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News Bulletin

Rupee in a free fall, hits fresh all-time low of 70.32 level against dollar

The rupee fell to a fresh record low in opening trade today with investor sentiment affected by a widening trade deficit on the domestic front and the broad rise in the US dollar compared to other Asian peers. The currency fell 42 paise to hit a fresh all-time low of 70.32 intraday.

Earlier, it opened 35 paise lower to 70.25 level compared to the US dollar.

Arun Thukral, MD & CEO of Axis Securities said, "The recent fall in INR is owing to the Turkish financial crisis along with the strengthening USD. The Turkish lira crisis is weighing heavily on emerging market economies, especially those with large current account deficits. India's weakening current account is an issue led by volatile oil prices. Also, growth in the US economy has led to the fall of INR owing to a strong USD. With two more rate hikes expected in the US in 2018 and the RBI likely to maintain status quo in the near term, we believe that in the current scenario pressure on INR may continue over the coming few months."

Trade deficit widened to a more-than-five-year high of $18.02 billion in July as against a deficit of $11.45 billion during July 2017, the commerce ministry said on Tuesday, driven largely by a surge in oil imports.

Gold imports surged by 40.94 per cent in July to $2.96 billion compared to $2.102 billion in July 2017.

Mustafa Nadeem, CEO at Epic Research said, "Rupee depreciation has its root in the currency war and then followed by Turkish crisis as tensions rise between it and the US. Trade war and the after effects have taken a toll on the most Asian currencies that are from the Developed economies and worst is for emerging economies such as India. The current situation has already been worst for Indian INR as it drifted to above 68 levels on the back of US Treasury bills which is now hitting the 2% mark, crude oil price rise, which is up 40% for the year, and concerns on widening CAD. All this has played out already worse for INR. Turkish crisis further fueled the spark to depreciate it further against the basket of major currencies. This may continue as we still believe the projection for upside for rupee is now at 72.2 while 69.5 technically seems to be base for this upmove."

Read more at; https://www.businesstoday.in/markets/global-markets/rupee-falls-fresh-all-time-low-70.32-dollar-rises-current-account-deficit/story/281350.html

Why Chinese banks are turning wary of Pakistan loans

HONG KONG: Chinese banks are increasingly wary about lending to Pakistan as emerging markets currency volatility threatens the incoming coalition government's efforts to close an external financing gap, amid mounting US opposition to a possible IMF bailout.

China's banks have already extended tens of billions of dollars in infrastructure loans to support the $57bn China-Pakistan Economic Corridor (CPECNSE 0.00 %), a centerpiece of Beijing's Belt & Road Initiative which seeks to increase its geopolitical influence.

Pakistan's foreign exchange reserves are dwindling and it is expected to seek a bailout of more than $10bn shortly from the IMF and further funding from allies, including China and Saudi Arabia, to avoid a currency crisis.

However, the newly elected Prime Minister Imran Khan and his Pakistan Tehreek-e-Insaf Party only has a thin majority in parliament and the plan faces strong domestic and international opposition.

The IMF may seek to impose conditions on any new borrowing and the US has voiced strong opposition and concern that any funding should not be used to repay Chinese lending.

"As a commercial bank we will of course use extra caution when considering new loans to Pakistan," one Beijing-based banker said.

"Our bank has just tightened all sovereign loans to non-developed countries and we are now reassessing country risks. We are on close watch against any further black swan events," a second source said.

Pakistan's new government is due to repay a $255m sovereign loan in late September. The one-year bullet loan was signed with four banks, including sole book runner Credit Suisse and two Chinese lenders, in September 2017, according to data from Loan Pricing Corp.

Chinese banks have increased their commitment to Pakistani sovereign loans in recent years and policy lenders China Development Bank and the Export-Import Bank of China (Chexim) are playing a leading role in financing CPEC's construction of ports, power stations and transport links.

These loans are at the centre of a debate on whether the IMF should help Pakistan for the second time in five years. Pakistan is also seeking financing from alternative sources and is lining up a $4bn loan from Saudi-backed Islamic Development Bank, according to media reports in early August.

Read more at: https://economictimes.indiatimes.com/news/international/business/why-chinese-banks-are-turning-wary-of-pakistan-loans/articleshow/65439081.cms

Why your next flight may go via China

It is the same if you are looking to fly from Bangkok to Los Angeles. Or from Singapore to New York.

In all three cases, the cheapest tickets these days are often offered by a Chinese airline.

Take the London to Sydney route. Using one of the best-known flight-finder websites to search for a ticket to fly out and back on two dates picked at random - 30 October and 12 November - the cheapest available, at the time of writing, was quoted by China Southern Airlines.

Meanwhile, if you wanted to fly between Bangkok and Los Angeles on the same dates, the lowest-priced ticket was offered by China Eastern Airlines.

So if you don't mind having a stopover in a Chinese city you might not have heard of before - how about 12 hours in Qingdao? - Leisure and business travelers can often save a fair amount of money.

But how exactly are a growing number of Chinese airlines able to offer bargain prices that undercut more established rivals from Europe, the US, Asia, and the Middle East? Are they playing fair?

And how are the Chinese carriers able to secure an increasing amount of often hard-to-get landing slots around the world?

China's main airlines are undoubtedly being subsidized by the Chinese government, says Shukor Yusof, founder of Endau Analytics, a Singapore-based aviation industry research group.

These subsidies enable the carriers, such as the big three - Air China, China Eastern and China Southern - to aggressively gain market share around the world without worrying too much about any losses along the way.

"Chinese carriers do not reveal details, or specifics," says Mr Yusof. "However, taking account of the numbers that are flying, it would be fair to say that some are breaking even, many lose money, and few are able to eke out profits."

China's airlines are also benefiting from regional Chinese governments offering those subsidies to run international flights from their main cities, in the hope of putting them more on the map, and encouraging tourism and economic development.

In 2016 regional Chinese authorities outside Beijing, Shanghai and Guangzhou spent at least 8.6bn yuan ($1.3bn; £1bn) subsidizing airlines, mostly towards international flights, according to data compiled by research group Civil Aviation Data Analysis.

One of the smaller Chinese carriers, Sichuan Airlines, offers services to Los Angeles from Hangzhou and Jinan, and both flights are said to rely heavily on subsidies, with less than 60% of seats full, compared with the global, industry-wide average of 81.4% in 2017.

Read more at; https://www.bbc.com/news/business-45168924

RBI scrutinizing 200 large accounts to contain rising non-performing assets

As part of its effort to contain rising non-performing assets (NPAs), the RBI has started scrutiny of 200 large accounts to assess level of stress and provisioning done against them by respective banks.

The Reserve Bank of India (RBI) is examining as to whether banks have followed prudential norms in respect of these stressed assets, a senior public sector bank official said. It is also assessing classification, provisioning and debt recast in respect of those loans, the official added.

This is a part of regular annual inspection of book of the banks that the central bank undertakes each year after the closure of the financial year, another official said.

Some of the accounts include Videocon, Jindal Steel and Power, the official added.

This exercise comes at a time when gross NPAs in the banking system has risen to around Rs 10.3 lakh crore, or 11.2% of advances, compared to Rs 8 lakh crore, or 9.5% of total loan, as on March 31, 2017.

Following the annual inspection of the last year, many lenders, including Axis Bank, Bank of India and Yes Bank, were caught for under-reporting of NPAs.

The lenders started reporting divergences since June last year for having under-reported NPAs in FY16. This was followed by a second round of disclosures, starting October, of under-reporting in FY17 by a few lenders.

In most cases, this led to a shooting up of NPAs and an ensuing jump in provisions against dud assets. This eroded their bottom lines, and led to a sell-off in the stock causing erosion of wealth for investors.

Private sector lenders, which were reputed for their caution on the asset quality front vis-a-vis the poorly governed state-owned peers, were the worst hit in this exercise.

Read more at; https://www.hindustantimes.com/business-news/rbi-scrutinising-200-large-accounts-to-contain-rising-non-performing-assets/story-29XW3d6HAZCymk6srr3jKM.html

U.S. and China to Rekindle Trade Talks as More Tariffs Loom

WASHINGTON — The United States and China will return to the negotiating table late this month in an attempt to ease months of tensions that have been building since trade talks broke down this year and both countries began imposing escalating rounds of tariffs on each other.

China said on Thursday that it would send a delegation led by Wang Shouwen, its vice minister of commerce, to Washington to meet with a group of officials led by David Malpass, the Treasury Department’s undersecretary for international affairs. Although Trump administration officials have repeatedly said the ball is now in China’s court to revive the faltering discussions, the Chinese government said the trip was being made at the invitation of the United States.

The talks come as the trade relationship between the two countries faces further deterioration. The Trump administration is preparing far more expansive tariff measures, including levies on another $16 billion worth of Chinese products that are expected to go into effect next Thursday. The administration is also scheduled to hold six days of hearings over the next two weeks to allow up to 370 witnesses to weigh in on plans for tariffs on a further $200 billion worth of Chinese products, a spokeswoman for the United States trade representative said.

If all of those tariffs go into effect, the United States would be taxing roughly half of the goods it imports from China each year, raising prices for a broad swath of manufacturers, retailers and other industries.

The meeting between midlevel officials is a departure from the formal rounds of talks between top economic teams from the United States and China that took place during the early days of the Trump administration and the trade meetings led by Steven Mnuchin, the Treasury secretary, and Liu He, China’s vice premier in charge of economic policy, this spring.

Larry Kudlow, the director of the White House’s National Economic Council, sought to lower expectations on Thursday and insisted that President Trump had no intention of backing down on his demands.

“Any time you’re talking, that’s better than not talking,” Mr. Kudlow said in an interview with CNBC.

Mr. Kudlow said that the demands of the United States have not changed, and that China must lower its tariff and non-tariff barriers and cease the theft of American intellectual property.

“The Chinese government in its totality must not underestimate President Trump’s toughness and willingness to continue this battle,” Mr. Kudlow added.

Read more at; https://www.nytimes.com/2018/08/16/us/politics/us-china-tariffs-trade.html?rref=collection%2Ftimestopic%2FInternational%20Trade%20and%20World%20Market&action=click&contentCollection=timestopics®ion=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection

Trade war: Donald Trump tariffs to stay on Turkey; Qatar offers aid

The US and Turkey remained locked in a stalemate that has jolted global markets, as the White House said new tariffs on Turkish goods would remain and Turkish President Recep Tayyip Erdogan received a financial lifeline from Qatar that should buy him time in the stand-off.

The Trump administration said Wednesday that Erdogan’s imposition of retaliatory tariffs against the US were “a step in the wrong direction.” In a sign the conflict is far from over, White House spokeswoman Sarah Sanders said US tariffs announced last week will stay in place regardless of whether an American pastor detained in Turkey is freed.

As Erdogan sought to cushion the impact of the crisis on Turkey’s economy, he reached out to German Chancellor Angela Merkel for possible assistance and won a promise from Qatar’s emir to invest $15 billion.

The plight of the American pastor, Andrew Brunson, has dominated the Trump administration’s strategy toward its Nato ally, even as the dispute roiled currency markets. Brunson, who Turkish officials say had links to a failed 2016 coup, is being held under house arrest. A lower court earlier on Wednesday turned down his lawyer’s request to free him, and the US — which rejects Turkey’s accusations — has said it won’t negotiate until he’s released.

Administration officials said the US doesn’t currently have any meetings scheduled with Turkish officials to discuss Brunson’s case.

‘National Security’

“The tariffs that are in place on steel won’t be removed with the release of Pastor Brunson,” Sanders said, because they were imposed on “national security” grounds.

As the dispute festers, Turkey announced on Wednesday a string of new tariffs ranging from 50 per cent to 140 per cent on rice, alcohol and cars from the US in retaliation for President Donald Trump’s move to double tariffs on Turkish steel and aluminum imports last week.

The punitive steps come after Erdogan called on Turks to boycott American electronics, such as Apple’s iPhone, which have in any case become more expensive as the lira lost almost 40 per cent of its value this year.

Nevertheless, Erdogan won a reprieve on Wednesday after Qatar’s emir promised to invest $15 billion in the country. That followed a string of urgent steps Erdogan has taken to protect Turkey’s economy, which was already under strain before the latest US tariffs and sanctions were announced.

Read more at; https://www.business-standard.com/article/international/trade-war-donald-trump-tariffs-to-stay-on-turkey-qatar-offers-aid-118081601658_1.html

Under the Weather: Narendra Modi’s Crop Insurance Scheme Veers off Target

New Delhi: The Pradhan Mantri Fasal Bima Yojana (PMFBY), Prime Minister Narendra Modi’s flagship crop insurance scheme, was launched on January 13, 2016 replacing two existing schemes – the National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS).

The government announced that the new scheme incorporated the best features of the previous schemes and weeded out their shortcomings. Lower premium rates for farmers at 2% for kharif crops and 1.5% for rabi crops – the rest being payed by the state and Central governments to insurance companies – and the use of technology for ‘quicker settlement of claims’ were highlighted as some of the key features of the scheme.

A target was set: achieve coverage of 100 million hectares, or 50% of India’s crop area, by 2018-19. At the time, the crop area covered by insurance was 24%.

However, as the deadline set by the government is approaching, the target is unlikely to be achieved. In fact, according to the latest figures provided by the government, the crop area covered by insurance is actually declining.

On August 7, the minister of agriculture and farmer’s welfare told the Lok Sabha that the area covered by insurance has reduced from 29% in 2016-17 to 25% in 2017-18. At 25% coverage we are very close to being back to where we began in 2016 at 24% coverage.

The PMFBY is compulsory for farmers who take crop loans and Devinder Sharma, a noted agriculture policy expert, argues that if the scheme were not compulsory it would hardly find any takers. “People will opt for a scheme only if it is beneficial to them. Farmers have clearly seen that the scheme is not giving them any benefit and they will not opt for it if it isn’t compulsory,” he said.

Looking at the data for loanee and non-loanee farmers under PMFBY, Sharma’s argument appears to have some truth to it. In 2017, 76% of farmers covered by crop insurance were those who enrolled by virtue of having taken loans. Only 24% farmers enrolled for PMFBY voluntarily.

“And a large part of the reduction in enrolment figures for this year would be because non-loanee farmers have not enrolled,” Sharma said.

Issues with PMFBY

The primary grouse of farmers with the PMFBY is regarding the payment of claims. Some farmers, like in Maharashtra’s Beed district, have complained that they have received minuscule amounts ranging from Re 1 to Rs 5 as compensation for crop loss. In Karnataka’s Bidar, farmers have threatened to commit suicide as they claimed that they have not been compensated for crop damage. Others have complained about inordinate delays in the payment of compensation.

Read more at; https://thewire.in/agriculture/narendra-modi-crop-insurance-scheme

In Back-and-Forth between RBI and Uday Kotak, a Rs 15,000-Crore Lesson in Misgovernance

In an indictment of Kotak Mahindra Bank (KMB) and its promoter-CEO, Uday Kotak, the Reserve Bank of India (RBI) on the evening of August 14, 2018, unequivocally stated that the bank’s issuance of perpetual non-convertible preference shares “did not meet the promoter holding dilution requirement”.

The bank defiantly responded by stating: “We continue to believe that we have met the requirement and will engage with the RBI in this behalf.”

To appreciate the curious arrogance of this back-and-forth, one has to understand the leeway the RBI has given the bank and Uday Kotak in reducing the promoter stake in the bank.

When the RBI gave Uday Kotak a bank license in February 2003, the stipulation was that promoters must have a minimum of 49% shareholding for a minimum period of five years. Subsequently, following the mis-management and collapse of the promoter-managed Global Trust Bank, the RBI reviewed that decision, and in its February 28, 2005 guideline, it emphasised diversified ownership, with single entity or group of related entities holding a maximum of 10% shareholding; higher levels required RBI approval.

Thereafter, as per the RBI’s revised guidelines for licensing of new private banks issued on February 22, 2013, it stated that the promoter should have a maximum shareholding of 15% “within 12 years from the date of commencement of business of the bank.”

For KMB, the RBI’s latest guideline meant that by February 2015, the promoters’ shareholding should have been 15%. Uday Kotak resisted the dilution of his holding to 15% and argued that RBI’s new norms should not be retrospectively applied as he was given the license under RBI’s January 3, 2001 policy which stated:

Where promoters consisted of individuals, the RBI used its discretion to compel banks to reduce their stake. In some banks, such as IndusInd Bank which was established in 1994, the promoters reduced their stake to 15% (p 38 annual report) by March 31, 2016, i.e., within three years of the RBI’s revised guideline.

In Yes Bank, which received its banking license at the same time as KMB, the promoters’ stake was brought down to 20% by March 31, 2017 and has remained at that level as the promoters are contesting certain issues in court.

In Lakshmi Vilas Bank, an old private sector bank, the promoters’ stake was reduced to marginally below 9% by March 31, 2018.

But in the case of KMB, the RBI repeatedly allowed Uday Kotak an elongated timeline to reduce his stake, first to 20% by March 31, 2018 and 10% by March 31, 2020 in a circular dated June 27, 2012. Subsequently, a further relaxation was given by the RBI in a notification dated February 1, 2017, whereby the promoters had to reduce their stake to 20% by December 31, 2018 and 15% by March 31, 2020. In all, that amounts to an extension of five years over the original deadline of March 31, 2015.

Read more at; https://thewire.in/banking/in-back-and-forth-between-rbi-and-uday-kotak-a-rs-15000-crore-lesson-in-misgovernance


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