The banks have had a long weekend and may have a big task when they come back on Monday. Banks face an Rs.3.80 trillion deadline on 27th August for NPAS, mostly from the power sector. This is the total amount of NPAs involved in the 70 stressed accounts where the RBI’s 6 month deadline expires on 27th August. Majority of these defaulters are power producers and that could bring the spectre of power sector NPAs to the fore. Now it will go to NCLT for resolution, since it is very unlikely that these cases can be credibly resolved before the deadline on 27th of April. That surely is a challenge!
In a rapid move to ease the worries for the FPIs, the Government enables ease-of-doing business for FPIs. Unlike in the past, the Foreign Portfolio Investors (FPIs) will not be able to complete their registration application, bank account application, demat account application and PAN card application with a single application form. It is a good step forward in simplifying flows. However, the government has refused to extend the deadline beyond December before which all FPIs will be required to give the full details of all the end and ultimate beneficiaries of the P-Notes issued by them.
The differences between Trump and the Fed chairperson are out in the open. Jerome Powell of the US Fed painted a hawkish picture at Jackson Hole. Speaking at the annual gathering of central bankers in Jackson Hole, Powell almost made a September rate hike looking like a certainty. Donald Trump has been pushing for lower rates but Powell has held on to his hawkish stance. That could be a worry for EMs as dollar strengthens. For countries like India, with depleting forex reserves and a 10% depreciation in INR already, it could mean another likely repo rate hike by the RBI.
Even as the state of Kerala recovers from the devastation of the floods, it is ironic that nearly 40% of the districts in South India have received deficient rains. Out of the 125 districts in South India, nearly 54 districts have received deficient rainfall, despite the deluge in Kerala. This was revealed by the IMD. The worst hit was the state of Tamil Nadu with 20 out of its 32 districts getting deficient rainfall during this year. This is the last leg of Kharif cropping and a proper monsoon is critical in this last phase as it could seriously impact cropping patterns in this period.
The downside risks of the relentless liquidity push by central banks is finally coming home to roost and emerging markets may pay a steep price for the same. Emerging markets carry trade is likely to come under a risk cloud in the near future. Many large global investors, flush with liquidity had invested heavily in emerging market debt to make the best of high yields and stable currencies. Now countries like India are seeing lower yields and also 10% depreciation. Turkey could be the trigger to set off an EM debt contagion. The carry trade perfectly as long as yields remained high in the EMs and the currencies were relatively stable. With currencies like Turkey, South Africa, India and Latin America seeing deep cuts, large Japanese institutional investors may have a real worry on hand and could even sell out.
With the Ericsson problem done and dusted, RCOM may be up against a new challenge. DOT’s Rs.2900 claim could loom large over Reliance Communications. The Department of Telecom is likely to ask RCOM to cough up Rs.2900 crore as its share of Spectrum Usage Charges (SUC) before finally approving its proposed sale of assets to Reliance Jio. Since this SUC is currently sub-judice, RCOM will be required to furnish bank guarantee to that extent. That is what had happened when the merger of Idea and Vodafone had to be approved last month and the DOT may put its foot down in this case too.
