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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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Hyundai Motor’s February sales jump 26%

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Hyundai Motor India Ltd’s (HMIL) monthly sales rose 26.4 per cent to 61,800 units in February, the automaker said on Monday. In February 2020, the company had sold 48,910 units.

The firm also witnessed a rise in domestic sales by 29 per cent to 51,600 units as against 40,010 units in February 2020, data showed.

Similarly, its exports rose by 14.6 per cent to 10, 200 units in February as compared with 8,900 units in the same month of 2020.

“The company has been consistently striving to drive a resurgence in sales, thereby contributing towards economic recovery and bringing the industry closer to pre-Covid level sales. With a cumulative sales of 61 800 units in February 2021, Hyundai has recorded growth across segments,” HMIL Director (Sales, Marketing & Service) Tarun Garg said.

He further said that both domestic and export demand have recorded healthy double digit growth last month, reflecting an all-round improvement in buyer sentiment.

source: The Statesman

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Bharti Airtel raises $1.25 billion via issuance of debt instruments

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Bharti Airtel on Thursday announced that it has successfully raised $1.25 billion via issuance of debt instruments. This is the first ever dual-tranche US dollar bond issued by the company spread across senior and perpetual issuance, the company said in a regulatory filing.

The debt fund raising by the company comes just before the start of spectrum auction valued at Rs 3.92 lakh crore.

“Bharti Airtel (“Airtel”), India’s premier digital communications provider, has successfully priced its debt fund raise of US$1.25 billion through the issuance of its first ever dual-tranche US$ bond offering spread across senior and perpetual issuance,” it said.

“This is the largest issuance by any Indian Investment Grade issuer since January 2019,” it addded.

The company said that the order book was over-subscribed about 3 times on final pricing with peak order book of USD 5 billion at time for final price guidance.

“Airtel has priced US$750 million of senior 10.25 year bonds at a yield of US 10 Year Treasury + 187.5bps for an implied coupon of 3.25 per cent. Simultaneously, Network i2i Limited, a wholly owned subsidiary of the Company priced US$500 million in guaranteed subordinated perpetual NC 5.25 year bonds with a coupon of 3.975 per cent,” it said,

This is the lowest ever yield on 10 year and Perpetual bonds for Bharti Airtel.

“The offering was significantly oversubscribed with very strong demand from several marquee Asian, European and American funds,” the statement said.

“The senior 10.25 year tranche was launched at IPG (Initial Price Guidance ) of 230 basis points (bps) over 10 year US Treasuries and eventually tightened by 42.5 bps to price at 10 year US Treasury 187.5bps. Similarly, the perpetual NC 5.25 tightened by 37.5 bps from its initial price guidance,” the statement said.

Barclays, BNP PARIBAS, BofA Securities, Citigroup, HSBC, J.P. Morgan and Standard Chartered Bank acted as Joint Lead Managers and Joint Bookrunners, while DBS Bank Ltd. & SMBC Nikko was the Co-Managers on the trade.

source: The Statesman

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ED to examine documents to see if Amazon dodged regulators

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Spelling more trouble for e-commerce giant Amazon, the Enforcement Directorate (ED) will examine its documents over allegations that it dodged India’s regulators, sources said on Friday.

An ED source related to the development told IANS, “We will examine the documents of Amazon, as it has been alleged that it favoured big sellers on its India platform, and used them to maneuver around rules meant to protect the country’s small retailers from getting crushed by e-commerce giants, internal documents show.”

This will be the second time in the span of 20 days that the ED will be probing the e-commerce giant in India. In January, the ED had initiated a probe against Amazon for Foreign Exchange Management Act (FEMA) violations.

The probe is being conducted under various sections of FEMA after the central probe agency recently received a communication from the Union Commerce Ministry seeking “necessary action” against e-commerce players like Amazon and Flipkart pertaining to certain multi-brand retail businesses and an observation made by the Delhi High Court in relation to Amazon.

The source said that the financial probe agency’s examination of documents is based on the report of a global newswire, which reported that it dodged India’s regulators.

The report said that two sellers on the e-commerce giant’s India platform – merchants in which Amazon had indirect equity stakes – accounted for around 35 per cent of the platform’s sales revenue in early 2019. It means some 35 of Amazon’s more than 400,000 sellers in India at the time accounted for around two-third of its online sales.

The source, however, refused to share further details.

source: The Statesman

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