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Second round of critical mineral auctions on Feb 29

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The Mines Ministry will launch the second round of critical and strategic minerals auction on Thursday, February 29th. The auction aims to secure access to minerals essential for India’s green energy transition and reduce supply chain vulnerabilities. The auction will be conducted online through a two-stage ascending forward auction process, with eligible bidders selected based on the highest percentage of mineral value quoted.

Key Points:

Auction Details: – Second round of critical and strategic minerals auction to be launched on Thursday. – Online auction through a two-stage ascending forward auction process. – Eligible bidders selected based on highest percentage of mineral value quoted.

Importance of Critical Minerals: – Lack of availability or concentration of extraction can lead to supply chain vulnerabilities. – Future global economy dependent on technologies that rely on minerals like lithium, graphite, cobalt, titanium, and rare earth elements.

India’s Critical Mineral List: – Announced in 2023, includes lithium, molybdenum, titanium, copper, and others.

First Tranche of Auctions: – Held in late 2023, covered minerals like lithium, copper, nickel, glauconite, graphite, manganese, and molybdenum. – Included 20 mineral blocks across eight states.

India’s Green Energy Push: – Critical minerals like lithium essential for reducing carbon footprint and transitioning to green energy. – India committed to achieving 50% of electric power capacity from non-fossil sources by 2030.

MMDR Act Amendment: – Notified 24 minerals as critical and strategic. – Central Government granted power to grant mineral concessions for these minerals. – Revenue from auctions accrues to State governments.

Lithium Reserves: – India has entered into an agreement with Argentina for lithium development and off-take. – Lithium reserves announced in Jammu & Kashmir and Chhattisgarh. – Exploration ongoing in Karnataka and Madhya Pradesh.

NABARD and NRLM enter into strategic alliance to support women self-help groups.

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NABARD and NRLM have partnered to support rural women Self-Help Groups (SHGs) through a 3-year MoU. The alliance aims to leverage NABARD’s expertise in SHG financing and NRLM’s focus on women-led development to enhance the economic empowerment of rural women.

Key Points:

1. Strategic Alliance: – NABARD and NRLM have entered into a strategic alliance to support rural women SHGs.

2. MoU Duration: – The MoU covers a period of 3 years.

3. Objectives: – To harmonize NABARD’s role as an enabler and NRLM’s transformative goal of promoting women-led development.

4. Implementation: – State/UT Rural Livelihood Missions will engage with NABARD’s regional offices as project implementing agencies.

5. Support Schemes: – Physical and online marketing support schemes. – Graduation of SHG clusters to Producer Organizations. – Climate resilient agriculture for women SHGs. – Livelihood interventions in NABARD’s Wadi and Watershed development project areas. – Deepening of financial inclusion.

6. Digital Transactions: – Development of pilots in digital transactions of SHG federations to enhance transparency and efficiency.

7. Business Correspondents: – Exploration of options to facilitate deployment of women SHG members as business correspondents of banks.

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At the 13th WTO Ministerial Conference, India advocated for a permanent solution to public stockholding (PSH) for food security, highlighting the significant disparities in subsidies provided by developed and developing countries. India proposed a sequential approach to agricultural reform, prioritizing PSH, protecting special and differential treatment for developing nations, and eliminating subsidies for countries with high per capita support.

Key Points:

1. Disparities in Subsidies: – Developed countries provide subsidies up to 200 times higher than developing countries. – India emphasized the need for a level playing field for low-income farmers.

2. Permanent Solution to PSH: – India called for a permanent solution to PSH, which would allow developing countries to expand MSP and other PSH programs without breaching the current cap. – The peace clause from the Bali Ministerial Conference is limited and conditional.

3. Sequential Approach to Reform: – India proposed a sequential approach to agricultural reform: – First: Permanent solution to PSH – Second: Protect special and differential treatment for developing nations – Third: Eliminate subsidies for countries with high per capita support

4. Focus on Food Security: – India argued that the focus of negotiations should not be solely on trade interests but also on food security and livelihoods. – Over 80 countries, representing 61% of the world’s population, co-sponsored a proposal for a permanent solution to PSH.

GDP may grow 6.8% in Q3FY24 due to slight dip in activity: SBI report

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India’s GDP growth is expected to moderate to 6.7-6.9% in Q3 FY24 due to a slight decline in economic activity, according to SBI’s economic research department. The growth rate is lower than the 7.8% and 7.6% recorded in Q1 and Q2, respectively.

Key Points:

GDP Growth Forecast: – GDP growth estimated at 6.7-6.9% in Q3 FY24.

Economic Activity: – Slight moderation in economic activity indicated by SBI’s composite leading indicator (CLI). – CLI index includes parameters from various sectors.

SBI-ANN Model: – SBI’s artificial neural network (ANN) model corroborates GDP estimates. – ANN model trained on quarterly GDP data from 2011Q4 to 2020Q4.

Consumer Confidence: – Consumer confidence has strengthened in India, driven by optimism about the economy and employment.

Corporate GVA: – Corporate gross value added (GVA) grew by around 26% in Q3FY24 compared to Q3FY23.

RBI’s Assessment: – RBI Governor Shaktikanta Das emphasized that domestic economic activity remains strong. – FAE estimates real GDP growth at 7.3% for 2023-24, marking the third consecutive year of growth above 7%.

Adani’s ammunition & missile manufacturing units come up in UP defence corridor.

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Adani Defence & Aerospace has inaugurated two facilities in the UP defence corridor to manufacture ammunition and missiles. The facilities aim to meet the demand of the armed forces and police, which currently rely heavily on defence public sector undertakings. The facilities will produce high-quality ammunition of various calibres and have already begun producing 150 million rounds of small calibre ammunition. The establishment of these facilities is expected to create over 4,000 jobs and boost the local ecosystem.

Key Points

1. Facilities Inaugurated – Two mega facilities inaugurated in the UP defence corridor at Kanpur. – Facilities will manufacture different calibre ammunition and missiles.

2. Facility Details – Spread over 500 acres, the facility is one of the largest integrated ammunition manufacturing complexes. – Will produce high-quality small, medium and large calibre ammunition for armed forces, paramilitary forces and police. – Has started rolling out 150 million rounds of small calibre ammunition, estimated at 25% of India’s annual requirement.

3. Importance for Defence Sector – India faces a difficult geopolitical neighbourhood and needs to keep its defence sector strong. – Strategic autonomy is crucial for India to leave an imprint on the global stage. – Facilities will play a crucial role in developing a vibrant defence ecosystem.

4. Army’s Ammunition Requirements – Army has a large ammunition inventory with 175 variants of different calibre and type. – 134 ammunition variants have been indigenised, but there is a demand versus supply gap. – More than 85% of Army’s ammunition is now being sourced indigenously.

5. Export Potential – Global demand for ammunition is expected to grow. – Indian industry has a competitive advantage in ammunition manufacturing. – Export potential is estimated at approximately ₹16,000 crore.

6. Indigenisation Plan – Army has carried out a holistic review for a time-bound indigenisation plan of all ammunition currently imported. – 32 variants of ammunition in twelve categories identified for manufacture by Indian Industry. – All cases likely to fructify in the next one year.

7. Adani’s Commitment – Establishment of facilities will add to the company’s quest for self-reliance. – Planned investment of over ₹3,000 Crores. – Will create over 4,000 jobs and boost the local ecosystem. – Committed to ensuring inclusive and sustainable growth.

New sanctions threaten Russian oil sales to India

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Fresh US sanctions on Russia’s tanker group and crude oil tankers linked to it pose challenges for Indian refiners, who are major buyers of Russian oil. The sanctions could increase freight rates and narrow the discount on Russian oil, while also creating uncertainties in securing annual supply deals.

Key Points:

Impact on Indian Refiners:

• Sanctions on Sovcomflot and its tankers create challenges in securing vessels for Russian oil.
• Freight rates may increase, narrowing the discount on Russian oil.
• Moscow may push more volumes through traders to mitigate sanctions risk, adding to uncertainties.

India’s Dependence on Russian Oil:

• India rarely bought Russian oil before 2022 due to high freight costs.
• Refiners in India are now major buyers, benefiting from lower prices after Europe banned Russian oil imports.
• Russia emerged as India’s top oil supplier in 2023.

Annual Supply Deals:

• State refiners Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are in talks with Rosneft for an annual deal to secure 400,000 bpd of Russian oil.
• Final volumes depend on payment terms and discounts offered by Russia.
• Rosneft has offered a discount of $3-$3.50 per barrel to Dubai prices, which is considered thin by refiners.
• Indian refiners are not seeking Sokol grade crude due to payment issues.

India’s Stance:

• India will continue buying Russian oil only if it is sold below the price cap in non-sanctioned vessels.

Tata Institute claims only Rs 100 tablet can prevent recurrence of cancer.

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The Tata Institute in Mumbai has developed a groundbreaking tablet, ‘R+Cu’, that has the potential to prevent cancer recurrence and reduce treatment side effects by 50%. The tablet contains pro-oxidant tablets with resveratrol and copper, which generate oxygen radicals that destroy chromatin particles released by dying cancer cells, preventing them from turning healthy cells cancerous. The tablet is affordable and expected to be available for just ₹100, making it accessible to a larger population.

Key Points:

Breakthrough Discovery: – Researchers at Tata Institute have developed a tablet that can prevent cancer recurrence and reduce treatment side effects by 50%. – The tablet contains pro-oxidant tablets with resveratrol and copper, which generate oxygen radicals that destroy chromatin particles released by dying cancer cells.

Testing and Approval: – The tablet has been tested on rats with promising results. – Human trials are yet to be completed and could take about five years. – The tablet is awaiting approval from the Food Safety and Standards Authority of India (FSSAI).

Affordable Treatment: – The tablet is expected to be available for just ₹100, making it accessible to a larger population. – Cancer treatment can cost lakhs to crores, while this tablet is expected to be affordable.

Future Prospects: – The tablet shows promise in preventing cancer recurrence and reducing treatment side effects. – It could be effective in treating pancreatic, lung, and oral cancers. – The development of this tablet marks a significant breakthrough in cancer treatment.

WTO negotiations: India secures multilateral victory, upholds principles of fair trade.

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India and South Africa have successfully defended the multilateral process within the World Trade Organization (WTO) regarding domestic service regulations. India objected to certification requests from 61 WTO members, emphasizing the need for established multilateral processes and the development of disciplines on domestic services. After consultations, the Working Party on Domestic Regulations (WPDR) approved a course of action for WTO members seeking to include domestic regulations in their GATS schedules. India withdrew its objections, reaffirming its commitment to the multilateral nature of the WTO.

Key Points:

WTO Breakthrough on Domestic Service Regulations

• India and South Africa achieved a major breakthrough in domestic service regulations within the WTO.
• 61 WTO members submitted requests for certification of updated GATS schedules.
• India and South Africa invoked S/L/84 procedures to raise objections to these requests.

Importance of Multilateral Processes

• India emphasized the importance of adhering to established multilateral processes within the WTO.
• The development of disciplines on domestic services is a mandated subject under WTO agreements.
• The Working Party on Domestic Regulations (WPDR) is responsible for overseeing this process.

Key Understandings

• Certification of updated GATS schedules does not set a precedent for incorporating outcomes in the WTO, including from Joint Statement Initiatives (JSIs).
• Additional commitments undertaken by WTO members are without prejudice to ongoing multilateral work on domestic regulation disciplines.
• Additional commitments must be made available to all members, ensuring non-discrimination (MFN) principles.
• These commitments do not diminish the rights or alter the obligations of WTO members not undertaking these additional commitments.

WPDR Approval and India’s Withdrawal of Objections

• The WPDR agreed on a course of action for WTO members seeking to include domestic regulations in their GATS schedules.
• India withdrew its objections after key understandings were confirmed.
• This outcome reaffirmed India’s commitment to preserving the multilateral nature of the WTO.

India says Red Sea attacks add urgency to Middle East trade route

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India’s ambassador to the UAE highlights the need for an alternative trade corridor to Europe due to the volatile situation in the Red Sea. India and the UAE have initiated work on the India-Middle East-Europe Economic Corridor (IMEC) to address this concern.

Key Points:

• Volatile Red Sea Situation: Houthi militants’ attacks on ships in the Red Sea have prompted the need for an alternate trade route.
• IMEC Project: India and the UAE are collaborating on the IMEC project to establish a new trade corridor from India to Europe.
• India’s Trade Dependence: Almost all of India’s trade with Europe currently passes through the Red Sea, making the IMEC project crucial.
• Framework Agreement: India and the UAE signed a framework agreement during Prime Minister Modi’s visit to the UAE to initiate work on IMEC.
• Port Discussions: India’s port and shipping ministries are engaged in discussions with Abu Dhabi’s port regarding the IMEC project.
• Importance of Leadership: India and the UAE recognize the importance of taking the lead in developing the IMEC corridor.

Commercial credit portfolio of Indian MSMEs grew 11% on-year in Jul-Sep: SIDBI, TransUnion Cibil report

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The commercial credit portfolio for Indian micro, small, and medium enterprises (MSMEs) experienced an 11% year-over-year growth in the July-September quarter, driven by increased economic activity and demand for commercial loans. The total credit exposure reached Rs 28.2 lakh crores, with supply volumes growing by 20% YoY. Despite the conclusion of the government’s ECLGS scheme, lending to the MSME sector remained strong, indicating the sector’s growth momentum. Technology played a significant role in facilitating loan applications and credit flow. Overall delinquencies improved, reaching a two-year low of 2.3%.

Key Points:

Growth in Commercial Credit Portfolio: – 11% on-year growth in Jul-Sep – Credit exposure of Rs 28.2 lakh crores – Supply volumes grew by 20% YoY

Loan Distribution: – Commercial loans grew 29% YoY – Total new credit value of Rs. 2.43 lakh crores – Small enterprises had the largest share (42%)

Sustained Growth Despite ECLGS Conclusion: – Lending to MSMEs remained strong in April-September 2023 – Underscores the growth momentum of the sector

Role of Technology: – Wider adoption of online loan applications – Utilization of robust analytics – SIDBI leveraging technology to augment credit flow

Improved Delinquencies: – Overall balance-level delinquencies improved to 2.3% – Lowest delinquency rate in two years

Regional Distribution: – 46% of MSME originations in semi-urban and rural regions – Maharashtra, Gujarat, Delhi, Tamil Nadu, and Uttar Pradesh accounted for 47.2% of origination value

Risk Profile: – Share of high-risk MSMEs reduced to 13% – Medium risk continued to have a high share (55%)

RBI releases draft disclosure framework for banks to address climate risks.

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The Reserve Bank of India (RBI) has released a draft framework for regulated entities (REs) to disclose climate-related financial risks. This framework aims to improve the consistency and comparability of disclosures, reduce mispricing of assets, and promote market discipline.

Key Points:

Governance and Risk Management: – REs must disclose governance processes, controls, and procedures for identifying, assessing, managing, mitigating, and monitoring climate-related financial risks and opportunities.

Disclosure Timeline: – Scheduled commercial banks, financial institutions, and larger non-banking financial companies (NBFCs) must disclose governance, strategy, and risk management processes from fiscal 2026. – Metrics and targets must be specified from fiscal 2028 onwards.

Impact Assessment: – REs must detail the impact of climate-related risks and opportunities on their businesses, strategy, and financial planning, considering different climate scenarios.

Integration with Risk Management: – REs must disclose how their processes for climate-related financial risks and opportunities are integrated into their overall risk management.

Progress Reporting: – REs must disclose their progress towards climate-related targets, including any targets required by statute or regulation.

Financial Statement Inclusion: – Climate-related disclosures should be included in REs’ financial statements.

Market Discipline: – The framework aims to foster early assessment of climate-related financial risks and opportunities, facilitating market discipline.

Public Consultation: – The RBI has invited comments on the draft framework by April 30.

PC, laptop imports from China surged by 11.3% to $276 million in December

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India’s imports of laptops and tablets from China surged in December 2023, while imports from other countries declined. The government’s online monitoring system for electronic hardware imports has led to a decrease in imports from China, but concerns have been raised by India’s trading partners.

Key Points:

Import Surge from China: – Imports of laptops and tablets from China increased by 11.3% in December 2023. – China’s share in total imports of these items rose to 89.4%.

Decline from Other Countries: – Imports from Singapore and Hong Kong decreased significantly in December.

Online Monitoring System: – The government’s online monitoring system for electronic hardware imports became operational in November. – Imports from China contracted by 14% after the system’s implementation.

Government’s Plan to Restrict Imports: – The government announced plans to categorize IT hardware products as “restricted” in August 2023. – This led to a surge in imports in September and October. – The government deferred the implementation and announced it would not restrict imports from any territory.

Concerns from Trading Partners: – India’s trading partners have expressed concerns about the online monitoring system at the World Trade Organization. – The US Trade Representative urged India to ensure the system does not restrict trade.

Government’s Response: – India has stated that the system will be in place until September 2024. – The government has emphasized the need to keep stakeholders informed about the system’s implementation.

SC rules companies need not deduct tax for discounted SIM cards sales.

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The Supreme Court ruled that telecom companies are not required to deduct tax on discounted pre-paid SIM cards and recharge vouchers sold to distributors. The court held that Section 194H of the Income Tax Act, which deals with Tax Deduction at Source (TDS) on commission or brokerage, does not apply to telecom companies.

Key Points:

• Applicability of TDS on Discounts: Telecom companies need not deduct TDS for selling pre-paid SIM cards to distributors at a rate below the market price.
• Nature of Relationship: The relationship between telecom companies and distributors is principal to principal, not principal and agent.
• Arguments of Telecom Companies: Discounts offered to distributors should be treated as discounts, not commissions, and therefore not subject to TDS.
• Arguments of Income Tax Department: Discounts were commissions and TDS should be deducted due to the principal-agent relationship between telecom companies and distributors.
• Overruled Judgments: The Supreme Court overruled contradicting judgments passed by the Calcutta High Court and Delhi High Court.

Poverty rate in India between 4.5-5% in 2022-23; rural poverty at 7.2%: SBI

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India’s poverty rate has significantly declined in recent years, with rural poverty falling to 7.2% and urban poverty to 4.6% in 2022-23. This decline is attributed to government programs targeting the poor and improved rural infrastructure. The new poverty line has been estimated at Rs 1,622 for rural areas and Rs 1,929 for urban areas.

Key Points:

Poverty Rate: – India’s headline poverty rate stood between 4.5 and 5% in 2022-23. – Rural poverty declined to 7.2% from 25.7% in 2011-12. – Urban poverty declined to 4.6% from 13.7% in 2011-12.

New Poverty Line: – The new poverty line is Rs 1,622 for rural areas and Rs 1,929 for urban areas. – It is based on the recommendations of the Suresh Tendulkar expert group.

Government Programs: – Government programs targeting the poor have had a significant impact on rural livelihood.

Rural-Urban Gap: – The gap between rural and urban consumption is narrowing. – Spending inequality among the poorest and richest households is shrinking.

Aspirational India: – India is becoming more aspirational, with increasing discretionary consumption in both rural and urban areas. – The speed of aspiration is faster in rural areas.

Food Consumption: – The share of household spending on food declined below 50% for the first time in rural areas in 2022-23. – The share of spending on food in urban areas is close to 40%.

India’s rank remains unchanged at 42 in International IP index 2024

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India ranks 42nd out of 55 countries in the 2024 International IP Index, with an unchanged score of 38.64%. The index highlights India’s efforts in strengthening IP protection, such as the Cinematograph (Amendment) Bill 2023, but also raises concerns about the dissolution of the Intellectual Property Appellate Board and the need for a more robust judiciary.

Key Points:

India’s IP Ranking: – India ranks 42nd out of 55 countries in the 2024 International IP Index. – India’s overall score remains unchanged at 38.64%.

Global IP Trends: – The United States remains the world leader in IP protection. – Saudi Arabia, Brazil, and Nigeria have made significant improvements in their IP frameworks. – 27 economies showed no change in their IP rankings, while eight experienced declines.

India’s IP Strengths: – Cinematograph (Amendment) Bill 2023 strengthens film piracy protections. – Continued efforts in copyright piracy enforcement. – R&D and IP-based tax incentives.

India’s IP Weaknesses: – Dissolution of the Intellectual Property Appellate Board. – Under-resourced and overstretched judiciary. – Limited framework for biopharmaceutical IP rights protection.

Importance of IP Protection: – IP-intensive industries contribute significantly to the US economy. – Robust IP protection supports innovation and creativity.

Top 10 Economies for IP Rights: – United States – United Kingdom – France – Germany – Sweden – Japan – Netherlands – Ireland – Spain – Switzerland

India’s GDP likely to have grown 6-6.8% in Q3 FY24

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The Indian economy is projected to slow down in the October-December quarter (Q3) of Fiscal Year 2023-24, with economists and research agencies estimating growth between 6% and 6.8%. This slowdown is attributed to weaker performance in agriculture and industry.

Key Points:

Growth Projections: – RBI: 6.5% – India Ratings & Research (Ind-Ra): 6.5% – ICRA: 6% – SBI Research: 6.7-6.9%

Reasons for Slowdown: – Poor performance of agriculture – Slowdown in industrial growth

Agriculture: – Decline in kharif crop production – Slight increase in rabi crop acreage, but concerns over cereal area – Inland fish production growth may support Agri and Allied sector

Industry: – Lower volume growth – Slowdown in government expenditure – Uneven monsoon

Services: – Expected to improve in Q3

India’s GDP growth poised to soar to 8%, says Barclays Research

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Barclays Research predicts that India has the potential to achieve an 8% GDP growth rate by the end of the decade, making it the largest contributor to global growth. This growth is contingent on India’s ability to self-finance investment and maintain macro stability.

Key Points:

1. Growth Potential: – India has the potential to raise its GDP growth rate to 8%.

2. Self-Financing Investment: – To achieve higher growth, India needs to increase its savings pool to self-finance investment.

3. Factors Boosting Savings Rate: – Changes in consumption preferences, demography, and fiscal consolidation can boost the savings rate.

4. Household Savings: – Household savings rate can potentially rise by 2.7 percentage points by FY30.

5. Fiscal Consolidation: – Public sector dis-savings are likely to decline by 1.3 percentage points, boosting gross savings.

6. Surplus Domestic Savings: – Growing household savings and declining public dis-saving could lead to surplus domestic savings.

7. Reduced External Financing: – Surplus domestic savings and reduced budget deficit will reduce the need for external financing.

8. Current Account Balance: – India may move closer to current account balance if it maintains productivity ratios.

9. Q3 Growth Estimate: – Barclays Research estimates Q3 GDP growth at 6.7%, higher than Q3 FY23 but slower than H1 FY24.

10. Sectoral Growth: – Services will continue to be the largest contributor to GVA growth, with industry growth supported by manufacturing.

SBI to list payments and general insurance subsidiaries, says Chairman Khara

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State Bank of India (SBI) plans to list its SBI Payments Limited and SBI General Insurance Company Limited subsidiaries in the next 12-18 months. The bank believes that listing these capital-heavy businesses will unlock significant value. SBI Payments, with its strong merchant network and profitability, is estimated to be worth $4-$5 billion. SBI General Insurance, an older business, has also shown strong performance.

Key Points:

Listing of SBI Payments Limited: – Valuation estimated at ₹45,000 crore – Net profit of ₹159 crore in FY23 – 2.93 million merchant payment acceptance touchpoints and over 1.14 million POS machines

Listing of SBI General Insurance Company Limited: – Valuation estimated at ₹30,000 crore – Net profit of ₹184 crore in FY23 – Total gross written premium of ₹10,888 crore in FY23 – SBI holds 69.95% stake

Rationale for Listing: – To unlock capital for capital-heavy businesses – SBI Payments is profitable and has a strong market position – SBI General Insurance has shown strong performance

Potential Value Unlocking: – Listing of SBI Payments could result in massive value unlocking for SBI – SBI Payments could be a $4-$5 billion opportunity for the bank

RBI conducts back-to-back VRRR auctions to absorb liquidity from banks

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The Reserve Bank of India (RBI) conducted two variable rate reverse repo (VRRR) auctions to absorb excess liquidity from the banking system and push up overnight market rates. The auctions were held due to increased liquidity resulting from the end of the government’s borrowing program and year-end government spending. The RBI aims to keep overnight rates above the repo rate of 6.50% to maintain its monetary policy stance of withdrawing accommodation.

Key Points:

Liquidity Surplus: – Banks had a net overnight surplus liquidity of ₹83,101 crore as of February 27.

Government Borrowing: – The government’s borrowing program for FY24 ended two weeks ago, releasing funds into the banking system.

Year-End Government Spending: – Year-end government spending is adding to the system’s liquidity.

Monetary Policy Stance: – The RBI’s monetary policy stance remains focused on withdrawing accommodation.

VRRR Auctions: – The RBI absorbed ₹20,860 crore in the first VRRR auction at a weighted average rate (WAR) of 6.48%. – In the second VRRR auction, the RBI absorbed ₹1,337 crore at a WAR of 6.49%.

Fine-Tuning Operations: – The RBI is using VRRR auctions to absorb excess liquidity and VRR auctions to provide money, ensuring that overnight rates stay within the desired range.

Lenders need to disclose more structured information about climate-related financial risks: RBI

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The Reserve Bank of India (RBI) has announced a new disclosure framework for regulated entities (REs) to enhance transparency and consistency in reporting climate-related financial risks. The framework aims to improve risk management and capital allocation decisions by providing stakeholders with structured information on REs’ climate-related exposures.

Key Points:

1. Need for Enhanced Disclosure:

• Inadequate information on climate-related financial risks can lead to mispricing of assets and misallocation of capital.
• Enhanced disclosure is crucial for stakeholders to understand the risks faced by REs and their approach to addressing them.

2. Disclosure Framework:

• REs will disclose information on four thematic areas: Governance, Strategy, Risk Management, and Metrics and Targets.
• Disclosures will be made on a standalone basis, not consolidated.

3. Applicability:

• The framework applies to Scheduled Commercial Banks, large urban co-operative banks, all-India financial institutions, and large NBFCs.

4. Impact of Climate Change:

• Climate change poses significant risks to REs, including physical damage, market perception changes, and transition to sustainable products and services.
• REs play a role in financing the transition to an environmentally sustainable economy.

5. Glide Path for Disclosures:

• SCBs, AIFIs, and large NBFCs will start disclosing on Governance, Strategy, and Risk Management from FY26.
• UCBs will start disclosing on Governance, Strategy, and Risk Management from FY27.
• All REs will start disclosing on Metrics and Targets from FY28.

6. Enhanced Disclosure Requirements:

• REs will disclose absolute gross greenhouse gas emissions and financed emissions.
• They will also disclose climate-related physical and transition risks, including vulnerable assets.
• REs will reveal if climate-related considerations are factored into executive remuneration.

RBI updates framework for its fintech sandbox, extends certain process timelines.

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The Reserve Bank of India (RBI) has updated its Regulatory Sandbox framework,  extending timelines and allowing applicants to form partnerships before applying. The changes aim to enhance innovation and protect consumer data.

Key Points:

Revised Timelines: – The sandbox process timeline has been extended from seven to nine months.

In-Principle Partnerships: – Applicants can now enter into in-principle partnerships with stakeholders before applying for the sandbox.

Compliance with Data Protection Act: – Sandbox entities must comply with the provisions of the Digital Personal Data Protection Act, 2023.

Eligibility Criteria: – Products or services similar to those previously tested in the sandbox may not be considered eligible.

Background: – The Regulatory Sandbox framework was initially issued in August 2019. – It has been updated twice to promote innovation and consumer benefits.

RBI cancels licence of Rajasthan-based Sumerpur Mercantile Urban Coop Bank

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The Reserve Bank of India (RBI) has revoked the license of Sumerpur Mercantile Urban Cooperative Bank in Pali, Rajasthan, due to insufficient capital and earning prospects. The bank has been ordered to wind up, and depositors are entitled to receive up to Rs 5 lakh in deposit insurance from DICGC.

Key Points:

Cancellation of License: – RBI has canceled the license of Sumerpur Mercantile Urban Cooperative Bank due to inadequate capital and earning prospects.

Winding Up: – The Registrar of Cooperative Societies, Rajasthan, has been requested to issue an order for winding up the bank and appoint a liquidator.

Deposit Insurance: – Depositors are entitled to receive deposit insurance claims up to Rs 5 lakh from DICGC. – 99.13% of depositors are eligible to receive the full amount of their deposits from DICGC.

DICGC Payments: – As of November 30, 2023, DICGC has paid Rs 45.22 crore of the total insured deposits.

Prohibition on Banking Activities: – The bank is prohibited from conducting any banking activities, including accepting and repaying deposits.

Rich state, poor state: Tax devolution by per capita income or population

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The 16th Finance Commission faces the challenge of addressing grievances from southern states regarding their reduced share of central tax devolution. However, adjusting the population parameter may not be the optimal solution. The 15th Finance Commission already considered demographic performance to mitigate the impact of the 2011 census on southern states.

Key Points

Population Challenge – The population parameter remains a challenge for future Finance Commissions. – Blaming the decline in southern states’ share solely on the population parameter is inaccurate.

Income Distance Criterion – This criterion significantly impacts the distribution of funds, with poorer states receiving higher shares. – Rethinking the income distance criterion is necessary to address the aspirations of richer states.

Area, Forest, and Ecology – These parameters also influence the distribution of funds, alongside population and income distance.

Poorer States’ Share – Not all poorer states received higher shares in the 15th Finance Commission compared to previous commissions.

Richer States’ Share – Some richer states, such as Maharashtra and Goa, received higher devolutions in the 15th Finance Commission.

Formula for Devolution – The 16th Finance Commission aims to develop a formula for devolution that balances the needs of diverse states. – District-level conditions should be considered in the formula to address regional disparities within states.

Cess and Surcharge – The Centre’s use of cess and surcharge has bypassed Finance Commission recommendations, reducing the share of southern states in total taxes.

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