Welcome to Daily Banking Digest, your premier source for the latest news and insights on May 13, 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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Foreign Investors Pull Out ₹17,000 Crore from Indian Stocks Amid Election Uncertainty

Foreign investors (FPIs) have withdrawn a significant ₹17,000 crore from Indian equities in the first 10 days of May due to election uncertainty, expensive valuations, and profit booking. This outflow is higher than the net withdrawal of ₹8,700 crore in April. However, FPIs are expected to return post-elections if the outcome is favorable and political stability is established.

Key Points

Reasons for FPI Outflow

Election Uncertainty: Investors are cautious about entering the markets before the election results.
Expensive Valuations: Indian markets are trading at relatively high valuations, prompting investors to book profits.
Profit Booking: FPIs are anticipating a market correction and are booking profits before results day.
US Interest Rates: The US Fed’s indication of no rate cuts until inflation cools has led to a surge in US Treasury yields, making US investments more appealing.

Global Factors

US Dollar Appreciation: The appreciation of the US dollar has led to a surge in US Treasury yields.
JP Morgan Index Inclusion: The upcoming inclusion of Indian government bonds in the JP Morgan Index is expected to attract foreign inflows in the future.

Domestic Market Dynamics

Sustained FPI Selling: FPIs have been sustained sellers in all trading days of May.
Sustained DII Buying: Domestic institutional investors (DIIs) have been sustained buyers, with cumulative buying of ₹19,410 crore.

CCI Streamlines Confidentiality Framework to Accelerate Case Resolution

The Competition Commission of India (CCI) has revised its confidentiality ring regime to enhance transparency and efficiency in its proceedings. The amendments include self-certification of confidentiality claims, strict timelines for setting up confidentiality rings, and increased fees for file access. These changes aim to expedite case disposal, ensure accountability, and streamline enforcement proceedings.

Key Points

Self-Certification of Confidentiality Claims – Parties must now self-certify their confidentiality claims through affidavits.

Strict Timelines for Confidentiality Rings – Timelines have been established for submission of supporting documents and access to case records.

Extended Timeline for Confidentiality Ring Request – The timeline to request a confidentiality ring has been extended from 7 to 10 days after receiving the non-confidential investigation report.

Increased Duration of File Access – The duration of access to file inspections has been increased.

Increased Fees for File Access – The fees for access to file have been increased from ₹ 1,000 to ₹ 2,500.

Increased Duration of File Inspection Slots – The duration of file inspection slots has been increased from 1 hour to 2 hours.

Experts’ Take – Experts believe the amendments demonstrate CCI’s commitment to expediting case disposal and instilling accountability. – The changes are seen as a positive step towards streamlining enforcement proceedings. – However, the requirement for affidavits may make the process more cumbersome.

IRDAI Approves Hinduja Group’s Acquisition of Reliance Capital

Hinduja Group’s IndusInd International Holdings (IIHL) has received approval from the Insurance Regulatory and Development Authority of India (IRDAI) to acquire Reliance Capital, including its insurance arms. The acquisition is subject to regulatory clearances and RBI approval for the proposed corporate restructuring.

Key Points

IRDAI Approval – IIHL received IRDAI approval for the acquisition of Reliance Capital. – The approval includes the takeover of Reliance General Insurance and Reliance Nippon Life Insurance. – Reliance Capital’s stake in Reliance Nippon Life will be transferred to Aasia Enterprises.

RBI Clearance Pending – Hinduja Group plans to make the upfront resolution payment within 48 hours of RBI approval. – RBI had previously approved the original plan of transfer of control to IIHL BFSI, but the validity expired on May 17.

Corporate Restructuring – The proposed restructuring involves the creation of new entities, including Cyqure India Pvt Ltd and Aasia Enterprises. – IIHL BFSI Holding will be a wholly-owned arm of IIHL.

Background – Reliance Capital was placed under insolvency in November 2021 due to corporate governance concerns and payment defaults. – The company had a debt of over ₹40,000 crore at the time of insolvency.

Punjab & Sind Bank’s Q4 Profit Plunges by 70% to ₹139 Crore

Punjab & Sind Bank reported a 70% decline in net profit for Q4 FY24 due to increased provisioning for bad loans. Despite a rise in total income, the bank’s asset quality improved with a reduction in gross and net NPAs. For the full fiscal year, net profit halved, but total income increased. The bank has recommended a dividend of ₹0.20 per share.

Key Points:

Net Profit: – 70% decline in net profit to ₹139 crore for Q4 FY24 – Net profit halved to ₹595 crore for FY24

Total Income: – Increased to ₹2,894 crore for Q4 FY24 – Increased to ₹10,915 crore for FY24

Asset Quality: – Gross NPAs moderated to 5.43% as of March 31, 2024 – Net NPAs declined to 1.63% as of March 31, 2024

Provisioning: – ₹111 crore provisioning for bad loans for Q4 FY24 – Write-back of ₹290 crore in Q4 FY23

Dividend: – Dividend of ₹0.20 per share recommended for FY24

Capital Adequacy Ratio (CRAR): – Improved to 17.16% as of March 31, 2024

IRDAI Expands Access to Life and Health Insurance for Underserved Communities

The Insurance Regulatory and Development Authority of India (IRDAI) has mandated life and general insurers to extend coverage to specific Gram Panchayats, aiming to increase insurance penetration at the grassroots level. Insurers will identify and cover a minimum number of Gram Panchayats based on parameters like market share. The move aligns with IRDAI’s goal of achieving “Insurance for All by 2047.”

Key Points:

Mandate for Insurers: – Life and general insurers must extend coverage to identified Gram Panchayats.

Identification of Gram Panchayats: – Life Insurance Council will determine the minimum number of Gram Panchayats for each life insurer. – General Insurance Council will identify Gram Panchayats for health cover, Motor Third Party insurance, and dwelling shops.

Mechanism for Coverage: – Insurers must establish a mechanism to identify and record coverage in each Gram Panchayat. – Coordination with Gram Sarpanch and Gram Sachivalya is crucial.

Implementation Timeline: – New norms are applicable from the current financial year.

Impact: – Increased life insurance penetration in rural areas. – Regular monitoring and collaboration to spur insurance adoption. – Alignment with IRDAI’s goal of “Insurance for All by 2047.”

Finance Ministry to Address Infrastructure Lenders’ Concerns with RBI on Draft Project Finance Norms

The Department of Economic Affairs (DEA) will gather feedback from banks and infrastructure lenders on the Reserve Bank of India’s (RBI) draft project finance guidelines. The DEA will then convey the government’s views to the RBI. The RBI’s guidelines propose gradually increasing provisioning for infrastructure loans from 0.4% to 5% by 2027. Some lenders have expressed concerns about the impact of higher provisioning on project costs and viability. The RBI’s proposal is seen as a pre-emptive measure to prevent risks in bank balance sheets.

Key Points

1. DEA to Gather Feedback on RBI Guidelines – DEA will consult with banks and infrastructure lenders on the draft guidelines. – DEA will convey the government’s views to the RBI.

2. RBI’s Gradual Provisioning Proposal – RBI proposes increasing provisioning for infrastructure loans from 0.4% to 5% by 2027. – Provisioning will increase by 1.5% annually.

3. Concerns from Lenders – Lenders fear higher provisioning will increase project costs and reduce viability. – They argue that additional provisioning should not be mandatory.

4. Impact on Other Sectors – Higher provisioning could lead to increased road cess, affecting other sectors.

5. Call for Discretion – Some suggest that well-performing projects should not be subject to higher provisioning.

6. RBI’s Pre-emptive Action – RBI’s proposal is seen as a counter-cyclical buffer to prevent risks in bank balance sheets.

7. PNB’s Response – PNB CEO does not anticipate a negative impact on profits from the draft guidelines. – PNB supports the guidelines’ intent to bring discipline and ensure timely project completion.

8. Past Lending Mishaps – RBI’s guidelines may be prompted by past lending issues in the infrastructure sector.

Bank of Baroda Aims to Expand Business to ₹48 Lakh Crore in Five Years

Bank of Baroda (BoB) aims to double its total business to ₹48 lakh crore within five years. The bank plans to achieve this through a combination of branch expansion, manpower augmentation, and productivity improvements. BoB’s global deposits and advances grew by 10.2% and 12.5% year-on-year, respectively, as of March 2024.

Key Points:

Business Growth Plan: – BoB aims to double its total business to ₹48 lakh crore in five years. – The bank is targeting a CAGR of 13.5% year-on-year.

Branch Expansion: – BoB plans to add 650 branches in the next couple of years.

Manpower Augmentation: – The bank is reassessing its manpower requirement as part of its five-year business plan.

Productivity Improvements: – BoB aims to improve productivity to set a benchmark for the industry.

IT Subsidiary Revival: – The bank plans to revive its wholly-owned IT subsidiary, Barodasun Technologies Ltd.

Talent Management and Capacity Creation: – BoB will focus on talent management and capacity creation to support its growth plans.

Training 100,000 Individuals for Rooftop Solar Panel Installation

The Indian government is preparing a skilled workforce of 100,000 individuals to support its “PM Surya Ghar: Muft Bijli Yojana” project, which aims to provide solar energy to 10 million households. The government is collaborating with various agencies to train installers, managers, and vendors to meet the project’s implementation requirements.

Key Points:

Skilling Plan: – The government is developing a skilling plan to train 100,000 individuals in solar panel installation and management. – The plan is a joint initiative of the ministries of renewable energy and skill development and entrepreneurship.

PM Surya Ghar: Muft Bijli Yojana: – The project aims to provide 300 units of electricity to households through grid-connected solar panels. – The scheme offers subsidies of up to Rs 78,000 for solar power generating units.

Trained Manpower: – The government is training 100,000 individuals to support the project’s implementation. – REC Ltd, the nodal agency for the rooftop solar program, will collaborate with training centers like the National Power Training Institute and the National Skill Development Corporation.

Vendor Training: – The government is also training 50,000 vendors for entrepreneurship. – Vendors will be registered on a national rooftop solar portal.

Implementation Challenges: – The project requires a large number of vendors to meet the scale of implementation. – The government is addressing this challenge by training and registering vendors.

Project Outlay and Progress: – The project has an outlay of Rs 75,021 crore. – Over 10 million households have registered for the scheme, with 800,000 applying for installations.

The Ministry of Labour and Employment has joined the PM Gati Shakti portal to enhance social security coverage and expand health infrastructure for workers in industrial clusters and special economic zones (SEZs). The ministry aims to leverage the portal’s data to identify gaps in coverage and plan future expansion.

Key Points:

1. Social Security Coverage Expansion: – The ministry plans to extend social security coverage to workers in industrial clusters around PM Gati Shakti projects. – The Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC) are examining 268 SEZs to bring workers under social security schemes.

2. Health Infrastructure Expansion: – The ministry will use the portal’s data to identify suitable sites for developing health projects in industrial clusters. – ESIC hospitals will be established in close proximity to these clusters. – ESIC database will be integrated with Pradhan Mantri Jan Arogya Yojana (PMJAY) to enable PMJAY beneficiaries to use ESIC facilities.

3. Geotagging and Data Utilization: – 1.3 million EPFO establishments, 1.5 million ESIC establishments, and 104 ESIC hospitals have been geotagged to assess current coverage and plan expansion. – Geotagging of pensioners will address challenges in submitting digital life certificates and generate concentration maps for medical benefit providers.

4. Collaboration and Integration: – The ministry will onboard other schemes, such as National Career Services centers, to promote inclusive development. – EPFO’s industrial accident monitoring portal will be linked with the Integrated Road Accident database for real-time monitoring and relief provision.

ESOP Non-Disclosure Violates Black Money Law

ESOPs from overseas companies are considered “foreign assets” and must be disclosed in Indian tax returns. However, unclear rules and complex transactions can lead to incorrect reporting, resulting in notices from the Income Tax department under the Black Money law.

Key Points:

ESOPs as Foreign Assets: – ESOPs allotted by foreign parent companies to Indian employees are considered “foreign assets” and must be disclosed in Schedule FA of the ITR.

Black Money Law Implications: – Failure to disclose ESOPs can result in penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (BMA), which carries a fine of Rs 10 lakh.

Unreported Accrued Dividends: – Dividends reinvested from ESOPs are taxable in India on an accrual basis and should be declared in the assessment year in which they were accrued, regardless of reinvestment.

Sale to Cover Transactions: – In “sale to cover” transactions, employees sell a portion of vested shares to cover tax liability from exercising stock options. – Reporting these transactions for capital gains or losses can be challenging due to limited information provided by brokers.

Need for Clearer Rules: – Unclear and complex rules often result in incorrect reporting of ESOPs. – Tax authorities should provide clear guidelines for the proper disclosure of ESOPs, liabilities, and associated income.

Government Considers Increasing Local Content Requirements in Public Procurement

The Indian government plans to revise its procurement policy to promote domestic manufacturing. The proposal suggests increasing the minimum local content requirement for public procurement from 50% to 70% for Class-I suppliers and from 20% to 50% for Class-II suppliers. However, certain sectors, including defense, electronics, and telecommunications, will be exempted from these enhanced limits.

Key Points:

Increased Local Content Requirement:
Class-I suppliers: 50% to 70%
Class-II suppliers: 20% to 50%
Exemptions:
Defense production
Electronics and information technology
Telecommunications
Mines
Railways
Power
Ports
Shipping & waterways
Inter-Ministerial Consultation:
The proposal is currently undergoing inter-ministerial consultation.

Chinese Credit Contracts for the First Time, Declining by $28 Billion

China’s credit growth contracted for the first time in April, indicating weak demand. Aggregate financing declined due to slower government bond sales and a drop in shadow banking financing. Loan expansion was also lower than expected, with a slowdown in outstanding loan growth. Despite the contraction, authorities remain optimistic about credit expansion in the coming months and are considering policy stimulus measures to support the economy.

Key Points:

Tepid Demand:

Aggregate financing decreased by almost $27.7 billion in April, reflecting a contraction in financing activity.
Government bond repayments exceeded sales, contributing to the decline.
Shadow banking financing also recorded a drop, weighing on overall credit.

Loan Expansion:

Financial institutions offered 731 billion yuan of new loans in April, lower than the projected 916 billion yuan.
The year-on-year growth rate of outstanding loans edged down to 9.1% from 9.2% in March.

Government Response:

Authorities plan to issue 1 trillion yuan worth of special sovereign bonds this year to boost infrastructure funding.
The PBOC has emphasized its focus on preventing risks and avoiding excessive money supply.

Economic Indicators:

The money supply measure M1 fell 1.4% in April from a year earlier, indicating sluggish business activity.
Household medium and long-term loans, a proxy for mortgages, shrank in April, reflecting weakness in the property market.
New mid and long-term loans to companies were smaller than the amount recorded a year ago, underlining poor investment demand.

Policy Outlook:

China’s top leaders have hinted at more space for policy stimulus, including interest rate adjustments and reserve requirement ratio changes.
Authorities are also stepping up support for the property market to address unsold homes and boost credit growth.