Welcome to Daily Banking Digest, your premier source for the latest news and insights on April 03, 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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RBI’s Easing Cycle Hinges on Rising Real Interest Rates

The Swiss National Bank’s unexpected rate cut has raised speculation about a potential pivot by other central banks, including India. However, India’s robust economic growth, driven by capital expenditure and private consumption, suggests that rate easing may be delayed.

Key Points:

1. India’s Economic Growth: – India has experienced over 30 months of expansionary economic growth. – Capital expenditure has played a significant role in broad-basing the growth. – Corporate balance sheets are healthy, with high profits and low leverage.

2. Real Neutral Rate: – The real neutral rate, which indicates the appropriate central bank rate, is estimated to be around 200 basis points. – The current real rate is below 150 basis points, suggesting that rate easing may be delayed.

3. Capex-Led Growth: – The current economic growth cycle is similar to the 2003-07 cycle, which was also driven by capital expenditure. – Higher growth and productivity could warrant higher neutral real rates.

4. Policymaker Tolerance: – Policymakers have historically tolerated higher real rates than the current level. – This indicates a wider spread for real rates before monetary easing is possible.

5. Delayed Rate Easing: – The much-anticipated rate easing cycle in India could be delayed due to the robust economic growth and higher neutral real rates. – The easing cycle may also be shorter than expected.

Banks Seek Confidentiality for Officers Identifying Willful Defaulters

Banks in India are seeking guidance from the Reserve Bank of India (RBI) on protecting the identities of officers involved in identifying and building cases against wilful defaulters. A recent High Court order has directed banks to disclose the names of employees on committees that classify borrowers as wilful defaulters.

Key Points:

High Court Order: – Directed banks to name employees on committees identifying wilful defaulters. – Required banks to provide full access to relevant documents to the petitioner.

Lenders’ Concerns: – Fear of personal targeting by borrowers due to disclosure of employee identities. – High Court orders may supersede RBI guidelines.

RBI Draft Guidelines: – Emphasize the need for in-person hearings and identification and review committees. – Do not mention naming employees on committees.

Indian Banks Association (IBA): – Will seek RBI’s advice on addressing the issue.

Expert Opinion: – Sanjay Agarwal of CareEdge Ratings believes that disclosing employee identities could adversely impact lenders due to the potential for personal targeting by borrowers.

Indian Airlines Shift Focus to International Market for Revenue Growth

Indian carriers are expanding their international flight operations due to tight margins in the domestic market. This strategy has led to an increase in their market share in international air passenger traffic, with Indian carriers now accounting for 46.15% of flights to and from India. The government’s reluctance to grant additional bilateral rights to Persian Gulf nations has further facilitated this expansion.

Key Points

Market Share Growth – Indian carriers’ combined share of international flights to and from India has increased from 40.94% in March 2020 to 46.15% in March 2023.

IndiGo’s Focus on Internationalization – IndiGo is prioritizing international expansion, with its international services growing at 24.4% compared to 9.4% for domestic flights.

Bilateral Issue – The Indian government’s reluctance to grant additional bilateral rights to Persian Gulf nations has limited the presence of foreign carriers in India.

Air India’s Expansion – Air India has increased its international services to 954 a week, marking a 15.5% annual growth rate.

Vistara’s Global Footprint – Vistara operates 350 international services every week, with a 49.6% annual growth rate.

Akasa Air’s International Debut – Akasa Air is set to launch its inaugural international flight between Mumbai and Doha on March 28.

Future Growth – The share of Indian carriers in international traffic is expected to rise due to increased capacity from Air India and IndiGo’s plans to introduce dual-class configuration on its A321XLR aircraft.

MPC Likely to Maintain Repo Rate and Stance in First Meeting of Fiscal Year 2025

The Reserve Bank of India’s Monetary Policy Committee (MPC) is expected to maintain the policy repo rate and stance unchanged in its first policy review of 2024-25. This decision is supported by positive economic indicators, including GDP growth, inflation within the RBI’s tolerance band, and the US Federal Reserve’s intention to cut interest rates.

Key Points:

Policy Repo Rate and Stance: – MPC expected to keep policy repo rate unchanged at 6.5%. – “Withdrawal of accommodation” stance likely to continue.

Economic Indicators: – GDP growth estimates revised upward to 7% for Q1-Q2 FY2024. – CPI inflation at 5.1% in February 2024, within RBI’s tolerance band. – Finance ministry forecasts 7% economic growth for FY25.

Global Factors: – US Federal Reserve reiterates intention to cut interest rates three times in 2024. – IMF projects India’s growth at 6.5% in 2024 and 2025.

Rate Cut Expectations: – Majority of respondents expect RBI to start cutting rates in Q3FY25. – Incoming data, weather conditions, and global rate cut cycle will influence policy action.

Rationale for Stance: – Incomplete transmission of rate hikes. – Inflation persisting above 4% target. – RBI’s efforts to restore inflation to target level.

Indian Manufacturing Sector Surges to Highest Level in Over a Decade

India’s manufacturing sector experienced robust growth in March 2024, with the Purchasing Managers’ Index (PMI) reaching a 16-month high of 59.1. Strong new orders and increased output drove the expansion, leading to job creation and improved input supplies. However, concerns about inflation and its impact on confidence remain.

Key Points:

New Orders: – Growth of new orders accelerated to the quickest pace in nearly three-and-a-half years. – Inflows strengthened from both domestic and export markets, particularly to Africa, Asia, Europe, and the US.

Output: – Output rose for the thirty-third consecutive month, reaching the highest level since October 2020. – Growth quickened across consumer, intermediate, and investment goods sectors.

Job Creation: – Manufacturers increased hiring in response to strong production and new orders. – The pace of job creation was mild but the best since September 2023.

Input Costs: – Input cost inflation picked up slightly due to strong demand and capacity constraints. – Producers prioritized customer retention and raised charges to the least extent in over a year.

Future Outlook: – Companies remained confident about output growth in the year ahead. – Planned marketing, new product enquiries, and buoyant demand contributed to optimism. – Inflation concerns weighed on confidence, leading to a slight decline in sentiment.

India’s Defense Exports Soar to Record High of ₹21,000 Crore

India’s defense exports have reached an unprecedented high of ₹21,083 crore in FY 2023-24, a 32.5% increase from the previous year. This growth is attributed to the government’s focus on self-reliance and policy reforms. India now exports defense equipment to over 85 countries, including Akash missile systems, Dornier 228 aircraft, and Brahmos missiles. The country is also exploring opportunities in South America and has received inquiries for its Light Combat Aircraft (LCA) Tejas.

Key Points

Defense Exports Reach Unprecedented Heights – India’s defense exports have crossed ₹21,000 crore for the first time. – Exports have grown by 32.5% in FY 2023-24.

Atmanirbharta Drives Growth – Over 100 private and public sector undertakings are now exporting defense equipment. – India has become a major exporter of defense products and technologies.

Comparative Data – Defense exports have grown by 21 times in the last two decades. – Exports have increased from ₹4,312 crore in 2004-05 to ₹88,319 crore in 2014-15 to 2023-24.

Key Export Items – Akash missile systems – Dornier 228 aircraft – ALH helicopters – Brahmos supersonic missiles – Patrol vessels – Unmanned systems – Radars – Simulators – Explosives – Avionics – Surveillance systems – Bullet-proof jackets – Armoured vehicles – Body spare parts for aircraft and copters

Major Export Destinations – Italy – Maldives – Sri Lanka – Russia – France – Nepal – Mauritius – Sri Lanka – Israel – Egypt – UAE – Bhutan – Ethiopia – Guyana – Saudi Arabia – Philippines – Poland – Spain – Chile – USA – Armenia – Brazil

Queries for LCA Tejas and ATAGs – India has received queries from Nigeria and Argentina for its LCA Tejas. – The country is also attracting maintenance and repair works.

South American Market – India is eyeing the defense market of South America. – Guyana has procured two Dornier 228 aircraft from India. – South American countries are interested in acquiring armored vehicles, patrol vessels, and radar systems from India.

Industry Growth – The increased defense exports indicate the coming of age of the Indian industry. – Defense exports have grown by 31 times in the last 10 years.

IBBI Governing Board Welcomes Two New Part-Time Members

The Ministry of Corporate Affairs (MCA) has appointed two part-time members to the Governing Board of the Insolvency and Bankruptcy Board of India (IBBI): M.P. Ram Mohan and Dinabandhu Mohapatra. These appointments complete the composition of the IBBI Governing Board, which now has ten members.

Key Points:

Appointments to IBBI Governing Board:
- M.P. Ram Mohan, Professor at IIM Ahmedabad
- Dinabandhu Mohapatra, Non-Executive Independent Director at Indiabulls Housing Limited
Term of Appointments:
- Five years or until age 65, whichever is earlier
Effective Date:
- February 19, 2024
Mohapatra’s Experience:
- Over three and a half decades in banking and insurance
- Former Managing Director & CEO at Bank of India
Composition of IBBI Governing Board:
- Ten members, including the Chairperson
- Three whole-time members
- One RBI nominee
- Three ex-officio members from various government departments

PNB Housing Finance Secures Triple Credit Rating Upgrades in Three Months

PNB Housing Finance has achieved three credit rating upgrades in a single quarter, with India Ratings, ICRA, and CARE Ratings affirming and upgrading the company’s ratings to ‘AA+’ from ‘AA’ with a ‘Stable’ outlook. This reflects the company’s improved asset quality, strong market position, diversified resource profile, and efficient capital management.

Key Points:

Credit Rating Upgrades: – India Ratings, ICRA, and CARE Ratings upgraded PNB Housing Finance’s ratings to ‘AA+’ from ‘AA’ with a ‘Stable’ outlook.

Improved Asset Quality: – The rating agencies recognized PNB Housing Finance’s improved asset quality.

Strong Market Position: – The company has a strong market position in the retail home loan segment.

Diversified Resource Profile: – PNB Housing Finance has a diversified resource profile, which contributes to its financial stability.

Efficient Capital Management: – The company’s efficient capital management practices have been recognized by the rating agencies.

Granularization of Retail Loan Book: – PNB Housing Finance has focused on granularizing its retail loan book, which has contributed to higher yields and interest margins.

Expansion of Affordable Housing Segment: – The company’s expansion into the affordable housing segment through its Roshni initiative has also been recognized by the rating agencies.

RBI Levies ₹74 Crore Penalties on 64 Lenders Amidst Enhanced Oversight in FY24

In FY24, the Reserve Bank of India (RBI) intensified its regulatory oversight, imposing stricter measures and increasing fines on banks and NBFCs. This move aimed to strengthen governance, address concerns about credit underwriting, and safeguard customers.

Key Points

Monetary Penalties – RBI imposed penalties on 64 banks and NBFCs, totaling ₹74.1 crore, compared to ₹33.1 crore in FY23. – 35 penalties were on banks, including 16 PSU banks, 13 private banks, and 4 foreign banks. – Non-compliance with KYC, credit reporting, and customer service regulations were the primary reasons for penalties.

Sector-Wide Measures – RBI increased risk weights on unsecured loans and tightened regulations around AIF investments to address concerns about credit underwriting and collateral overvaluation.

Focus Areas – RBI prioritized non-compliance, customer complaints, data privacy, governance, KYC, and anti-money laundering in its regulatory actions.

Increased Transparency – RBI publicly disclosed key issues related to regulatory actions, increasing pressure on the financial sector to enhance compliance and governance practices.

Crackdown on Credit Bureaus – RBI penalized all four credit bureaus for inaccurate data and delays in grievance redressal.

Repeated Offenders – SBI, Bank of India, Punjab and Sind Bank, Bank of Baroda, Indian Overseas Bank, Axis Bank, Manappuram Finance, and Indian Bank were fined multiple times during FY24.

Largest Fine – ICICI Bank received the largest fine of ₹12.19 crore for sanctioning loans to companies with directors who were also ICICI Bank directors.

UPI Surges to Record High in FY24, Processing Transactions Worth ₹199 Lakh Crore

The Unified Payments Interface (UPI) experienced a record-breaking March 2024, with both transaction volume and value reaching new highs. Despite a slight dip in February due to fewer days and increased investment activity, UPI transactions surged in March, driven by end-of-month settlements. The platform processed transactions worth ₹19.78 lakh crore and 1,344 crore transactions, surpassing previous records and showing significant growth compared to the previous year.

Key Points:

Transaction Volume and Value: – UPI processed 1,344 crore transactions in March 2024, a 55% increase year-over-year. – The value of transactions reached ₹19.78 lakh crore, a 40% increase year-over-year.

Yearly Growth: – In FY24, UPI processed 13,115 crore transactions, a 56.6% increase from FY23. – The value of transactions in FY24 was ₹199.29 lakh crore, a 43.4% increase from FY23.

Future Projections: – UPI transactions are expected to exceed 100 crore per day by FY27. – UPI is projected to dominate the retail digital payments landscape, accounting for 90% of transaction volumes in the next five years.

GST Revenue Surges 11.5% in March, Exceeding Rs 20 Lakh Crore for FY24

GST collection in March 2024 reached Rs 1.78 lakh crore, marking an 11.5% annual increase and the second-highest collection since the GST regime’s inception in 2017. The surge is primarily attributed to a 17.6% rise in GST collection from domestic transactions.

Key Points:

1. GST Collection in March 2024: – Rs 1.78 lakh crore, an 11.5% annual increase – Second highest collection since GST implementation

2. GST Revenue Net of Refunds: – Rs 1.65 lakh crore in March 2024, an 18.4% annual growth

3. Composition of GST Collections: – CGST: Rs 34,532 crore – SGST: Rs 43,746 crore – IGST: Rs 87,947 crore (including Rs 40,322 crore on imported goods) – Cess: Rs 12,259 crore (including Rs 996 crore on imported goods)

4. Top 5 GST Collections: – April 2023: Rs 1.87 lakh crore – March 2024: Rs 1.78 lakh crore – January 2024: Rs 1.74 lakh crore – October 2023: Rs 1.72 lakh crore – February 2024: Rs 1.7 lakh crore

5. GST Collection for FY24: – Rs 20.14 lakh crore, an 11.7% annual increase – Average monthly GST collection: Rs 1.68 lakh crore

6. GST Revenue Net of Refunds for FY24: – Rs 18.01 lakh crore, a 13.4% annual growth

RBI’s Professional Management Navigated External Uncertainties: Finance Minister Sitharaman

Finance Minister Nirmala Sitharaman praised the Reserve Bank of India (RBI) for its professional management, which has enhanced India’s ability to address external imbalances and uncertainties. She highlighted the RBI’s role in resolving banks’ balance sheet issues, leading to a shift from a “balance sheet problem” to a “balance sheet advantage.”

Key Points:

Professional Management: RBI’s professional management has improved India’s capacity to handle external imbalances and uncertainties.
Balance Sheet Improvement: The RBI’s efforts have transformed India’s banking sector from a “balance sheet problem” to a “balance sheet advantage.”
Asset Quality Management: The RBI’s asset quality management and prompt corrective action framework have effectively regulated banks.
Inflation Management: Despite monetary tightening pressures, the RBI has successfully managed inflation, stabilizing government bond yields.

Prime Minister Modi Advocates for Re-evaluating Banking Structures to Meet Future Funding Requirements

Prime Minister Narendra Modi emphasized the need for a comprehensive review of India’s banking structure to adapt to evolving financial industry trends. He highlighted the challenges posed by technological advancements, cybersecurity, and fintech innovations, and stressed the importance of ensuring adequate funding for the country’s growth.

Key Points:

Need for Newer Banking Structure:
The financial industry landscape is undergoing significant changes, necessitating a study of newer banking structures.
Newer financing, operating, and business models may be required.
Challenges Facing the Industry:
Artificial intelligence and blockchain are transforming banking.
Cybersecurity risks are increasing with the rise of digital banking.
Fintech innovations are disrupting traditional banking models.
Assessment of Credit Needs:
The RBI should assess the credit needs of the country, considering its growth prospects and potential.
Corporate Ownership of Banks:
The article mentions the controversial issue of corporate ownership of banks, but does not provide a clear stance.
Private Sector Debt-to-GDP Ratio:
Modi suggests that the RBI study the private sector debt-to-GDP ratio in the Indian context.
Economic Self-Sufficiency:
India should strive towards economic self-sufficiency to withstand global challenges.

PM Urges RBI to Explore Innovative Credit Policies for Youth in Emerging Industries

Prime Minister Narendra Modi urged the Reserve Bank of India (RBI) to explore innovative policies to support credit availability for emerging sectors, such as green energy, 5G technology, and defense exports. He highlighted the progress made in revitalizing distressed banks and reducing non-performing assets. Modi emphasized the need to accelerate digital transactions and monitor the impact of the cashless economy.

Key Points:

1. Credit Availability for Emerging Sectors: – RBI urged to explore out-of-the-box policies to support credit availability for new sectors. – Green energy, 5G technology, and defense exports identified as key areas.

2. Revitalization of Banks: – Modi commended RBI’s efforts in revitalizing financially distressed banks. – Gross non-performing assets of public-sector banks reduced from 11.25% in 2018 to under 3% in 2023.

3. Digital Transactions: – Modi emphasized the need to accelerate digital transactions over the next decade. – Importance of monitoring advances in the cashless economy highlighted.

4. RBI’s Role in Economic Stability: – RBI Governor Shaktikanta Das credited well-calibrated monetary and fiscal policies for shielding the economy from shocks. – RBI praised for ensuring a stable and strong financial system.

5. Government Securities Yields: – Finance Minister Nirmala Sitharaman highlighted the stability in government securities yields. – Measures undertaken for monetary tightening have stabilized G-Sec yields.

6. RBI’s Proactive Approach: – Sitharaman lauded RBI’s proactive approach in addressing inflation and upholding financial stability. – Innovative strategies employed to maintain economic resilience.

Income Tax Department Launches New Portal for 2025 Returns with Streamlined Verification Process

The Income Tax Department has enabled the filing of returns for the Assessment Year 2024-25 from the start of the new fiscal year. The process has been simplified, with pre-filled data available for ITR-1, 2, and 4. The deadline for filing returns remains July 31, 2024, with options for revisions and belated filings. Taxpayers can file returns online or offline using utilities, and verification can be done electronically or by sending a form.

Key Points:

Filing of Returns: – Returns for ITR-1, 2, and 4 can be filed online with pre-filled data. – Online and offline utilities for ITR forms are available. – Deadline for filing returns is July 31, 2024.

Verification of Returns: – Returns can be verified online (e-verification) or by sending a form (ITR-V). – Date of uploading the return is considered the date of furnishing if e-verification/ITR-V is submitted within 30 days. – Date of submission of e-verification/ITR-V is considered the date of furnishing if submitted after 30 days. – Returns not verified within 30 days of uploading are treated as invalid.

Other: – Salaried taxpayers may need to wait until June to collect TDS certificates. – Taxpayers can file returns completely online or partially online/offline. – Pre-filled data should be cross-checked with documents.

IREDA Approves Unprecedented ₹37,354 Crore in Loans for FY24

IREDA, India’s renewable energy NBFC, has achieved record loan sanctions and disbursements in FY24, contributing significantly to the country’s renewable energy goals. The company’s loan book has grown by 26.71% to ₹59,650 crore, and it aims to further amplify its impact in the coming years.

Key Points:

Loan Sanctions and Disbursements: – Sanctioned loans worth ₹37,354 crore in FY24, a record high. – Disbursed loans worth ₹25,089 crore, also a record high.

Loan Book Growth: – Loan book now stands at ₹59,650 crore, up by 26.71%.

Government Targets: – IREDA has been set a revenue target of ₹4,350 crore for FY24 and ₹5,220 crore for FY25.

IPO Performance: – IREDA’s IPO in 2023 was subscribed 38.80 times. – Shares listed on NSE and BSE with a 56% hike in pre-open trading debut.

CEA Rejects Rajan’s Criticism, Affirms $30 Trillion Economic Goal as Attainable

The Chief Economic Advisor (CEA) of India, V Anantha Nageswaran, disagrees with former CEA Raghuram Rajan’s assessment that the government’s target of achieving a $30 trillion GDP by 2047 is “nonsense.” Nageswaran acknowledges the need for improvements in education and skills but highlights progress in these areas, particularly in rural regions and among women.

Key Points:

CEA’s Disagreement with Rajan: – Nageswaran believes the $30 trillion GDP target is challenging but achievable. – He argues that easily reachable targets are not meaningful.

Importance of Education and Skills: – Nageswaran agrees with Rajan that improvements in education and skills are crucial for economic growth.

Progress in Education: – Nageswaran notes improvements in the distribution of education attainment. – Education levels in rural areas are rising faster than in urban areas. – The ratio of female to male enrollment has improved significantly.

Shift in Education Challenges: – Nageswaran acknowledges that the focus has shifted from enrollment to higher-level education.

Breakfast with businessline Event: – The event was organized by businessline and hosted by ITC Grand Chola. – The hotel emphasizes sustainability and local sourcing in its operations.

PSB Employees May Receive Stock Options: Decision Expected Post-Elections

The Indian government has resumed discussions with public sector banks (PSBs) regarding the implementation of employee stock ownership plans (ESOPs). This proposal has been pending for some time but may gain traction after the Lok Sabha elections. PSBs believe that ESOPs will enhance their ability to attract and retain talent in the face of competition from private lenders.

Key Points:

1. Resumption of Talks: – The government has resumed discussions with PSBs on offering ESOPs to eligible employees.

2. Framework Development: – PSBs will present a framework to the government considering various factors impacting state-run banks.

3. Deloitte’s Involvement: – PSBs have appointed Deloitte to provide suggestions on the implementation of ESOPs.

4. Longstanding Demand: – ESOPs have been a longstanding demand of PSBs to attract and retain talent.

5. Private Sector Success: – Experts believe that ESOPs have proven successful in the private sector and could offer similar benefits to PSBs.

6. Previous Discussions: – The government held discussions on ESOPs in 2020, but the proposal did not gain traction.

7. Economic Survey Support: – The Economic Survey in 2020 advocated for ESOPs for PSB employees to incentivize risk-taking and innovation.

8. Indradhanush Framework: – The government’s Indradhanush framework in 2015 recommended ESOPs for PSB top management.

9. Employee Share Purchase Scheme: – In 2013, the UPA government allowed PSBs to offer shares to employees at a discounted price under the Employee Share Purchase Scheme.

10. Lack of Interest: – The Employee Share Purchase Scheme failed to garner much interest among PSB employees.

Delhi High Court Penalizes Google with Rs. 1 Lakh for Misrepresentation of Facts

The Delhi High Court dismissed Google’s appeal for a patent and imposed a fine of Rs 1 lakh for misrepresenting facts and failing to disclose the rejection of the patent by the European Patent Office (EPO). The court found that Google’s application lacked inventive steps and that the company had provided incorrect information.

Key Points:

Patent Application Rejection: Google’s application for a patent titled “Managing Instant Messaging Sessions on multiple devices” was rejected by the Assistant Controller of Patent and Design due to a lack of inventive steps.
EPO Rejection: Google claimed that the application was abandoned before the EPO, but the High Court noted that the corresponding EU application was also rejected for lack of inventive step.
Misrepresentation of Facts: The High Court found that Google had presented wrong facts to the court and failed to disclose the rejection of the EU parent application and divisional application.
Fine Imposed: The High Court imposed a fine of Rs 1 lakh on Google for its misrepresentation of facts and failure to disclose information.
Lack of Inventive Step: The High Court agreed with the Assistant Controller’s finding that the subject invention lacked inventive step and was obvious to a person skilled in the art.