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Economy showing signs of getting back to normalcy, but medium term outlook still uncertain: RBI Guv

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India’s economy is showing signs of getting back to normalcy, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Saturday.

Delivering a keynote address at the 7th SBI Banking and Economics Conclave, Das said, “Despite the substantial impact of pandemic in our daily lives, the financial system of the country, including all the payment systems and financial markets, are functioning without any hindrance”.

“The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions,” he said.

He added that COVID-19 pandemic perhaps represents so far the biggest test of robustness and resilience of our economic and financial system.

The RBI chief, however, noted that medium term outlook still remains uncertain. He cautioned that it is still uncertain when supply chains will be restored fully, how long will it take for demand conditions to normalise and what kind of durable effects the pandemic will leave behind on India’s potential growth.

“COVID-19 is the worst health and economic crisis in the last 100 years with unprecedented negative consequences for output, jobs and well being. It dented the existing world order, global value chains, labour and capital movements across the globe,” Das noted.

Elaborating on moves taken by the RBI till the pandemic struck, Das said, “From February 2019 onward, on a cumulative basis, we had cut the repo rate by 135 basis points till the onset of COVID-19. That was done mainly to tackle the slowdown in growth which was visible at that time”.

The lagged impact of these measures was about to propel a cyclical turnaround in economic activity, the RBI chief said, when COVID-19 brought with it calamities, miseries, endangering of lives and livelihood of people.

He further elaborated that a multi-pronged approach adopted by the Reserve Bank has provided a cushion from the immediate impact of the pandemic on banks.

“Policy action for the medium-term would require a careful assessment of how the crisis unfolds. Building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.”

According to Shaktikanta Das, the RBI has asked financial institutions to carry out a COVID stress test to see weaknesses in their balance sheet.

“We have recently advised all banks, non-deposit taking NBFCs and all deposit-taking NBFCs to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy for the financial year 2020-21.

“Based on the outcome of such stress testing, banks and non-banking financial companies have been advised to work out possible mitigating measures, including capital planning, capital raising, and contingency liquidity planning, among others. The idea is to ensure continued credit supply to different sectors of the economy and maintain financial stability,” Das said.

Besides, he cited that RBI has strengthened its offsite surveillance mechanism to proactively find weak institutes and to immediately take corrective steps.

“As the lock-down has obstructed our on-site supervisory examination to an extent, we are further enhancing our off-site surveillance mechanism. The objective of the off-site surveillance system would be to ‘smell the distress’, if any, and be able to initiate pre-emptive actions.”

“This requires use of market intelligence inputs and on-going engage ments with financial institutions on potential vulnerabilities. The off-site assessment framework, which takes into account macro and micro variables, i s more analytical and forward looking and aimed at identifying vulnerable se ctors, borrowers as well as supervised entities,” he said.

Furthermore, he said the supervisory approach of the Reserve Bank is to further strengthen its focus on developing financial institutions’ ability to identify, measure, and mitigate the risks.

“The new supervisory approach will be two-pronged – first, strengthening the internal defences of the supervised entities; and second, greater focus on identifying the early warning signals and initiate corrective action,” Das said.

He cited that to strengthen the internal defences, higher emphasis is now be ing given on causes of weaknesses than on symptoms.

“The symptoms of weak banks are usually poor asset quality, lack of profitability, loss of capital, excessive leverage, excessive risk exposure, poor conduct, and liquidity concerns. These different symptoms often emerge together,” he said.

“The causes of weak financial institutions can usually be traced to one or more of the following conditions: inappropriate business model, given the business environment; poor or inappropriate governance and assurance functions; poor decision making by senior management; and misalignment of intern al incentive structures with external stakeholder interests.”

Accordingly, he said RBI is placing special emphasis on the assessment of business model, governance and assurance functions, as these have been the are as of heightened supervisory concern.

“Supervised entities generally tend to focus more on business aspect seven to the detriment of governance aspects and assurance functions. There was also an apparent disconnect between their articulated business strategy and actual business operations. The thrust of the approach, therefore is, to improve the risk, compliance, and governance culture amongst the financial institutions,” he said.

In addition, he said that post the containment of Coronavirus, “a very careful trajectory has to be followed in orderly unwinding of counter-cyclical regulatory measures and the financial sector should return to normal function ing without relying on the regulatory relaxations as the new norm”.

“The Reserve Bank is making continuous assessment of the changing trajectory of financial stability risks and upgrading its own supervisory framework to ensure that financial stability is preserved,” he said.

“Banks and financial intermediaries have to be ever vigilant and substantially upgrade their capabilities with respect to governance, assurance functions and risk culture.”

Meanwhile, in his keynote address, the RBI governor said that the MPC has decided to cumulatively slash the policy repo rate further by 115 basis points.

With this, from February 2019, the total rate cut that the RBI has undertaken would be 250 basis points.

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‘Economy likely to enter into technical recession for first time in history’: RBI

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In yet another setback for the struggling Indian economy, the Reserve Bank of India has projected that the economy is likely to enter into a technical recession for the first time in history at the end of the first half of 2020-21.

India has already witnessed a worrying decline of 23.9 per cent in the GDP for April-June quarter which was a result of nationwide lockdown induced due to the coronavirus pandemic.

However, before the pandemic too, the World Bank had projected India’s economy to grow a mere 4.5 per cent.

The RBI also said that the NSO estimates for the second quarter expected at the end of November 2020 will formally bear out the extent of improvement that occurred in the quarter gone by.

This decline in economy is an eyebrow-raiser for the nation as in the economic terms, when the GDP growth rate is negative for two consecutive quarters or more, it is termed recession.

Perhaps, the Reserve Bank has said that the economy will break out of contraction of the six months gone by and return to positive growth in the October-December quarter of 2020-21.

“With the momentum of September having been sustained, there is optimism that the revival of economic activity is stronger than the mere satiation of pent-up demand released by unlocks and the rebuilding of inventories. If this upturn is sustained in the ensuing two months, there is a strong likelihood that the Indian economy will break out of contraction of the six months gone by and return to positive growth in the third quarter (Q3) of 2020-21,” it said.

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Bezos sells more than $3 billion of Amazon shares

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Amazon Founder and CEO Jeff Bezos this week has sold more than $3 billion worth of shares in his company, according to new filings with the US Securities and Exchange Commission (SEC).

This marks a significant jump from last year when Bezos sold $2.8 billion worth of shares, CNBC reported on Wednesday.

According to Forbes, Bezos now owns a 10.6 per cent stake in the e-commerce and cloud computing colossus Amazon.

This is the third time this year that the world’s richest person has sold Amazon shares worth billions of dollars. In August, he had sold Amazon shares worth $3.1 billion. Prior to that, he had offloaded shares worth $4.1 billion in February earlier this year.

The latest stock sales are part of a predetermined plan in accordance with insider trading laws, according to the filings with the SEC.

According to a Forbes report on Wednesday, the Amazon CEO remains the world’s richest person with an estimated net worth of $189.6 billion.

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Yes Bank scales up Covid-related provisioning to Rs 1,918 Cr in Q2FY21

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Yes Bank has increased its covid-related provisioning to Rs 1,918 crore in the July-September quarter.

In its investor presentation, the bank said that the total aggregate Covid-related provision is 1.15 per cent of the total advances and provides for potential slippages from the above exposures including potential interest reversals.

In the July-September quarter, the bank made a covid-related provisioning of Rs 1,038 crore taking the cumulative provisioning for covid at Rs 1,918 crore.

The bank said that its balance sheet consolidation continues while improving granularity and liability profile.

It noted that its capital position significantly strengthened by the successful raising of Rs 15,000 crore through FPO. It further said that RBI special liquidity facility of Rs 50,000 crore has been fully repaid.

The bank also raised long term refinance borrowing in excess of Rs 5,500 crore.

On Friday, Yes Bank reported a net profit of Rs 129 crore for the July-September quarter.

During the corresponding quarter of the last financial year (2019-20), the bank had reported a loss of Rs 600 crore.

The net interest income of the restructured bank increased 3.4 per cent on quarter on quarter basis to Rs 1,973 crore.

As of September-end, the bank’s gross non-performing asset (GNPA) stood at 16.9 per cent, down from 17.3 per cent in the previous quarter. Its net NPA was 4.71 per cent against 4.96 per cent in the previous quarter.

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