Irrespective of their size or industry sector, all businesses are structured to result in concentration of income in the hands of their owners Even as industries and businesses — both domestic and foreign-owned large corporations — expect the government to formulate policies and take fiscal measures to stimulate aggregate demand to put the Indian economy on an ‘accelerated’ and ‘sustained’ growth trajectory. A key question that needs serious introspection is: What are they doing in pursuit of this overarching goal? An analysis of the financials of India’s largest companies — those comprising the BSE 500 index — with focus on revenue, profits and dividend payouts, over the past five financial years (FY) gives us some clues. The profits of corporations...
More
Comments are closed
Category: Money, inflation & interest rate
RBI hikes repo rate but more is needed
While there is no guarantee that the RR hike will tame inflation, we can’t rule out the risks to growth Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 per cent to 4.4 per cent. He also increased the cash reserve ratio (percentage of a bank’s total...
More
Comments are closed
RBI changes gear, finally
Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May, 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 percent to 4.4 percent. He also increased the cash reserve ratio (percentage of a bank’s total deposits that it needs to maintain with the RBI as liquid cash; the bank does not earn interest on this liquid...
More
Comments are closed
Strengthening IBC framework, really?
Faced with ballooning NPAs, the Modi government enacted the IBC in 2016 While putting on hold its plans to implement the so-called “fresh-start process” for indebted poor people under the Insolvency and Bankruptcy Code (IBC), the government wants to first focus on bolstering the IBC architecture to yield quick resolution of toxic assets. The reference here is to the delay in completion of the corporate insolvency resolution process (CIRP) as well as the low amount realised by creditors from their non-performing assets (NPAs) — a fancy nomenclature for bad loans. Let us capture a few basics. Faced with ballooning NPAs, the Modi government enacted the IBC in 2016. This legislation overrides all other subsisting laws and gives a strong handle...
More
Comments are closed
Bolstering IBC architecture – a joke
While, putting on hold its plans to implement the so-called “fresh-start process” for indebted poor people under the Insolvency and Bankruptcy Code (IBC) (it provides for debt waiver up to Rs 35,000 to the poor who don’t own houses, earn up to Rs 60,000 a year and have assets up to Rs 20,000 each), the government wants to first focus on bolstering the IBC architecture to yield quick resolution of toxic assets while preventing unscrupulous elements from gaming the system. The reference here is to the delay in completion of the corporate insolvency resolution process (CIRP) as well as low amount realized by the creditors from their non-performing assets (NPAs) – a fancy nomenclature for loans that are difficult to...
More
Comments are closed
Shun accommodative stance policy, now
Reduction in the repo rate or pumping of more liquidity is ill-advised as without any guarantee of propelling growth, it will yield negative outcomes In its bi-monthly Monetary Policy Committee’s (MPC) review announced by RBI Governor Shaktikanta Das on December 8, the policy repo rate or RR has remained unchanged at 4 percent. The reverse repo rate or RRR is also unchanged at 3.35 percent. Besides, it has retained an ‘accommodative’ policy stance for as long as necessary. This is the ninth consecutive time since last August that both policy rates have remained unchanged. Das justified saying, “given the slack in the economy and the ongoing catching-up of activity, especially of private consumption, which is still below its pre-pandemic levels,...
More
Comments are closed
Shun ‘accommodative’ policy stance
In its bi-monthly Monetary Policy Committee’s (MPC) review announced by Governor Shaktikanta Das on December 8, 2021, the Reserve Bank of India (RBI) has kept the policy repo rate or RR ( interest rate at which it lends money to banks) unchanged at 4 percent. It has also kept reverse repo rate or RRR (interest rate on the surplus cash kept by the banks with it) unchanged at 3.35 percent. Besides, it has retained an ‘accommodative’ policy stance as long as necessary. This is the ninth consecutive time that both the policy rates have remained unchanged since August 2020. Justifying the decision, Das observed “given the slack in the economy and the ongoing catching-up of activity, especially of private consumption,...
More
Comments are closed
Directing the retail investor to G-security
Under this centralised system, customers will have a single point of reference to file their complaints, submit documents, track status and provide feedback On November 12, 2021, Prime Minister Narendra Modi launched two innovative customer-centric initiatives of Reserve Bank of India — Retail Direct Scheme (RB-RDS) and the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS). The RDS is intended to give retail investors – mostly the middle class, employees, small businessmen and senior citizens – an option of ‘directly’ investing in their hard-earned savings/surpluses in Government securities, making capital markets ‘easily accessible’ and ensuring that the investment is ‘more secure’. The RB-IOS is aimed at improving customer grievance redress mechanism. What are the schemes? How do these propose to achieve the stated...
More
Comments are closed
Banks bail out – make it transparent
In the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman had proposed setting up of a bad bank. Crafted as National Asset Reconstruction Company Limited (NARCL), it will bundle up all the non-performing assets (NPAs) of banks and sell them to investors such as private equity funds, alternative investment funds (AIFs) and so on, by putting a turnaround plan in place. On September 16, 2021, she announced the broad contours of the action plan. Under it, the NARCL will purchase NPAs from banks under 15:85 structure, wherein it will pay up to 15% of the agreed/discounted value of the loans in cash and issue Security Receipts (SRs) for the rest. The Government will provide sovereign guarantee – valid for a...
More
Comments are closed
NPAs – the inevitable monster
According to a statement by the Minister of State for Finance, Bhagwat K Karad in the Parliament, non-performing assets (NPAs) or bad loans of banks declined from a high of around Rs 1036,000 crore as on March 31, 2018 to Rs 896,000 crore on March 31, 2020 and further down to Rs 834,000 crore on March 31, 2021. For comparison purpose, the choice of March 31, 2018 has special significance. Under the erstwhile UPA – dispensation particularly during its second consecutive tenure 2009-2014, banks recklessly gave loans to corporate houses/businesses without assessing the viability of the projects and conducting due diligence. The ability of the concerned projects/businesses to generate required cash to service the loans was in doubt from the...
More
Comments are closed