Latest News Today – Covid Second Wave Has Hit Domestic Demand, Says RBI

RBI has noted that second wave of pandemic has hit domestic demand the most

The Reserve Bank of India (RBI) has observed that the Indian economy continues to wrestle with the second wave of Coronavirus pandemic even though cautious optimism is returning. It has assessed that the second wave has basically hit domestic demand hard.

In its monthly bulletin for June 2021, the central bank has focussed on the overall state of the economy, India’s sovereign yield curve and the fiscal framework of the country, in the form of three articles.

Commenting on the state of the economy, the central bank has said that while the second wave has hit domestic demand, on the brighter side, several aspects of aggregate supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged compared to last year amidst pandemic protocols.

“Going forward, the speed and scale of vaccination will shape the path of recovery. The economy has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances,” it said.

In the macroeconomic view of India’s sovereign yield curve, RBI found that the level of the yield curve has undergone a downward shift from the second quarter of 2019, reflecting the ultra-accommodative stance of monetary policy.

On the fiscal framework and quality of expenditure in India, the RBI noted in its study that the Coronavirus pandemic necessitated an overwhelming fiscal response from governments across the world.

“As India unwinds the fiscal stimulus and embarks on the path of fiscal adjustment, it is necessary to emphasise on ‘how’ over ‘how much’. This article proposes a few quantifiable indicators, i.e. ratios of revenue expenditure to capital outlay and revenue deficit to gross fiscal deficit along with threshold levels for them, that can be suitably blended into the fiscal fabric for a sustainable growth trajectory,” the RBI bulletin has noted.

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Latest News Today – RBI To Focus On Growth Even As Inflation Breaches

RBI’s focus is on economic recovery in the aftermath of second wave of Covid pandemic

The Reserve Bank of India is unlikely to react yet to multi-month high retail prices as economic recovery remains its prime focus amid the deadly second wave of the pandemic, according to two senior sources aware of the central bank’s thinking.

The annual retail inflation rate rose 6.30 per cent year-on-year in May, up from 4.29 per cent in April and sharply above analysts’ estimate of 5.30 per cent. The wholesale price inflation rate rose 12.94 per cent, its highest in at least two decades.

“There is a broad-based increase in CPI inflation but it still is not driven by demand and that gives the RBI some leeway. They will continue to wait and watch as a rate hike is out of question for now,” the first source said.

India’s economy grew 1.6 per cent in the March quarter compared with the same period a year earlier, but that was before a massive second wave of infections hit the country which prompted fairly stringent lockdowns across most states causing another round of job losses and a significant dent to demand.

Asia’s third-largest economy has now reported 29.57 million COVID-19 cases and 377,031 deaths, though some experts believe the actual numbers are far higher.

The central bank earlier this month reiterated its commitment to keeping monetary policy accommodative as long as necessary to revive and sustain growth on a durable basis.

“There is no way RBI can react to inflation at this stage,” a second source said.

“The maximum push is coming from margins, from supply disruptions, from cost push pressures…but if there is demand, (RBI) will have to react. But till now, we don’t see evidence of demand pressures,” he added.

The RBI did not immediately respond to a request for comment.

At its last policy review, the RBI warned that high energy prices could stoke inflation. It also cut its GDP growth forecast to 9.5 per cent from 10.5 per cent for the current fiscal year.

“CPI inflation at 6.30 per cent is way above the general expectations and falsifies the claim that higher WPI does not imply higher CPI,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.

India’s benchmark 10-year bond yield rose to an over six-week high of 6.04 per cent following the CPI data as traders worry the RBI will need to react to inflation sooner rather than later after it breached the RBI’s 2%-6% mandated band.

“This outcome complicates the direction of monetary policy, however, the RBI is likely to stick with the US Fed’s playbook on opting to pin this spurt on transient cost-push pressures and stay focused on the negative output gap,” said Radhika Rao, economist at DBS Bank.

“Policy normalisation expectations are likely to be increasingly priced in as vaccination approaches critical mass in first half of 2022,” she added.

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Latest News Today – Soon Prepaid Mobile Connection Holders Can Recharge

RBI has said that prepaid mobile recharge can be done under Bharat Bill Payment System

In what can be good news for millions of prepaid mobile connection holders across the country, the Reserve Bank of India (RBI) on Monday allowed prepaid mobile recharge to come under the ambit of Bharat Bill Payment System (BBPS).

The RBI has informed all scheduled commercial banks, cooperative banks, payment banks, National Payments Corporation of India (NPCI) and also Bharat Bill payment system provider, that mobile prepaid recharges have been included under its jurisdiction.  

The decision will be implemented on or before August 31, 2021, the central bank said.

BBPS is an interoperable platform for recurring bill payments operated by NPCI.

BBPS started in 2014 as a platform for repetitive bill payments, it covers payment of bills of five categories namely direct to home (DTH), electricity, gas, telecom and water.

“With consistent growth in different biller categories and to facilitate mobile prepaid customers with more options to recharge, it has been decided to permit ‘mobile prepaid recharges’ as a biller category in BBPS, on a voluntary basis. This will be implemented on or before August 31, 2021,” the RBI said in a statement.

It provides standardised bill payment experience, centralised customer grievance redressal mechanism, prescribed customer convenience fee and availability of digital payment options.

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Latest News Today – Reserve Bank Of India (RBI) Extends Risk-Based Internal

Housing finance companies have been asked to put in place a RBIA framework by June 30

The Reserve Bank of India (RBI) on Friday extended risk-based internal audit (RBIA) system for housing finance companies to enhance quality and effectiveness of their internal audit system. The provisions will apply to all deposit-taking housing finance companies irrespective of their size, as well as non-deposit-taking housing finance companies with asset size of Rs 5,000 crore and above, the RBI said in a statement.

The housing finance companies have been asked to put in place a RBIA framework by June 30, 2022. An effective RBIA is an audit methodology that links an organisation’s overall risk management framework and provides an assurance to the board of directors and senior management on quality and effectiveness of an organisation’s internal controls, risk management and governance-related systems and processes.

The RBI says an internal audit function should broadly assess and contribute to overall improvement of an organisation’s governance, risk management and control processes by using a systematic and disciplined approach. The function is an integral part of sound corporate governance and considered as third line of defence.

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Latest News Today – RBI’s Third Tranche Open Market Buy Of Government

RBI will begin purchase of government securities on June 17

The Reserve Bank of India (RBI) on Thursday said that it will conduct the third tranche of open market purchase of government securities (G-Secs) valued at Rs 40,000 crore under its G-Sec Acquisition Programme (G-SAP 1.0) on June 17.

Out of this, the RBI said in a statement, state development loans (SDLs) would be purchased for up to Rs 10,000 crore.

Accordingly, the Reserve Bank will purchase government securities and state development loans (SDLs) through a multi-security auction using the multiple price method. 

Under the second tranche, the RBI had purchased Rs 35,000 crore worth G-Secs under the G-SAP 1.0 on May 20 and purchased Rs 25,000 crore worth G-Secs under first tranche on April 15.

With the third tranche, the RBI will complete the Rs one lakh crore target announced for G-SAP in the first quarter of 2021-22.

RBI however reserves the right to decide on the quantum of purchase of individual securities. Also the central bank will use its discretion to accept bids for less than the aggregate amount and purchase marginally higher or lower than the aggregate amount due to rounding-off.

It can also accept or reject any or all the bids either wholly or partially without assigning any reasons, the statement issued by RBI said.

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Latest News Today – RBI Okays Hike In ATM Interchange Fees From Rs 15 To Rs

RBI revised ATM charges after a gap of nine years

The Reserve Bank of India (RBI) on Thursday okayed a hike in the interchange fees per transaction through automated teller machines (ATMs) from the existing Rs 15 to Rs 17 for financial transactions. For non-financial transactions, the fees has been increased from five rupees to six rupees. The increased fees will be applicable from August 1, 2021 onwards.

The customers will also be allowed five free transactions, including financial and non-financial ones on a monthly basis from their own bank ATMs.

Also they will be able to conduct three free transactions from ATMs of other banks in metro cities.

On crossing the prescribed number of free transactions which a customer is eligible to conduct from other banks’ ATMs, the interchange fee has been hiked from the existing Rs 20 to Rs 21 per transaction. This hike however will be applicable from January 1, 2022.

An interchange fees is the amount which the card issuing bank pays to the ATM operator if a transaction by a customer has been made from an ATM which does not belong to the card-issuing bank.

The increase in the interchange fee structure is being effected after 2012, while the charges payable by customers were last revised in August 2014. The central bank cleared the new charges on the basis of the recommendations of a committee which it had formed two years back to study the ATM charges and interchange fees.

RBI also took into account the increasing cost of ATM deployment and expenses towards ATM maintenance incurred by banks and white label ATM operators, a statement issued by the central bank said.

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Latest News Today – India Court Allows Billionaire Agarwal to Takeover

Anil Agarwal’s entity has been allowed to take over Videocon Industries

India’s bankruptcy court has allowed billionaire Anil Agarwal’s Twin Star Technologies to takeover Videocon Industries Ltd., according to people familiar with the matter.

Twin Star, a part of Agarwal’s Vedanta Group, will pay about 30 billion rupees ($410 million) to Videocon’s lenders, the people said, asking not to be identified as the details are not public. The company will put up 5 billion rupees within 90 days and the rest as non-convertible debentures over a period of time, they added. Vedanta Group didn’t immediately respond to an email seeking comment.

Lenders had sought the bankruptcy court’s approval in December for the resolution plan submitted by Twin Star. The court approved the plan in a verdict on Tuesday.

Videocon, a consumer durables company manufacturing air-conditioners to washing machines, was among the first 12 companies pushed into bankruptcy after directions from the Reserve Bank of India in 2017. Indian banks have been battling unpaid loans for the past couple of years and the country is saddled with one of the worst bad-debt ratios in the world.

The conglomerate’s protracted debt resolution underscores the challenges facing Indian lenders to recover their money amid a severe pandemic that threatens to add to the bad loans.

Videocon’s debt stood at over 635 billion rupees in 2019, according to bankruptcy case related disclosures on the company’s website. Out of this, 574 billion rupees was owed to over three dozen banks and other financial creditors.

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Latest News Today – Reserve Bank Of India (RBI) Survey

Consumer confidence has dipped to a new low as the second wave of Covid-19 pandemic continues to take a toll on lives and businesses across the country, a new survey by the Reserve Bank of India (RBI) shows. The current perception compared with one-year ago fell to a record 48.5 in May from 53.1 in March, shows the survey where 100 is the level that divides pessimism from optimism. But one year ahead of expectations compared with the current situation stands at 96.4 in May compared to 108.8 in March.

“Household spending also weakened in the latest survey round with essential spending showing signs of moderation while non-essential spending continues to contract.”

The survey was conducted through telephonic interviews during April 29 to May 10 in 13 major cities: Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Mumbai, Patna and Thiruvananthapuram.

Perceptions and expectations on the general economic situation, employment scenario, overall price situation and own income and spending were obtained from 5,258 households across these cities.

“The future expectations index moved to the pessimistic territory for the second time since the onset of the pandemic,” showed survey findings.

“This was driven by sharp fall in expectations on the general economic situation, employment scenario and household income over one year horizon.”

The RBI has projected consumer price index (CPI) inflation at 5.1 per cent for FY21-22: 5.2 per cent in Q1, 5.4 per cent in Q2, 4.7 per cent in Q3 and 5.3 per cent in Q4 with risks broadly balanced.

On Friday, it also cut its projection for gross domestic product (GDP) growth for FY22 to 9.5 per cent from the earlier forecast of 10.5 per cent.

“The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook,” it said.

Reports suggest there is a strong likelihood of food prices getting impacted because of Covid-19 infections and local lockdowns affecting the supply chain issues.

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Latest News Today – Reserve Bank Of India (RBI) Announces G-SAP 2.0 Of Rs

RBI Monetary Policy 2021: Central bank kept interest rates steady to maintain status quo

The Reserve Bank of India (RBI), in its bi-monthly Monetary Policy Committee (MPC) Statement, said that another round of the Government Securities Acquisition Programme (G-SAP 1.0) worth Rs 40,000 crore will be conducted on June 17. Out of this, Rs 10,000 crore will constitute the purchase of state development loans or SDLs. RBI Governor Shaktikanta Das said that the central bank does not expect the market to respond appropriately to the announcement of G-SAP 2.0. (Also Read: RBI Monetary Policy Highlights: Lending Rates Unchanged, Growth Projected At 9.5% )

The specific dates and securities under the G-SAP 2.0 operations will be announced separately. The Reserve Bank planned a G-SAP of Rs 1 lakh crore for the first quarter of the current fiscal.

In its first bi-monthly monetary policy committee for fiscal 2021-22 held in April, the Reserve Bank had announced the secondary market G-SAP 1.0 scheme. As part of the program, the central bank committed upfront to a specific amount of open market purchases of government securities to ensure a stable and orderly evolution of the yield curve amid comfortable liquidity conditions.

”The announcement of G-SAP 2.0 to the tune of Rs. 1.2 lakh crores will ensure adequate liquidity in the system. Upward revision of inflation rate will raise bond yields marginally in the short run,” said Dr. Rajeev Singh, Director General, Indian Chamber of Commerce (ICC).

Shaktikanta Das said in his statement that during the current year so far, the RBI has undertaken regular OMOs and injected additional liquidity to the tune of Rs 36,545 crore, up to May 31, which is in addition to Rs 60,000 crore under the G-SAP 1.0 scheme.

RBI Governor added that a purchase and sale auction under the operation twist was conducted on May 6, to facilitate the easy evolution of the yield curve. Meanwhile, the redemption of government securities worth around Rs 52,000 crore in the last week of May fully neutralised the cash reserve ratio (CRR) restoration.

”As part of its objective to ensure adequate liquidity, RBI has continued with its GSAP 1.0 programme for Q1FY22 with a scheduled Gsec purchase of Rs 40,000 crore in June and importantly, taking it forward with GSAP 2.0 with the planned acquisition of another Rs 1.2 lakh crore in Q2FY22,” said said Mr Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.

Along with the use of other tools such as OMOs and Operation Twist, these announcements are a clear message to the market participants that RBI would like to provide necessary support and facilitate a slightly downward bias on the bond yields,” he added.

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