Welcome to Daily Banking Digest, your premier source for the latest news and insights on March 25, 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 Portfolio Investors (FPIs) Ramp Up Debt Investments to Seven-Year Peak, Reaching ₹1.2 Lakh Crore in Current Fiscal

Foreign Portfolio Investors (FPIs) have invested a record ₹1.20 lakh crore in India’s debt market so far in fiscal 2023-24, surpassing the previous high of ₹1.19 lakh crore in 2017-18. This surge is attributed to attractive yields on Indian sovereign debt compared to US treasury bonds, strong economic growth, stable inflation, and the government’s commitment to fiscal deficit reduction. The upcoming inclusion of Indian bonds in JP Morgan’s index has also contributed to inflows. While FPI inflows into debt are expected to continue, a sharp surge is unlikely due to rising US bond yields.

Key Points

FPI Debt Investments – Hit a seven-year high of ₹1.20 lakh crore in fiscal 2023-24. – Driven by attractive yields on Indian sovereign debt relative to US treasury bonds. – Supported by strong economic growth, stable inflation, and a stable currency. – Inclusion of Indian bonds in JP Morgan’s index has led to advance inflows. – Expected global tapering in policy rates should make Indian debt more attractive.

FPI Equity Investments – Rebounded in March with a net investment of ₹38,098 crore. – Fueled by optimism about India’s growth potential. – Coincides with robust Q3 GDP growth rate of 8.4%. – FPIs have made net equity investments of ₹2.11 lakh crore in fiscal 2023-24, a three-year high.

Outlook – FPI inflows into debt are likely to continue but may moderate if the differential between developed market bond yields and Indian bond yields declines. – FPI interest in equities is expected to remain positive, supported by India’s strong economic fundamentals.

India’s Crude Oil Imports: Venezuela Emerges as Fifth Largest Supplier in February

Indian refiners have significantly increased their crude oil imports from Venezuela, becoming the fifth largest supplier in February 2024. This surge in imports follows the US’s six-month sanctions waiver on Venezuela, which began in October 2023. Despite the threat of reimposed sanctions in April 2024, imports are continuing at a steady pace.

Key Points

1. Increased Imports from Venezuela – Indian refiners imported over 1,75,000 barrels per day (b/d) of crude oil from Venezuela in February 2024. – India emerged as the largest buyer of Venezuelan crude oil in January 2024.

2. Exploitation of US Sanctions Waiver – Indian refiners took advantage of the US sanctions waiver to secure cargoes from Venezuela. – Reliance Industries (RIL) and Indian Oil Corporation (IoC) were among the major importers.

3. Sophisticated Refining System – India’s refining system allows it to process heavier grades of crude oil, including those from Venezuela. – Refiners can convert residue into high-value products such as diesel and gasoline.

4. Marginal Decline in March Imports – Imports are expected to decline slightly to 1,55,000 b/d in March 2024. – Three new cargoes are expected to arrive in March, with two already discharged.

5. Impact of Potential Sanctions Reimposition – The threat of reimposed sanctions has not significantly impacted imports so far. – Indian refiners can easily shift to West Asian alternatives if sanctions are reimposed.

6. Market Expectation of Sanctions Extension – Despite the looming sanctions deadline, Indian refiners continue to purchase Venezuelan cargoes. – Two cargoes are expected to arrive in India after the potential sanctions snapback date, indicating belief in an extension.

Iron Ore Miners Request Government to Refrain from Export Duty on Low-Grade Ore

The Federation of Indian Mineral Industries (FIMI) has appealed to the government to refrain from imposing export duties on low-grade iron ore. FIMI argues that such a move would result in substantial revenue and employment losses, as well as negatively impact foreign exchange earnings.

Key Points:

Impact of Export Duty on Mining Sector:

Export duty on low-grade iron ore imposed in May 2022 adversely affected the mining sector.
Government withdrew the tax in November 2022.

Contribution of Iron Ore to GDP and Employment:

Iron ore is a major contributor to the mining sector’s GDP.
Iron ore mining employs approximately 5 lakh people, including 45,000 directly and 4,50,000 indirectly.

Export Dependence:

Over 90% of India’s iron ore shipments are exported to China.

Impact of Export Ban or Duty on Production:

A ban or duty on iron ore exports would reduce production capacity from 330 million tonnes to 225 million tonnes in FY’25.

Nature of Iron Ore Production:

Only 25-30% of iron ore is produced as lumps, with the remaining being fines.
Fines below 58% Fe cannot be utilized by the steel industry.

Environmental and Economic Consequences of Fines Accumulation:

Accumulation of low-grade iron ore fines in mines restricts lump production and poses environmental hazards.
It also limits scientific mining and adversely affects the steel industry.

Surge in Bank Loans and Term Deposits with Interest Rates Exceeding 8% and 7%, Respectively, over the Past 21 Months

The Reserve Bank of India’s (RBI) policy rate increases have led to a significant increase in the share of bank loans and term deposits with higher interest rates. The pass-through of rate hikes has been higher for public sector banks (PSBs) than for private banks (PVBs). Small Finance Banks (SFBs) have a distinct trait of having a high proportion of loans priced above 13%. Loans linked to external benchmarks have fully transmitted the repo rate hikes to borrowers. Term deposit rates have also increased, making them more attractive compared to savings deposits. Bank credit offtake and deposits continue to grow, driven by the merger of HDFC and HDFC Bank and growth in personal loans.

Key Points

Bank Loans – Share of loans bearing over 8% interest rate increased from 47.2% in March 2022 to 83.7% in December 2023. – One-year median MCLR increased by 169 bps during May 2022 to February 2024. – WALR on fresh rupee loans increased by 194 bps and on outstanding rupee loans by 113 bps during May 2022 to January 2024. – Pass-through to WALRs was higher for PSBs than for PVBs.

SFBs – 71% of SFB loans are priced above 13%. – 90% of SFB loans are priced above 10%.

PSBs – Share of high priced loans (13% plus interest) is only 3%. – 80% of PSB loans are priced between 7-11%.

PVBs – 13% of PVB loans are priced above 13%. – 2/3rd of PVB loans are priced in the 8-11% range.

Foreign Banks – 84% of foreign bank loans carry 7-11% interest rate.

EBLR Loans – 250 bps hike in repo rate has been fully transmitted to borrowers.

Term Deposits – Share of term deposits offering 7% and above interest rates increased from 4.5% in March 2022 to 61.4% in December 2023. – WADTDR on fresh and outstanding deposits increased by 240 bps and 181 bps, respectively, during May 2022 to January 2024. – Pass-through to WADTDR was higher for PSBs than for PVBs.

Bank Credit Offtake – Credit offtake grew by 20.5% y-o-y to ₹162.1 lakh crore as of February 23, 2024. – Growth can be attributed to HDFC-HDFC Bank merger and personal loan growth.

Deposits – Deposits grew by 13.1% y-o-y to ₹202 lakh crore as of February 23, 2024. – Growth driven by time deposits. – Deposit growth expected to improve as banks shore up their liability franchise.

Paytm Rejects Layoff Rumors Amidst SVP Praveen Sharma’s Resignation

Paytm has announced the resignation of Praveen Sharma, Senior Vice President – Business, effective March 23. The company has also denied rumors of significant workforce reductions, clarifying that its annual appraisal process and restructuring efforts are not indicative of layoffs. Paytm remains committed to growth and operational efficiency while maintaining workforce stability.

Key Points:

Resignation of Praveen Sharma – Praveen Sharma, Senior Vice President – Business, has resigned from Paytm on March 23. – Sharma will pursue opportunities in the next phase of his professional journey.

Denial of Layoff Rumors – Paytm has emphatically denied reports suggesting a 25-50 percent workforce reduction. – Such reports are baseless and inaccurately represent the company’s operational and strategic planning.

Annual Appraisal Process – Paytm is currently engaged in its annual appraisal process, which is a routine organizational practice. – The process focuses on performance evaluations and role alignments, and is not indicative of layoffs.

Restructuring and Performance-Related Adjustments – Paytm’s restructuring efforts and performance-related adjustments are not layoffs. – The company is committed to growth and operational efficiency without compromising workforce stability.

Commitment to Growth and Innovation – Paytm remains dedicated to its mission of leading the digital payments and financial services landscape in India. – The company is focused on sustainable growth, innovation, and providing exceptional customer service.

Renowned Bengali Actor Partha Sarathi Deb Departs at 68

Veteran Bengali actor Partha Sarathi Deb passed away at the age of 68 due to COPD-related ailments. He had been hospitalized for the past month and his condition had deteriorated in the last week. Deb was a renowned figure in both television serials and feature films, having appeared in over 200 works. He was also the vice president of the West Bengal Motion Picture Artists Forum.

Key Points:

Death of Partha Sarathi Deb:
Died at the age of 68 due to COPD-related ailments.
Passed away at 11:50 pm on Friday night.
Hospitalization and Treatment:
Admitted to M R Bangur hospital for the last month.
Condition worsened over the past week and was in ICU.
Acting Career:
Appeared in over 200 works, including theatre, serials, films, and web series.
Popular face in television serials.
Acted in feature films, including “Raktabeej.”
Industry Involvement:
Vice president of the West Bengal Motion Picture Artists Forum.
Condolence and Tribute:
Forum condoled his death and announced that his body will be taken to Technician Studio.

S Jaishankar refutes China’s assertions on Arunachal Pradesh as ‘absurd’

External Affairs Minister S Jaishankar dismissed China’s claims on Arunachal Pradesh as “ludicrous” and reiterated that the state is a natural part of India. He emphasized the need to find a sustainable equilibrium between India and China, despite their differences. Jaishankar also highlighted the challenges posed by the Eastern Ladakh border standoff and the importance of maintaining peace and tranquillity on the border.

Key Points

Jaishankar called China’s claims on Arunachal Pradesh “ludicrous” and reaffirmed that the state is an integral part of India.
He emphasized the need to find a sustainable equilibrium between India and China, given their history, population, and capabilities.
Jaishankar expressed surprise at China’s actions in 2020 that disrupted the border situation, leading to the Eastern Ladakh standoff.
He stressed the importance of maintaining peace and tranquillity on the border while working towards a boundary solution.
Jaishankar highlighted the existing written agreements between India and China on the border issue and called for dialogue to continue peace and tranquillity.
The Ministry of External Affairs reiterated India’s stance on Arunachal Pradesh, dismissing China’s objections to Indian leaders’ visits to the state.
India reaffirmed that Arunachal Pradesh is an integral part of the country and that objections from the Chinese side do not change this reality.

Foreign Investors’ Exodus: Rs 7,200 Crore Worth of Shares Sold in a Week – A Sign of Trend Reversal?

Foreign portfolio investors (FPIs) sold stocks worth over Rs 7,200 crore in the secondary market last week, limiting gains in benchmark indices. However, FPIs have been net buyers in March after being net sellers in January and February. They have invested heavily in the debt market, with inflows of over Rs 55,000 crore since January.

Key Points:

FPI Activity in Secondary Market: – FPIs sold stocks worth Rs 7,272.13 crore last week. – FPIs have been net buyers in March after being net sellers in January and February.

FPI Investment in Debt Market: – FPIs have invested over Rs 55,000 crore in the debt market since January. – Inflows into debt are expected to continue due to the inclusion of Indian bonds in global indices.

Factors Influencing FPI Flows: – US bond yields have risen, which may moderate debt inflows. – The differential between developed market bond yields and Indian bond yields will impact debt inflows.

India’s Legal Framework Enhances Investment Appeal: WEF Official

India has emerged as an attractive investment destination for the financial technology (fintech) sector due to a combination of policy changes and a supportive digital infrastructure. The World Economic Forum (WEF) highlights the importance of investor education and the need for regulators to adapt to technological advancements.

Key Points:

Policy Changes:

Bankruptcy law and taxation code changes have provided clarity and made India an attractive investment destination.

Digital Public Infrastructure:

The digital infrastructure creates an enabling environment for fintech companies.

Artificial Intelligence (AI):

70% of fintech CEOs consider AI a major force for personalization and customization.
AI can assist regulators in risk management.

Regulatory Sophistication:

Regulators need to increase their sophistication to keep pace with technological advancements.
Asia-Pacific regulatory agencies are generally viewed as skilled.

Knowledge Exchange:

The WEF aims to facilitate knowledge exchange between sophisticated fintech actors and supervisory bodies.

Regulatory Environment:

Majority of fintech companies view the regulatory environment as adequate.
38% of fintechs cite the regulatory environment as a major supporting factor for their operations.

Telecom Companies Face Challenges in Monetizing Incomplete 5G Deployment

Despite India’s rapid 5G rollout, telecom companies are struggling to monetize the technology due to a lack of compelling use cases, immature device ecosystems, and insufficient network coverage. Industry experts believe that true 5G monetization will only occur when users experience a significant difference in coverage and quality compared to 4G, and when telcos leverage 5G for both voice and data services.

Key Points

1. Monetization Challenges – Absence of compelling 5G use cases and applications – Immature device ecosystem – Insufficient network coverage

2. Lack of True 5G Experience – Reliance on 4G for voice services – Inadequate 5G base station density – Limited in-building coverage

3. Need for Enhanced Coverage – Users require a noticeable difference in 5G coverage compared to 4G – Telcos must provide carpet coverage with no network holes

4. Use Cases and Applications – Network slicing for dedicated 5G capacity for advanced applications – In-building coverage for seamless connectivity

5. Investment and Tariff Hikes – Telcos have invested heavily in 5G but are hesitant to increase tariffs – Reduced 5G capex outflows due to lack of monetization

6. Historical Trend – Monetization has not readily occurred in “odd Gs” (1G, 3G, 5G) – Monetization typically occurs after the transition to “even Gs” (2G, 4G)

7. Global Slowdown – 5G deployment slowdown is not unique to India – Limited ARPU growth in other global markets

8. Future of 5G – 5G may be a precursor to 6G, which could bring monetization opportunities – 5G-based fixed wireless access (FWA) services may drive monetization

Public Sector Banks’ Dividend Payout Projected to Surpass Rs 15,000 Crore in Fiscal Year 2024

Public sector banks (PSBs) in India are expected to pay a dividend of over Rs 15,000 crore for the financial year ending March 2024, driven by improved profitability. This is based on their strong performance in the first three quarters of the current financial year, where they earned a total profit of Rs 98,000 crore.

Key Points:

Profitability: – PSBs earned a record net profit of Rs 1.05 lakh crore in FY23, compared to Rs 66,539.98 crore in FY22. – In the first three quarters of FY24, PSBs have already earned Rs 98,000 crore in profit.

Dividend Payout: – The government received a dividend of Rs 13,804 crore from PSBs in FY23, a 58% increase from the previous year. – The dividend payout for FY24 is expected to exceed Rs 15,000 crore due to higher profitability.

Dividend Guidelines: – The Reserve Bank of India has proposed new guidelines allowing banks with a net non-performing assets (NPAs) ratio of less than 6% to declare dividends. – The current guidelines require banks to have an NNPA ratio of up to 7% for dividend eligibility. – The new guidelines will come into effect from FY25 onwards.

Dividend Considerations: – Banks’ boards must consider divergence in classification and provisioning for NPAs when considering dividend payouts. – Commercial banks must have a minimum total capital adequacy of 11.5% to be eligible for dividends.

BharatPe Witnesses 77% Month-over-Month Surge in Merchant Onboarding in February

BharatPe has experienced a significant increase in business due to restrictions imposed by Paytm. The company saw a surge in merchant onboarding, website traffic, and merchant base, particularly in tier-III and beyond cities. BharatPe’s growth was driven by additional features and offers, as well as the uncertainty among merchants caused by Paytm’s restrictions.

Key Points:

Merchant Onboarding Surge: – Merchant onboarding increased by 77% in February 2024. – Tier-I cities saw a 76% increase, tier-II cities a 63% increase, and tier-III and beyond cities an 83% increase.

Website Traffic Increase: – Website traffic for onboarding inquiries increased by over 47%.

Merchant Base Growth: – Total merchant base crossed 1.3 crore as of February 29.

Kirana Store Switch: – Over 42% of Kirana stores switched to other platforms due to Paytm’s restrictions.

Merchant Sign-Up Increase: – Merchant sign-ups increased by 100% in the first half of February. – Metro cities saw a 104% growth, while tier 2 and 3 cities saw a 95% growth.

Additional Features and Offers: – BharatPe introduced free QR code setup, flat earnings of up to ₹300, and instant settlements.

Financial Performance: – Loss narrowed to ₹886 crore in FY23 from ₹5,594 crore in FY22. – EBITDA loss declined by ₹158 crore in FY23. – Merchant lending business grew 129% to ₹5,339 crore.

Funding: – BharatPe has raised over $583 million in equity from various investors.

India Advocates for Prioritizing Financial Inclusion, Food Security, and Technological Advancement in WTO Bodies

Summary:

India has urged the World Trade Organization (WTO) to prioritize discussions on issues that disproportionately affect developing countries, including access to finance, manufacturing concentration, food security, and reducing transaction costs in international trade. India also emphasized the need to address cross-cutting trade issues such as access to technology, bridging the digital divide, and enhancing effective aid for trade.

Key Points:

1. Prioritized Issues for Discussion: – Access to finance, including trade finance – Manufacturing concentration – Food security – Reducing transaction costs in international trade and services

2. Cross-Cutting Trade Issues: – Access to technology – Bridging the digital divide – Supply chain resilience – Enhancing effective aid for trade

3. Revitalizing Underutilized WTO Bodies: – Working Group on Trade and Technology Transfer – Working Group on Trade, Debt, and Finance

4. Prioritizing Flexibilities for Developing Countries: – Flexibilities for industrialization – Addressing competition issues hindering digital development

5. Standing General Council Agenda Topic: – Development dimension to be a permanent agenda item until the 14th ministerial conference of the WTO

6. Triennial Review Process: – Improve the functioning of the Committee on Trade and Development – Publish a stocktake report on achievements and gaps in the development dimension

India’s Ambitious Goal: Transitioning to a Living Wage by 2025

India plans to replace minimum wage with living wage by 2025, seeking assistance from the International Labour Organization (ILO) to establish a framework for its implementation. Living wages, which consider basic needs such as housing, food, and healthcare, would be higher than current minimum wages.

Key Points:

1. Living Wage Implementation: – India aims to replace minimum wage with living wage by 2025. – ILO will provide technical assistance in creating a framework for estimating and operationalizing living wages.

2. Definition of Living Wage: – Living wages are a minimum income necessary to meet basic needs, including housing, food, healthcare, education, and clothing. – They are higher than basic minimum wages.

3. Current Minimum Wage Situation: – Over 500 million workers in India, 90% in the unorganized sector. – Daily minimum wage varies by state, with some states paying less than the national floor of `176. – Code on Wages (2019) proposes a binding wage floor, yet to be implemented.

4. India’s Role in ILO: – India is a founding member and permanent governing body member of ILO since 1922.

5. Sustainable Development Goals (SDGs): – India aims to achieve SDGs by 2030. – Replacing minimum wages with living wages could accelerate poverty reduction and ensure well-being.

6. ILO Assistance: – India has requested ILO’s help in capacity building, data collection, and evidence gathering on the positive economic outcomes of living wages.

7. Definition of Living Wages for Developing Countries: – Labour Secretary Sumita Dawra proposed that ILO consider health, education, and standard of living as key indicators for defining living wages in developing countries. – Standard of living should include economic, social, and demographic factors.

Asset Reconstruction Companies Acquire Majority of KSK Mahanadi Power’s Debt

Six asset reconstruction companies (ARCs) have acquired 55% of KSK Mahanadi Power’s ₹29,330-crore debt, giving them significant voting rights and veto power in the company’s debt resolution process. The ARCs acquired the loans from lenders who exited due to delays in the resolution process.

Key Points:

Acquisition of Debt: – Six ARCs have acquired 55% of KSK Mahanadi Power’s debt, totaling ₹16,168 crore.

ARC Holdings: – Aditya Birla ARC holds the largest share of claims (33.38%), followed by ASREC (India) Ltd (11.98%) and Prudent ARC (3.82%).

Lenders Involved: – The ARCs acquired loans from major lenders such as SBI, Bank of Baroda, Punjab National, Axis Bank, and LIC.

Voting Rights and Veto Power: – The 55% debt held by the ARCs gives them significant voting rights and veto power over any resolution proposals.

Resolution Process: – The resolution process has been delayed due to a stay order from the NCLT. – The resolution of KSK Mahanadi Power is linked to the resolution of its two ancillary companies.

Cash Position: – KSK Mahanadi Power has accumulated ₹8,500 crore in cash from power generation over the past four years.

Foreign Direct Investment Plunges from Pandemic Peak

India’s foreign direct investment (FDI) is expected to decline in the current financial year compared to the previous one, aligning with a global investment slowdown. The services sector remains the largest recipient of FDI, while the construction sector has seen a significant increase. Singapore, Mauritius, the United States, Japan, and the United Arab Emirates are the top investors in India. Despite the decline, India remains a top destination for greenfield projects. A recent trade agreement with Iceland, Liechtenstein, Norway, and Switzerland is expected to attract $100 billion in investment over 15 years.

Key Points:

1. FDI Decline: – Net FDI inflows for the rolling 12-month period ended January 2024 are lower than the previous year. – This decline is consistent with a global investment slowdown.

2. Sectoral Distribution: – The services sector accounts for the highest share of FDI inflows. – The construction sector has seen a significant increase in FDI flows.

3. Top Investors: – Singapore, Mauritius, the United States, Japan, and the United Arab Emirates are the top investors in India.

4. Greenfield Projects: – India remains a top destination for greenfield projects.

5. Trade Agreement: – A recent trade agreement with Iceland, Liechtenstein, Norway, and Switzerland is expected to attract $100 billion in investment.

Formal Job Growth Declines in January: EPFO Data Reveals

The latest EPFO payroll data indicates a slowdown in formal job creation in January 2024, with a decline in new EPF subscribers. However, the net payroll additions increased slightly, suggesting a high level of job switching and re-joining.

Key Points:

New EPF Subscribers:

Number of new EPF subscribers decreased by 4% to 807,865 in January 2024.
Share of young subscribers (18-28 age group) declined slightly to 66.4%.
Share of women subscribers increased slightly to 25.32%.

Net Payroll Additions:

Net payroll additions increased by 2.5% to 1.6 million in January 2024.
This suggests a high level of job switching and re-joining.

Other Observations:

CMIE data shows a decline in unemployment rate to 6.8% in January 2024.
Labour force participation rate decreased slightly to 40.6%.
EPF subscription data is used by the government to track formal job creation in the country.

China Mandates Local Processors in Government Computers, Restricting Intel and AMD

China has implemented guidelines to gradually eliminate US microprocessors and software from government computers and servers, prioritizing domestic alternatives. The move aims to enhance data security and reduce reliance on foreign technology.

Key Points:

Procurement Guidance:

Government agencies must prioritize “safe and reliable” processors and operating systems from Chinese companies.

Targeted Technologies:

US microprocessors from Intel and AMD
Microsoft’s Windows operating system
Foreign-made database software

Domestic Alternatives:

Chinese companies have been designated as providers of “safe and reliable” CPUs, operating systems, and database software.

Government Mandate:

Government agencies above the township level are required to include criteria for “safe and reliable” technology in their procurement decisions.

US Response:

The US has been working to increase domestic semiconductor production and reduce reliance on China and Taiwan.
The CHIPS and Science Act provides financial aid for domestic chip production.