good governance — what is important is not so much the nature of ownership as the systems of

• WAY AHEAD: institute empowered bank boards charged with taking all bank-related decisions, including selection of the chief executive officer, and are held accountable for performance.
• Public sector bank boards need to be wholly professionalised, with speed, and board-level appointments made by an independent body and not the government, so as to eschew politicisation, as called for by the P J Nayak expert committee.
• Skewed compensation norms at public sector banks, much above market rates for staff appointments and far below these for senior managements, must give place to ones that align bankers’ remuneration with the bank’s long-term health, with large parts backloaded and subject to clawback.
• In tandem, a thorough review of the Banking Regulation Act, 1949, is warranted, especially clauses that seem to come in the way of getting talented independent directors appointed to bank boards.
• Regulatory oversight must see banks not in isolation but in relation with one another and large non-banking financial companies, to spot practices such as circular lending.
• A strong whistleblower policy would help as well.
• The promoters’ stake in private banks may need to be quarantined in the larger public interest.
• The benefits of dispersed holding have to be weighed against dilution of accountability.
• Just as important banks need to shore up expertise in project evaluation, structuring and demand projections.
• Besides, an active and vibrant corporate bond market would complement banking reforms, and transparently allocate funds for long-gestation projects.

India bars entry

• India decided to bar the entry of foreigners and kept on hold the visa-free facility granted to Overseas Citizen of India cardholders.

• All incoming travellers, including Indians, arriving from or having visited China, Italy, Iran, South Korea, France, Spain, and Germany, will be quarantined for at least 14 days.
• People have been strongly advised against undertaking any non-essential overseas trip.
• International traffic through land borders will be restricted to designated check posts with robust screening facilities.
• As many as 121,564 confirmed cases of Covid-19 have been reported so far across the world with 4,373 people succumbing to the disease, according to data available on Johns Hopkins University website.

SBI changes key rates

• SBI lowered its marginal cost of funds based lending rate (MCLR) by 10-15 basis points across tenors, besides lowering savings and deposit rates.
• The Reserve Bank of India introduced the MCLR methodology for fixing interest rates from 1 April 2016.
• Following the cut effective 10 March, the one-year MCLR on which most loans are benchmarked now stands at 7.75%.
• The bank’s tenth consecutive MCLR cut in FY20 is expected to largely benefit its corporate borrowers and retail loans contracted before 1 October 2019.
• SBI outlined how this would translate into lower monthly loan repayments for customers. “Consequently, EMIs (equated monthly instalments) on eligible home loan accounts (linked to MCLR) will get cheaper by around ₹7 per ₹1 lakh on a 30-year loan and EMIs on car loans will also be reduced by ₹5 per ₹1 lakh on a 7-year loan.“
• The move will help existing retail SBI customers who borrowed before October 2019, and corporate loans which are yet to move to an external benchmark.
• The bank also lowered its savings bank interest rate to 3% for all customers.
• Earlier, it used to pay 3.25% on balances of up to ₹1 lakh and 3% on balances above ₹1 lakh.
• In another development, SBI waived maintenance of average monthly balance (AMB) for all savings bank accounts.
• Currently, SBI customers need to maintain average balance of ₹3,000, ₹2,000 and ₹1,000 in metro, semi-urban and rural areas, respectively, and non-maintenance attracts a penalty of ₹5 to ₹15, plus taxes.

Commerce minister and exporters

• A 12-15% decline in meat exports, falling global demand for rice, restrictions on outbound shipments of medicines and a shortage of raw material for the pharmaceutical, solar and electronic industries are issues that exporters are grappling with as the covid-19 spreads.
• These matters are likely to come up at a meeting that commerce minister Piyush Goyal will have with export promotion councils and industry chambers and associations on Thursday to assess the global disruption in supply chains and impact on India.

• The pharma, solar and electronic sectors are facing a shortage of raw material – most of which comes from China.
• The commerce and industry ministry has drawn up a list of at least 500 products where India has the potential to fill the gap created by China in the global supply chain.
• While there are no cases of contamination, exporters say logistical issues have come up as export-import movement and trade sentiment have been hit.
• “Our consignments are held up and new orders are not coming. The Middle East is slightly slow and only Egypt is showing some demand. Dispatches to Vietnam, which ultimately go to China, are taking time,” said an exporter.
• The government has restricted the exports of 26 active pharmaceutical ingredients and formulations, including paracetamol, vitamins B1, B6 and B12, another concern that the industry is keen to flag at the meeting.

GST Council Meeting

• GST Council is likely to consider a proposal to increase GST on mobile phones to 18% in its next meeting to be held on March 14 to correct the inverted duty structure being faced by the industry.
• At present, mobile phones attract a 12% GST rate, even as several parts that go into making mobile phones fall under the 18% GST rate bracket, creating a case where the duty on inputs is higher than that on finished goods.
• If the GST council were to accept the proposal, the rate increase would lead to a rise in prices of mobiles across categories, a move that would be detrimental to the industry which has been asking for a rate reduction to 12% on components so as to bring in parity with fully made mobile phones.
• “Parts of printed circuit board assembly (PCBA) and other sub-assemblies or components are not being considered as parts of mobile phones and are therefore being charged GST at 18%, which needs a correction,” said Pankaj Mohindroo, chairman of the Indian Cellular Electronics Association.

AGR relief for Telecos

• Telecom companies in India are set to receive a financial boost with the government preparing a relief package for the sector saddled with heavy debt and mounting losses, following years of intense competition and low tariffs.
• The package is expected to be announced in April and will contain measures such as extension of the deadline for paying adjusted gross revenues (AGR) dues as well as a reduction in base prices for 5G spectrum auction, two people familiar with the matter said on condition of anonymity.
• The package will take a comprehensive view of the sector keeping in mind the ambitious roll-out of 5G

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