Midnight News Update – Sep 06th 2017
Dr. Urjit Patel completed one year at the helm of the RBI in a tumultuous year. Apart from the demonetization exercise, the RBI has made significant contributions in maintaining price stability with retail inflation staying around the 2% mark. The RBI has also aggressively pushed through the resolution of stressed assets by using the NCLT to hasten the process of liquidation of companies where justified. During the year, Dr. Patel also sharply reduced the dividend payable to the government and also managed to transfer nearly Rs.13,000 crore to the contingency fund.
ICICI Lombard, the general insurance arm of the ICICI Group, has secured SEBI approval for its Rs.6000 crore IPO. It may be recollected that just a few months back, ICICI Prudential Life had also come out with a successful IPO. The IPO will involve a dilution of 86.2 million shares wherein the two principal owners’ viz. ICICI Group and Fairfax of Canada will participate. There could be a string of insurance IPOs coming out in the market. Some of the marquee names that will be shortly coming out with an IPO include, HDFC Life, SBI Life, Reliance General Insurance, GIC RE and New India Assurance.
Even as the US has been aggressively seeking to impose sanctions on North Korea, two of the major super powers, China and Russia, are against crippling sanctions against North Korea. The US, Japan and South Korea are in favour of punitive sanctions against North Korea to force them to abandon their nuclear programs. North Korea has been consistently testing its nuclear arsenal and has also recently claimed that it possessed the deadly Hydrogen Bomb. The US will be circulating the new list of sanctions and will put it up for voting at the UN Security Council on September 11th this month.
In a swooping crackdown on alleged shell companies, the government has de-registered nearly 2 lakh public companies and has also initiated action against the directors of these companies. The SEBI allegation is that these companies have been used as conduits for transferring illicit money. The MCA has gone a step further and has also intimated the banks of these companies to block transactions of these companies. While the intent of this move may be good, it is likely to practically cause a lot of practical hardships to the owners and directors even of genuine companies.
After steel and infrastructure, the next big worry for the Indian banks is the power sector where the banks expect a sharp rise in the level of NPAs. The power ministry now comes under R K Singh who is known to be a tough administrator and the borrowers are not sure how amenable he would be to understanding the practical problems that the power sector is facing in India today. Banks have loans to the tune of Rs.1.50 trillion which they expect to be at stake. That is nearly 30% of the total loans to the power sector which currently stands at around Rs.5.24 trillion. There have also been practical problems with states refusing to honour their original Power Purchase Agreements (PPA), which is many cases is actually becoming non-remunerative for the power companies.
India services PMI came in at 47.5 for the month of August 2017, slightly better than the level of 45.9 for the month of July 2017. However, the PMI staying below the 50-mark is a concern as it indicates that the services sector has been contracting rather than expanding. The services sector had taken a major hit in the aftermath of the demonetization and has struggled every since. To an extent the private sector continued to underperform as the post-GST jitters continued even in the services sector. However, the good news may be that the pace of slowdown appears to have tapered.
