Daily Banking Digest – 22 February 2024

Welcome to Daily Banking Digest, your premier source for the latest news and insights on February 22, 2024, focusing on banking, the economy, and finance. Our platform offers a comprehensive overview of the day’s most critical financial stories, market trends, and economic developments. Whether you’re a professional in the financial sector, an investor monitoring market movement, or someone interested in staying informed about the economic landscape, Daily Banking Digest provides reliable, up-to-date information.

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India-Oman FTA set to be signed after legal vetting.

India and Oman have reached a Free Trade Agreement (FTA), officially called the Comprehensive Economic Partnership Agreement (CEPA), that will lower trade barriers and boost bilateral trade between the two nations. The agreement awaits final legal review before official signing.

Key Points of the Article

FTA Ready for Signing: All major issues have been resolved, and the India-Oman FTA is ready to be signed following legal review.
Timing: Efforts are being made to sign the agreement before India’s upcoming general elections.
Strategic & Economic Importance: Oman is India’s third-largest export market within the Gulf Cooperation Council (GCC), and the FTA will deepen economic ties and strengthen India’s strategic position in the Middle East.
Trade Growth: Bilateral trade between India and Oman has grown significantly in recent years, reaching $12.39 billion in 2022-23.
Benefits for India: The agreement is expected to boost India’s exports in sectors including electronics, textiles, iron, steel, and machinery.
Benefits for Oman: Oman will also benefit from reduced duties on its exports to India, which primarily include petroleum products, urea, and chemicals.
Fast Negotiation: The trade talks progressed rapidly, with formal negotiations beginning in November 2023.
Strategic Benefits: The India-Oman CEPA will bolster India’s ties with the GCC and the wider Middle East region.

India, Greece to sign mobility pact soon, double trade by 2030: Modi.

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India and Greece are strengthening their bilateral relationship with plans to sign a mobility and migration agreement and double their trade by 2030. The leaders of both countries discussed expanding cooperation across various sectors, including defense, security, education, technology, trade, and tourism.

Key Points of the Article

Mobility and Migration Agreement: India and Greece will sign an agreement to facilitate skilled migration between the two countries, addressing challenges like illegal migration and human trafficking.
Doubling Bilateral Trade: Both nations aim to double their current bilateral trade to reach approximately $4 billion by 2030.
Multi-Sectoral Cooperation: India and Greece are exploring increased cooperation in areas including defense, security, education, start-ups, shipping, investment, agriculture, tourism, science, technology, and cyberspace.
Strategic Partnership: The recent joint declaration in Athens elevated the relationship between India and Greece to a strategic level.
Greece Joins Indo-Pacific Oceans Initiative: Greece has become a member of the Indo-Pacific Oceans Initiative, which aligns with India’s vision for the region.
Shared Views on Diplomacy: Both India and Greece emphasize the importance of resolving disputes and tensions through dialogue and diplomatic channels.

Economy might have grown by 6% during October-December quarter, says ICRA.

India’s economic growth in Q3 of FY24 is projected to have slowed down to 6%. This is attributed to a decline in industrial and agricultural sectors, along with reduced government spending. While this is lower than the previous quarter’s growth, it’s still an increase compared to the same period last year.

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Key Points

Slowdown in Q3: ICRA projects a 6% GDP growth in Q3 FY24, aligning with RBI’s estimate, marking a slowdown from the 7.6% growth in Q2.
Industrial and Agricultural Impact: The slowdown is mainly due to reduced growth in the industrial (8.8%) and agricultural (0.5%) sectors.
Government Spending: A mild contraction (0.2%) in government spending also contributed to the slower growth.
Services Sector Growth: Despite the overall slowdown, the services sector shows signs of improvement, projected to grow at 6.5% in Q3.
Positive Signs in Services: Growth in trade, hotels, transport, communication, and broadcasting services is expected to drive the improvement in the services sector.

BOI, IOB, and UCO Bank get new chairmen.

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The Appointments Committee of the Cabinet (ACC) has made several leadership appointments in India’s public sector banks. This includes the appointment of new non-executive Chairmen for Bank of India, Indian Overseas Bank, and UCO Bank.

Key Points

Bank of India (BOI): M R Kumar (former LIC Chairman) is appointed as BOI’s Chairman for a three-year term.
Indian Overseas Bank (IOB): Srinivasan Sridhar is appointed as IOB’s Chairman for a three-year term, with the condition that he resigns from his position on the Board of Bank of Baroda.
UCO Bank: Aravamudan Krishna Kumar is appointed as UCO Bank’s Chairman for a three-year term, with the condition that he resigns from his position on the Board of Suraksha Asset Reconstruction Limited.

SEBI mulls allowing brokers to invest in non-securities businesses.

India’s securities regulator, SEBI, is considering whether to allow stockbrokers to invest their surplus funds into businesses outside of the securities market, such as fintech, tech, or real estate. This discussion arises as brokers seek new avenues for their funds and comes amidst ongoing legal challenges regarding a broker’s ability to do this.

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Key Points

Current Restrictions: Brokers are currently restricted from investing in non-securities businesses due to SEBI rules.
Brokers’ Desire: Brokers want to use their surplus funds to invest in areas like fintech, technology, and real estate, or to support their own NBFC branches.
SEBI’s Considerations: SEBI is open to the idea, but suggests brokers either form separate holding companies for these investments or distribute dividends and invest those funds.
Concerns: SEBI is wary of brokers jeopardizing their ability to meet margin requirements by investing in non-core businesses.
Kotak Securities Case: The ongoing legal battle between Kotak Securities and NSE highlights the complexities of brokers investing in their own group entities. SEBI may provide some clarity on these activities following its deliberations.

Union Bank of India to raise ₹3,000 crore via QIP

Union Bank of India plans to raise up to ₹3000 crore by issuing new equity shares to Qualified Institutional Placement (QIPs). This capital raise requires regulatory approval and the process officially began on February 20th.

Key Points

Capital Raise: Union Bank of India aims to raise up to ₹3000 crore.
Method: The bank will issue new equity shares to Qualified Institutional Placement (QIPs).
Pricing: The floor price is set at ₹142.78 per share, with a potential discount of up to 5% as permitted by SEBI regulations.
Regulatory Approval: The plan is subject to necessary regulatory and statutory approvals.
Timeline: The issue opened on February 20th. A committee meeting is scheduled for February 23rd to finalize the issue price, including any potential discounts.

India must focus on exports to achieve 10 pc economic growth: Arvind Panagariya

Arvind Panagariya, Chairman of India’s 16th Finance Commission, emphasizes that India needs to prioritize exports to achieve ambitious 10% economic growth. He warns against the allure of protectionist policies, highlighting the success of open economies.

Key Points

Exports are Key: Panagariya believes India must focus on exports to reach its growth targets.
Lessons from Successful Economies: He cites examples of Singapore, Taiwan, South Korea, and China, whose rapid economic growth was driven by openness and strong export performance.
Resisting Protectionism: Panagariya cautions against import-substituting industrial policies, which are often advocated in India.
Massive Global Market: He highlights the vast size of the global export market ($32 trillion), underscoring the opportunities for Indian businesses.
China’s Example: Panagariya notes that China’s sustained 10% growth for decades was fueled by its dominance in certain export markets.

MSMEs demand centralised, single window system for licences and registration.

Micro, Small, and Medium Enterprises (MSMEs) that operate across India are advocating for a centralized compliance and registration system to ease the administrative burden caused by varying state-level regulations.

Key Points

Compliance Challenges: MSMEs face difficulties due to each state having its own rules for minimum wages, working hours, and shop and trade license registration/renewal.
Call for Centralization: MSMEs believe that a single-window system administered at the national level would streamline compliance and benefit the sector.
Benefits of Centralization: A unified system could reduce interstate competition and accelerate India’s progress in the MSME sector.
Impact of Non-Compliance: An MSME owner highlights how varying regulations and penalties led them to shut down operations in a neighboring state.
MSME Registration: Though over 23 million MSMEs are registered on the Ministry’s UDYAM portal, the actual number is believed to be much higher, as many don’t register due to the complex system.

Finance Minister Nirmala Sitharaman chairs 28th FSDC meeting in presence of RBI, SEBI top brass.

India’s Finance Minister, Nirmala Sitharaman, chaired the 28th meeting of the Financial Stability and Development Council (FSDC). The meeting brought together top financial regulators and officials to discuss issues related to financial stability, coordination between regulators, and the overall development of India’s financial sector.

Key Points

FSDC Meeting: The 28th meeting of the FSDC was held in New Delhi, with Finance Minister Nirmala Sitharaman presiding.
Participants: Key attendees included the Minister of State for Finance, the RBI Governor, heads of regulatory bodies like SEBI, PFRDA, IRDAI, and officials from various finance-related ministries.
Purpose of FSDC: The FSDC is the main body responsible for ensuring financial stability, coordinating between financial regulators, and promoting the development of India’s financial sector.
Focus of the Meeting: The meeting focused on discussions around maintaining a strong financial system, monitoring large financial institutions, coordinating between regulators, and promoting financial literacy and inclusion.

India replaces China as third largest profitable region for HSBC.

India has become HSBC’s third-largest profitable market, surpassing China. This growth is primarily driven by the strong performance of the bank’s global banking and markets division, which caters to large corporations.

Key Points

India Outperforms China: India’s profit before tax for HSBC grew 19% in 2023, while China’s profits dropped significantly by 89%.
Driving Factors in India: India’s growth was fueled by:
- Strong performance in the global banking and markets division.
- Reduced credit loss provisions.
Strongest Divisions: In India, HSBC’s largest revenue streams and most profitable divisions were:
- Global Banking & Markets (GBM)
- Commercial Banking (serving SMEs)
Global Outlook: HSBC sees India (along with Vietnam) as a key growth market due to favorable economic conditions. The bank’s positions in major economies like China, India, Singapore, and others are expected to drive future growth.
HSBC in India: HSBC employs its largest workforce (42,000 employees) in India.

RBI ups scrutiny of fintechs with more inspections.

India’s financial regulator, the Reserve Bank of India (RBI), is tightening its oversight of the fintech sector after years of a more relaxed approach. This shift comes in response to lax compliance by fintech companies and aligns with stricter global regulatory trends.

Key Points

Increased Scrutiny: The RBI is stepping up inspections, hiring analysts, and scrutinizing customer data to ensure fintech firms follow regulations.
Reasons for Crackdown: The RBI’s actions stem from concerns about fintech firms’ weaknesses in customer due diligence, raising the risk of fraud and money laundering. Recent actions against Paytm and Visa signal this stricter approach.
Global Trend: India’s regulatory shift mirrors that of other major markets like China, where authorities are clamping down on fintech after a period of relatively loose regulation.
Focus on Customer Due Diligence: The RBI is particularly concerned about digital customer identification processes used by fintechs, which rely on government ID and mobile numbers. While faster, this method is prone to manipulation.
Consequences for Fintechs: Increased regulatory pressure will likely lead to higher compliance costs, potentially driving consolidation within the sector.

BoB raises Rs 2500 cr via Tier-II bonds at 7.57%, surpasses mkt estimates.

Bank of Baroda successfully raised ₹2,500 crore through its second round of Basel III compliant Tier 2 Bonds. The bond issuance received strong investor demand and was priced at a lower coupon rate than market expectations, indicating confidence in the bank and favorable bond market conditions.

Key Points

Successful Fundraise: Bank of Baroda raised ₹2,500 crore through the bond issuance, exceeding the base issue size due to high demand.
Attractive Pricing: The bonds were priced at a coupon rate of 7.57%, lower than market expectations of 7.63% – 7.65%.
Strong Investor Demand: Investor bids totaled more than six times the base issue size, reflecting strong interest in the bonds.
Investor Rationale: Market participants believe interest rates may have peaked, making this a good time to invest in long-term bonds as they expect interest rate cuts in the future.
Shift to Corporate Bonds: The completion of the central government’s borrowing program and lower-than-expected state government bond issuance is driving investor interest towards corporate bonds.

FSDC to formulate strategy to simplify, digitalise KYC process, curb illegal loan apps

India’s Finance Stability and Development Council (FSDC) is focusing on strategies to improve the financial sector. This includes simplifying KYC processes, establishing a social stock exchange to aid social enterprises, and curbing predatory lending from unauthorized apps.

Key Points:

KYC Simplification: FSDC will define consistent KYC standards and promote digital solutions with a focus on efficiency to align with the goal of Digital India.
Social Stock Exchange: Strategies are being developed to encourage fundraising for social enterprises through social stock exchanges.
Predatory Lending Crackdown: Measures are being considered to restrict harmful lending practices from unauthorized online lending applications.
Financial Stability: FSDC is prioritizing ongoing assessment of potential risks to uphold the financial sector’s stability.
Inter-Regulatory Coordination: The council plans to enhance coordination between regulators to support the development of a strong financial sector that fosters economic growth for all.

India opens space sector to 100% foreign investment with new FDI policy.

India’s Cabinet has approved changes to its Foreign Direct Investment (FDI) policy for the space sector. The goal is to attract more investment, increase private sector participation, and boost the country’s self-reliance in the space industry.

Key Points:

FDI Thresholds Increased: FDI limits for certain space-related activities have been increased, allowing for:
- Up to 100% FDI in some space activities under the automatic route.
- Up to 74% FDI in satellite-related activities under the automatic route.
- Up to 49% FDI in launch vehicles and spaceport creation under the automatic route.
Simplified Investment: The changes make it easier for foreign investors to participate in India’s space sector.
Benefits for India: The policy changes aim to:
- Encourage the ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives.
- Promote job creation and technology absorption.
- Integrate Indian companies into global space industry value chains.

Government extends 20% export duty on parboiled rice, implements zero-duty import for yellow peas.

The Indian government has taken steps to manage rice prices and potential inflation by extending export duties on certain types of rice and allowing zero-duty import of yellow peas.

Key Points:

Export Duty Extended: The 20% export duty on parboiled rice has been extended indefinitely.
Zero-Duty Import: Yellow peas can now be imported without duty until April 30, 2024.
Reasons for Action: These measures are intended to curb rising rice prices and inflation.
Impact on Rice Exports: India’s rice exports have been affected by the export restrictions, with a decline in non-basmati shipments.
Background: The government’s actions are a response to rice production being affected by weather conditions and the need to control food prices.

India’s digital growth: DPIs could drive $8 trillion economy by 2030, says Nasscom.

Digital Public Infrastructures (DPIs) like Aadhaar and UPI have the potential to significantly boost India’s economic growth, contributing up to 4.2% of GDP by 2030. This would help India achieve its goals of an $8 trillion economy and a $1 trillion digital economy.

Key Points:

Economic Potential: DPIs could increase their GDP contribution from 0.9% in 2022 to 2.9-4.2% by 2030.
Leading DPIs: The Ayushman Bharat Digital Mission (healthcare) and ONDC (retail) are expected to be major drivers of growth, alongside the continued impact of Aadhaar.
Challenges and Opportunities: Challenges like data availability and language accessibility need to be addressed. Opportunities exist in integrating AI, Web3, and Metaverse technologies.
Recommendations: The report urges stakeholders to focus on policy support, regulatory clarity, partnerships, and innovation to maximize the potential of DPIs.
Current Impact: Matured DPIs (Aadhaar, UPI, GSTN, FASTag) are already impacting over a billion citizens and have created an economic value of $31.8 billion.

Union Cabinet expands National Livelihood Mission with new subsidy provisions.

The Indian government’s National Livelihood Mission (NLM) has been expanded to promote livestock-related entrepreneurship and increase fodder availability for animal rearing.

Key Points:

Subsidies for Entrepreneurship: The NLM now provides subsidies for:
- Entrepreneurs focused on horses, donkeys, mules, and camels (up to ₹50 lakhs)
- Fodder seed processing infrastructure (up to ₹50 lakhs)
Fodder Cultivation: The government will support fodder cultivation on non-forest land, wasteland, and degraded forest land to increase fodder availability.
Simplified Livestock Insurance: Farmers will now pay only 15% of livestock insurance premiums, with the government subsidizing the remainder. Coverage has also been extended.
NLM Mission Expansion: The NLM has been restructured to include additional activities around entrepreneurship, feed and fodder development, livestock insurance, and other areas.

Paytm’s stock (One 97 Communications) has rallied after recent regulatory troubles, with many analysts believing the worst is over for the company.

Key Points:

Stock Surge: Paytm’s stock has risen over 20% in the last four days and hit an upper circuit level.
Optimistic Outlook: Analysts like Bernstein see potential for further upside and maintain an “Outperform” rating on the stock.
Regulatory Impact: Despite ongoing restrictions on Paytm Payments Bank (PPBL), the impact on the overall Paytm business is expected to be limited.
Analyst Estimates: Analysts project a potential decline in payment volume and margins due to PPBL issues, but expect the company to mitigate this by switching to a non-PPBL partner.
Mixed Ratings: While Bernstein is bullish, Jefferies has moved Paytm to “Non Rated” and Morgan Stanley maintains an “Equal-Weight” rating.

India to pip China as top member of World Trade Centers association.

India’s presence within the World Trade Centers Association (WTCA) is growing rapidly, signifying the country’s rising influence in the global economy and its potential to become a major economic player.

Key Points:

India’s Growth Trajectory: India is expected to overtake China as the largest WTCA member within the next five years. This growth highlights India’s emergence as a significant global economic force.
India’s Advantages: Unlike China’s past manufacturing-focused growth, India’s strength lies in intellectual property and higher educational standards.
Global Focus on India: The WTCA is bringing its global business forum to India in 2024, underscoring international interest in the growing Indian market.
WTCA’s Role: The WTCA aims to connect Indian businesses with global counterparts and foster international trade partnerships.

RBI to meet banks to examine grey areas in overseas investment rules.

The RBI is meeting with banks to address ambiguities in overseas investment regulations that have created hurdles for Indian individuals and businesses seeking to invest abroad.

Key Points:

Lack of Clarity: The current Overseas Investment (OI) regulations have led to confusion and differing interpretations by banks, stalling investment plans.
Unresolved Issues: Key areas needing clarification include:
- Investing in unregulated funds overseas
- Indian startups investing in foreign companies
- Definition of “control” in foreign entities
- Fixed deposits held by Indians in offshore banks
RBI Meeting: The RBI is meeting with banks to address these grey areas and provide clear guidance.
Investor Challenges: The lack of clarity has led to stalled remittances and confusion around compliance with the Foreign Exchange Management Act (FEMA).
Additional Uncertainties: Other areas requiring clarification include family office structures, investing in foreign startups, and receiving foreign securities as gifts.

Credit deposit ratio inch up Dec qtr; top PSBs report lower than pvt peers.

Public sector banks (PSBs) have a lower credit-to-deposit (CD) ratio compared to private banks during the October-December quarter of FY24. This indicates differences in lending and deposit growth strategies between the two sectors.

Key Points:

CD Ratio Comparison: PSBs have a lower CD ratio than private banks, meaning they lend out a smaller proportion of their deposits.
Reasons for Difference: PSBs are better at attracting deposits and have exhibited slower loan growth than private banks.
Loan and Deposit Growth: Private banks showed faster loan growth than PSBs in Q3 FY24, while the reverse was true for deposit growth.
Impact on CD Ratio: The higher loan growth of private banks partially explains their higher CD ratio.
Outlook: Experts expect CD ratios to moderate in Q2 FY25 as credit demand may slow down.