RBI encourages investment in sovereign bonds as part of liquidity measures

 

The Reserve Bank of India is making longer-tenor sovereign bonds attractive again.

Quantum Mutual Fund has moved to the 10-14 year segment after staying in duration of up to three years in August in its 691 million rupees ($9.4 million) Dynamic Bond Fund. UTI Asset Management Co. has turned overweight on bonds maturing in up to 15 years, after cutting duration two months ago.

The strategy change was prompted by a series of liquidity measures announced by the Reserve Bank of India earlier this month, including doubling the size of open market operations. That’s spurred expectations that the central bank would intervene regularly to keep yields anchored. Confidence over RBI support has even outweighed concern over the government’s plan to increase debt sales.

“We have gone from being very defensive in August to aggressive now in positioning toward longer bonds and one big factor behind that is a better clarity on the RBI’s intervention plan,” said Pankaj Pathak, fixed income fund manager at Quantum Asset. “The RBI signaling that they will purchase bonds on weekly basis has given a big comfort,” he said.

Prior to the RBI’s support measures announced on Oct. 9, some money managers were piling into India’s short-tenor debt from bills to credit as concerns over a virus-ravaged economy and record borrowings prompted them to avoid risks.

The pivot from RBI will help the government, which has said it will sell 1.1 trillion rupees more debt for the fiscal half ending in March. More than 40% of the remaining year’s bond sales will be in 10-year to 14-year maturities.

Expectations for easing inflation are also likely to support longer tenors. RBI Governor Shaktikanta Das said in the policy address that the monetary authority sees the recent surge in inflation as transient.

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Yields may soften “once the market comes around to the view that CPI is going to trend lower, and there is stability in terms of market borrowing,” said Amandeep Chopra, head of fixed income at UTI Asset.

Risky Trade

However, some investors warn that betting on easing debt supply in India is risky as widening fiscal deficit is a long-term issue.

“We had tactically played a 13-14 year overweight position earlier,” said Suyash Choudhary, head of fixed income at IDFC Asset Management in Mumbai. “However, such a long-duration trade has limited shelf life in a multi-year fiscal stress situation that we are currently in and has to be played opportunistically. We have moved back to our core conviction positions in the 6–8 year segment.”

S&P Global Ratings and Fitch Ratings forecast India’s combined deficit -- federal and state governments -- will widen to about 12% of GDP in the year through March.

Covid-19 relief: Citi Bank releases FAQ on deferred EMIs and its impact

The Reserve Bank of India announced a slew of measures to deal with the coronavirus (Covid-19) pandemic. The measures were aimed at providing relief to the common people by allowing a moratorium of three months on payments of EMIs. Citi Bank released an FAQ on what its customers can expect.

Q1. What is the allowed “Moratorium”?

Moratorium is an option provided to not make payments towards the cards dues for 3 months starting 1st Mar 2020 and ending

31st May 2020. During this period, customers can choose not to make payments which are otherwise due on the payment due dates per the credit card statements. There will be no late payment charges or payment return charges payable during this period. In addition, this would not adversely affect the credit bureau records.

Q2. Who is eligible for moratorium benefits?

Customers who have received the communication from Citi via Email and/or SMS are eligible for the moratorium benefits.

Q3. Is there an opt-in required to avail moratorium benefits?

No, there is no explicit opt-in required. The customers who have received the communication and from whom the Minimum Amount Due for the credit card in Mar’20 statement is not received will receive moratorium benefits.

Q4. What is the moratorium period in which will receive the benefits from the bank?

The moratorium offered by Citibank posts the customer's receipt of the email and SMS for the offer for dues falling upto May 31st, 2020.

Q5. Is a customer allowed to stop paying for my credit card?

Yes, a customer can choose not to make payments during the moratorium period including the Minimum Amount Due (MAD). This is a temporary relief measure for payments due between 1st March and 31st May in accordance with the RBI’s COVID-19 regulatory package.

Please note that interest will be charged if the Card Member does not pay back the previous bill in full, by the payment due date (as per the card statement), and on cash advances from the day of advance. Interest is charged from the date of the transaction until the date of full settlement of the dues. Please refer to section on “Finance Charges” in the Most Important Terms and Conditions of the respective cards for details. This is available at: https://www.online.citibank.co.in/portal/newgen/cards/tab/creditcards_tc.htm

Q6. Will the EMIs be billed into the monthly credit card statement?

EMIs due for April 2020 and May 2020 statements will not be billed for eligible customers who choose to avail the moratorium benefits and would be deferred. EMI billing will resume from June 2020 statement and there will be an extension of the remaining tenor of the remaining loan with one EMI billed per statement cycle. Please note, additional interest for the moratorium period will be applicable.

Q7. Will customers be charged late payment charges during the moratorium period?

No. Late payment charges or payment return fees will be not be payable during the moratorium period. However, interest would continue to accrue on the balances at the current interest rates. It should be noted that late payment fees and payment return charges would be applicable if the minimum amount due is not received by the payment due date after the moratorium ends.

Q8. How do customers opt-in for the moratorium?

The RBI has permitted banks to offer the moratorium at their discretion. The bank is extending the moratorium to our credit card customers, whose cards are in good standing as of March, 2020 (i.e. no default in repayment of prior dues).

Q9. Will the bank levy interest charges for the deferred period of payment?

The RBI press release has specified that interest will continue to accrue on the outstanding amount during the 3-month moratorium period. Thus, if a customer makes any payments during this period, the interest charges will be reduced accordingly. For more details on interest calculation, please visit https://citi.asia/INCreditCard. The interest-free period will also not apply for any fresh purchases a customer makes subsequently and interest at the applicable rate of interest will be applied from the date of purchase.

For e.g.: If a customer made a purchase on 20th Apr for Rs. 1,000 with a statement generation date of 25th April, interest on this purchase will accrue from 20th Apr till the date of full payment.

Q10. Will my credit bureau score be impacted if a customer doesn’t make payments?

No, there will be no adverse reporting on credit bureau records for payments not received during the moratorium period.

Q11. Will a customer continue to get my statement?

Yes, the statement will be generated as per customer's billing cycle. Customers will receive the statement information via email, SMS or physical letter (subject to lockdown conditions). However, a customer has an option to not pay during the moratorium period. Customers will be required to make payments towards the total dues by the first payment due date post the end of the moratorium period.

Q12. Is there any change in the interest rate during the moratorium period?

For all credit card dues (including any unpaid EMIs till the respective payment due date), current prevailing interest rates will apply as per the Cardmember Terms and Conditions.

Q13. How can a customer view statement or unbilled transactions and any interest/charges during or after the moratorium period?

A customer can easily access your statements and unbilled transactions via Citi Mobile App or Citibank Online.

Q14. What if a customer does not want the auto-debit of due amounts from his savings account?

To place a request to stop the auto-debit from the linked savings account, a customer can disable the Standing instruction from Citibank Online / Citi Mobile App or write to us at moratorium@citi.com.

If the standing instruction for payment is already executed then a customer may reach out to the bank for refund, if required.

Q15. What if a customer makes a payment during the moratorium period?

If a customer makes any payment against the credit card outstanding during the moratorium period, the interest would be levied on the remaining outstanding amount only from the date payment is applied (as per the prevailing interest rate of the card as per the applicable terms and conditions).

Q16. A customer has already been charged late payment fees in March, how does he get the same refunded/reversed?

The Late payment fees charged in Mar’20 will continue to be a part of credit card dues and will not be reversed.

Q17. EMI has been billed in the March statement for my credit card, how does a customer get the same refunded/reversed?

EMI once billed will not be reversed and will be part of a customer's credit card dues. However, a customer can choose to not pay the Minimum Amount Due during the moratorium period to avail of its benefits. EMIs due in subsequent statements – Apr’20 and May’20 will not be billed.

Q18. Will there be any penal charges payable for return on standing instructions/ECS?

There will be no payment return charges payable during the moratorium period. Should there be any charges levied during the moratorium period, we will reverse those charges.

Q19. A customer does not want the SI to get debited for card payment, what should be done?

We will continue to present standing instruction/ECS in the month of Apr’20 and May’20. However, there will not be any payment return charges payable by a customer. If a customer does not want the bank to present the ECS / SI / NACH, he/she will need to inform the bank.

A customer may write to the bank at moratorium@citi.com to request for cancellation of future presentations. Please note:

Request should be received from registered email Id

Please mention “Credit Card XXXX” in the subject (XXXX – Last 4 digits of the card)

Please mention option (a) Refund of the payment & (b) Refund of payment and cancellation

RBI reviewing monetary policy framework, says Shaktikanta Das

The Reserve Bank of India is reviewing the retail inflation targeting framework behind monetary policy decision as well as its effectiveness and also plans to hold stakeholders consultations including with the government in June, Governor Shaktikanta Das said.

In a bid to keep inflation under specified level, the government in 2016 had decided to set up Monetary Policy Committee headed by RBI Governor entrusted with the task of fixing the benchmark policy rate (repo rate).

The six-member panel, which had its first meeting in October 2016, was given the mandate to maintain annual inflation at 4 per cent until March 31, 2021 with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.

"The monetary policy framework is in operation for three and a half years. We have initiated a process of internal review of how the monetary policy framework has worked," Das told PTI in an interview.

"We have commenced an internal review of the working of the monetary policyframework, and going forward by the middle of the current calendar year, that's by June or so, we will be holding a round table with all analysts and experts and other stakeholders to do further consultations including the government at the appropriate time," he said.

Obviously, RBI has to interact with the government because the framework is a part of the law, he said, adding, "so, naturally government has to take a view."

With regard to monetary policy transmission, the Governor said, it is steadily improving and is expected to improve further.

"Transmission is improving. If you see it was 49 basis points transmission for new loans in the December MPC. In February MPC, it has gone up to 69 basis points. So it is steadily improving," he said.

On February 6, the six member-Monetary Policy Committee (MPC) headed by Das, for the second meeting in a row, kept repo rate unchanged at 5.15 per cent but maintained accommodative policy stance which implies it was biased in favour of cutting rate to boost growth.

Prior to going for status quo on rates in December, the central bank had slashed rates five consecutive times that resulted in a cumulative 1.35 per cent decline in repo rate.

On RBI aligning its financial accounting year with that of union government, Das said, the current financial year will end in June while next financial year starting July one would end on March 31.

"So, the current year will go on till June. It will have 12 months. Next accounting year will start on July 1 and end on March 31, he said.

So the central bank would prepare a truncated balance sheet for a period of nine months (from July 2020 to March 2021). Following next year, the full fiscal year of the RBI will start from April 1, 2021.

With this move, the RBI will do away with nearly eight decades of practice. The RBI, which was established in April 1935, used to follow January-December as its accounting year before it was changed to July-June in March 1940.

The change in accounting year is in line with the Bimal Jalan Committee on Economic Capital Framework (ECF) suggestion of a change in RBI's accounting year to April-March from the financial year 2020-21.

It said the RBI would be able to provide better estimates of projected surplus transfers to the government for the financial year for budgeting purposes.

Top 10 business headlines: Govt seeks RBI interim dividend, telcos get help

Govt seeks Rs 10,000-cr interim dividend from RBI

The government has demanded Rs 10,000 crore as interim dividend from the Reserve Bank of India (RBI) for financial year 2019-20 (FY20) to bridge the fiscal gap, sources said. The demand—for the third consecutive year-comes at a time when the government is falling short of its revenue targets due to dwindling tax and low disinvestment receipts.

Govt to go easy on telcos till SC hearing on AGR

Even as telecom companies including Bharti Airtel and Vodafone Idea missed the January 23 deadline to pay up their dues linked to adjusted gross revenues (AGR), the Department of Telecommunications (DoT) has protected the industry from any coercive action till the Supreme Court hears the matter next week.

Sebi may seek forensic audit of Infosys books

Markets watchdog Sebi is likely to call for a forensic audit of the books of Infosys as it continues to probe whistleblower allegations of alleged financial irregularities at the company, according to news agency PTI. In October, Infosys informed stock exchanges about the anonymous whistleblower complaints alleging certain unethical practices.

Key firms post sub-par pre-tax Q3 profits

The earnings season of October-December 2019 quarter of financial year 2019-20 (Q3FY20) has got off to a dull start for corporate India, as pre-tax profit growth for early birds was second lowest in seven quarters, while net sales growth hit a three-year low. The combined profit before tax (PBT) of 143 early companies that declared their Q3FY20 results was up 12.3 per cent year-on-year (YoY) led by decline in raw material and energy costs.

GoAir cuts flights as Airbus A320Neo planes grounded

GoAir has said it is curtailing its schedule till March 9 due to grounding of its Airbus A320Neo planes and non-availability of spare engines. The airline said it has been forced to “temporarily suspend certain flights that are part of its network.” Sources said 20-30 flights would be curtailed per day. GoAir operates over 325 flights daily.

Coffee Day Enterprises to sell brokerage business

Coffee Day Enterprises (CDEL) said it has entered into a definitive agreement to sell its brokerage business ‘Way2Wealth Securities’ to Shriram Ownership Trust. The Bengaluru-headquartered firm didn’t reveal the enterprise value of ‘Way2Wealth Securities’, but sources said that the deal could be somewhere around Rs 200 crore.

Housing sales fall 9% in December quarter

The plight of real estate developer and suppliers is far from the end. Despite government’s recent measures to revive the sector by injecting liquidity into the system and easing norms for unfinished projects, both sale and new launches plunged further in October-December quarter. Data from PropEquity show, while sales fell 9 per cent year on year to 60,453 units, new launches declined 10 per cent to 44,459 units.

BJP wants rural, infrastructure push in Budget

The BJP has told Finance Minister Nirmala Sitharaman that the Union Budget should strive to shift the focus from macroeconomic parameters, such as reining in fiscal deficit and inflation, to “real problems” facing the economy. The party has diagnosed that emphasis on meeting fiscal targets and controlling inflation needs to be overcome to spur growth.

One nation, one road tax may soon be a reality

The government is making a renewed push to get states on board to levy a uniform road tax for personal vehicles across the country, Mint reported quoting a senior government official. The move is expected to bring relief to automobile buyers, while also helping protect revenue of states as some consumers tend to purchase vehicles in states with lower taxes, resulting in a loss of revenue for those with higher taxes.

Banks cite reason for not reimbursing payment firms

Banks have told the National Payments Corporation of India (NPCI) that in the absence of fees from merchants, lenders can’t reimburse companies such as PhonePe and Google Pay that process and accept digital transactions on their behalf. At the centre of this demand is New Delhi’s decision to remove the Merchant Discount Rates (MDR) for all digital transactions made through UPI and RuPay instruments, a federal move that has annual cost implication of ₹2,000 crore for the lenders, reports the Economic Times.

Finance ministry counters RBI, says stress in banking sector declining

The finance ministry on Saturday said the overall stress in the banking sector was declining, a day after the Reserve Bank of India (RBI) said in a report that the gross non-performing asset (NPA) ratio of banks was set to increase.

“It (the RBI’s report) is contrasting its earlier report released a few days back, which showed that NPAs are on a declining trend. You should also look at the stressed assets to total assets ratio, which has come down significantly. Further, SMA (special mention accounts)-1 and SMA-2 have come down drastically. So we are on a path of cleanliness and transparency,” Finance Secretary Rajiv Kumar said.

Finance Minister Nirmala Sitharaman declined to comment on it, saying the government would sit down with the RBI to understand the situation.

The gross NPA ratio of banks may increase from 9.3 per cent in September 2019 to 9.9 per cent by September 2020 “primarily due to changes in the macroeconomic scenario, a marginal increase in slippages, and the denominator effect of declining credit growth”, according to the RBI’s Financial Stability Report (FSR), released on Friday.

According to the FSR, the regulator conducted macro stress tests for credit risks to assess the banking system’s resilience to macroeconomic shocks under baseline conditions. It assumed continuation of the current economic situation in the future. Kumar countered the RBI’s methodology in the FSR to arrive at the projected NPA figures by doing a stress test over a period of six-seven years.

“It’s based on default test of frauds and NPAs which have taken place over a period of six-seven years. If you take into account the previous three-four years, the picture will be totally different as the NPA of the period of stress in the past has been duly recognised today,” he added.

The net NPA ratio declined to 3.7 per cent in September 2019 from just below 4 per cent in March 2019, reflecting increased provisioning.

The government further said a report by rating agency ICRA, which showed that the bank credit was expected to grow at its slowest pace in around six decades in 2019-20, may be misleading. “This is based on loan outstanding. But it does not consider the pre-payments and recoveries which are taking place. Loan book may not show increase but credit growth is happening. A robust recovery rate will reduce the size of the loan book,” Kumar said.

RBI's policy surprise: Pause on rate cuts may hit real estate, auto sectors

The Reserve Bank of India’s (RBI’s) move to pause rate cuts will hit the beleaguered real estate and auto sectors hard. These sectors were expecting another rate cut by the central bank to help revive sagging consumer demand.

CEOs said benefits from the previous rate cuts are yet to play out completely and the real estate industry is still reeling from the liquidity crisis as consumers are not coming forward to buy new houses or cars.

Real estate developers were expecting a rate cut of 50 to 100 basis points which would have provided a boost to the government’s recent initiatives to rev up the economy.

“One-time roll over to restructure bad loans would have been a logical step across industries. Thus, the decision to wait and watch the outplay of the previous cuts will go against the current sentiments,” said Niranjan Hiranandani, MD of real estate firm Hiranandani Constructions.

A rate cut would have helped the balance sheets of builders, which are defaulting on bank loans as customers are not booking under-construction flats as they fear the developer won’t be able to complete the project in time. Several builders like Peninsula Land in Mumbai have failed to repay bank loans. Customers are not booking new homes even though builders have reduced prices of their under-construction flats by 20 per cent in Mumbai.

“Customers don't want to take any risk with an under-construction project which, in turn, has stopped the cash flow to builders,” said a Mumbai-based developer. The automobile companies said a further cut in the interest rates would have helped them sell cars to fence-sitters, who are waiting for a better deal. India’s largest carmaker Maruti Suzuki’s domestic sales fell 1.6 per cent year-on-year in November. Other carmakers, too, reported fewer sales.

“With the RBI cutting the GDP growth forecast by a whopping 170 basis points, the industry is again staring at an uncertain future,” said a luxury auto dealer in Mumbai.

At the same time, a rate cut would have helped banks and NBFCs (non-banking finance companies) to revive their sagging credit growth. Sale of new home loans and auto loans from NBFCs have slowed down after the DHFL scam came to light. ‘

The retail loan growth rate had slowed to 7.3 per cent in the first half of 2019 -- slowest growth in the last five years. On the other hand, personal loan growth accelerated to 17.2 per cent in October 2019, from 16.8 per cent in October 2018, the RBI data showed.

This comes at a time when banks are complaining that corporate credit has also slowed down to just 2-3 per cent. Barring new airports, city gas projects, and renewable power projects, there is no demand from other core sector companies, bankers said.

“Our corporate book is seeing muted growth at about 2-3 per cent. There is lack of demand from the corporates… but not because the bank is unwilling to lend,” State Bank of India’s MD Arijit Basu said.

State-owned banks account for close to 90 per cent of impaired loans, and have cumulatively written-off nearly $30 billion in bad loans in the past three years. Most of these loans were given to core sector firms.

Business climate worst since 2008 financial crisis, says RBI survey

Business climate in the recently ended September quarter was the worst since the 2008 financial crisis, according to the quarterly surveys by the Reserve Bank of India (RBI).

This shows the severity of the current slowdown, and could be the reason for the bold cut in corporation tax rates, announced last month.

Business activity contracted in Q2 FY20, the first contraction since 2013-14 and the second since the global financial crisis. Order books of manufacturing companies contracted by 23 per cent in the June quarter (Q1 FY20), the steepest drop since the 2008 financial crisis, said the quarterly survey.

Economic growth had dropped to a six-year low of 5 per cent in the same quarter. Pending orders, too, contracted, indicating a drag from the previous quarters. In the same quarter, capacity utilisation in the industry dropped to 73.6 per cent, down from 76.1 per cent in the previous quarter. This was the lowest since post-demonetisation cutback in capacity use by the industry.

The Business Assessment Index, which denotes qualitative assessment of the business climate by manufacturing companies, dropped to the lowest since the crisis. Business expectations were also subdued.

“Respondents assessed that there was a slump in order inflows, output and employment conditions in Q2 FY20. On exports and imports, there was waning optimism,” the industrial outlook survey said.

Business activityThough cost pressures on interest payments and salaries had softened, profits margins would still remain weak. Experts said this trend is strange and worrisome.

“Capacity utilisation of 76 per cent is usually a trigger point for the revival of a capex cycle. But a downturn suggests revival is out of sight. Strong contraction in new orders is extremely worrisome,” said Pronab Sen, economist and former chief statistician of India.

Similar worrisome developments were reflected in the consumer confidence survey.

Consumer confidence weakened in the September quarter while households were generally less optimistic on their income over the year ahead, according to the RBI surveys.

Sentiment on overall spending as well as essential spending remain strong, though sentiment on discretionary spending weakened, it said. This underlined the demand slowdown.

More households now expect general prices to rise in the next three months. This suggests a rise in inflation in the coming months as growth measures start to take effect.

Meanwhile, a survey of the professional forecasters showed that real gross domestic product (GDP) was likely to grow at 6.2 per cent in 2019-20 and 7.0 per cent in 2020-21. These are lower than previous estimates.

NBFCs to receive more liquidity support as RBI raises exposure limit

The Reserve Bank of India (RBI) has allowed banks’ lending to non-banking financial companies (NBFCs) for on-lending to agriculture, micro and small enterprises, and housing to be classified as priority sector lending, up to specified limits.

The RBI raised any bank’s exposure limit to a single NBFC from the existing 15 per cent to 20 per cent of tier-1 capital. The idea is to ease liquidity pressure in NBFCs.

Banks’ lending to NBFCs for on-lending to agriculture up to Rs 10 lakh a borrower will be treated as priority sector lending.

So, too, for loans up to Rs 20 lakh for micro and small enterprises and housing.

This has been done to increase the credit flow to certain sectors which contribute significantly to economic growth in terms of export and employment, and recognising the role played by NBFCs in providing credit to these, said RBI.

Sunil Mehta, chairman, Indian Banks’ Association, said this could raise credit flow to these sectors.

Karthik Srinivasan, senior vice-president at ratings agency ICRA, said: “Under the current norm, banks had to buy out the portfolios of NBFCs and if those underlying assets qualifies under priority sector lending, the banks would get the benefit of this classification. Now, it seems even direct lending by banks to an NBFC engaging in on-lending to these sectors will be so classified. On how are they going to do it, we will have to wait for the guidelines.”

In the Union Budget, the government aimed to encourage public sector banks to buy high-rated pooled assets of up to Rs 1 trillion of financially sound NBFCs. For which, it said, it would give a one-time and six-month partial credit guarantee for the first loss of up to 10 per cent.

And, the RBI had changed banks’ bond-holding norms, saying government securities of up to one per cent of the deposit base would be considered high-quality assets under Basel-III norms. This will allow banks to borrow an additional Rs 1.34 trillion exclusively for buying such pooled assets and giving loans to NBFCs.

ALSO READ: Repo rate at nine-year low after RBI announces first-ever cut of 35 bps

Raman Aggarwal, chairman, Finance Industry Development Council, says: “The increase in limit for banks on their exposure to single NBFCs will have impact only on the large NBFCs because banks would have by now hit the ceiling. The broader message is that the RBI is nudging banks to lend more.”

Adding: “In 1999, RBI had issued a circular that all bank lending to NBFCs for onward lending to all priority sectors will be classified as priority sector lending for banks. It was working perfectly because it helped banks to meet their priority sector lending targets and NBFCs were also getting funds. In 2011, RBI withdrew this. Today’s step by RBI will prove to be helpful to all NBFCs, including the large number of small and medium ones, as they will now be able to get more funding from banks.”

On NBFCs’ access to liquidity, RBI governor Shaktikanta Das said: “There are NBFCs with strong balance sheets which are able to access the market. Some NBFCs are stressed because of various factors and credit flow has not happened for them. But, then again, it is for banks to make their risk assessment and take the call.”

ALSO READ: Near decadal low repo rate may not revive economic growth, earnings yet

After the IL&FS default last year, many large NBFCs have also been struggling to get funds to even repay existing liabilities. To preserve liquidity, they have cut on disbursement. RBI has assured the sector that it will do what is required to support it.

“We have identified some 50 large NBFCs, which include HFCs (housing finance corporations) which we are monitoring. It is our endeavour to ensure there is no collapse of any systemically important or any large NBFC. In that direction, we are monitoring them and the evolving situation, and will see how it moves forward,” the governor said.

RBI lowers FY20 growth forecast to 7% over slowdown in investment activity

The Reserve Bank of India Thursday lowered the economic growth forecast for the current fiscal to 7 per cent due to slowdown in domestic activities and escalation in global trade war.

In the April monetary policy, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 per cent - in the range of 6.8-7.1 per cent for the first half of the fiscal and 7.3-7.4 per cent for the second part - with risks evenly balanced.

Data for January-March quarter 2018-19 indicate that domestic investment activity has weakened and overall demand has been weighed down partly by slowing exports, the RBI said after the meeting of the Monetary Policy Committee (MPC), which decides on key policy rates.

Weak global demand due to escalation in trade wars may further impact India's exports and investment activity, it added.

Further, private consumption, especially in rural areas, has weakened in recent months.

However, on the positive side, political stability, high capacity utilisation, the uptick in business expectations in the second quarter, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity, the RBI added.

Taking into consideration these factors and the impact of recent policy rate cuts, "GDP growth for 2019-20 is revised downwards from 7.2 per cent in the April policy to 7.0 per cent in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 with risks evenly balanced", said the central bank.

India's exports were unable to sustain the growth of 11.8 per cent observed in March 2019 and grew by 0.6 per cent in April 2019 dragged down by engineering goods, gems and jewellery, and leather products.

Tariff wars between the US and China has impacted global trade and and financial markets.

As per the Central Statistics Office (CSO), India's GDP slowed to a five-year low of 5.8 per cent in January-March quarter of 2018-19. The annual growth during the last fiscal at 6.8 per cent too was at a five year low.

RBI to buy Rs 25,000 crore of bonds in two instalments via OMO in May

The Reserve Bank of India (RBI) plans to buy Rs 25,000 crore worth of bonds in two installments from the secondary market in May, it has notified.

The first such open market operations (OMO) for the fiscal year 2019-20, amounting to Rs 12,500 crore, will happen on May 2. The date for the second auction has not been given.

This would be on top of the dollar swaps that the central bank is undertaking. The system liquidity was short of Rs 1.4 trillion as on Monday. This is despite the central bank buying bonds worth Rs 3 trillion in the last fiscal year and infusing another about Rs 70,000 crore through two dollar swaps.

The OMO plan is in continuation with the central bank’s practice in the last financial year. The RBI had spelt out how much of bonds it would purchase from the market through monthly calendars. In the OMO, the central bank would be buying bonds maturing between 2020 and 2032, it said in its notification.

RBI rate decision, macro data announcement to drive equities this week

The domestic equities market is likely to be guided by a host of key macroeconomic data announcement lined up this week, mainly the RBI interest rate decision, say analysts.

The Reserve Bank of India (RBI) interest rate decision is scheduled to be announced on April 4.

During the week, PMI data for the manufacturing and services sector, which would also influence trading sentiment, will also be released.

Auto stocks will remain in focus amid monthly sales data announcement on Monday.

Besides, foreign fund movement, trend in rupee and outcome of the US-China trade talks would also be monitored for further cues, analysts said.

Foreign institutional investors (FIIs) sold shares worth a net of Rs 86.21 crore on Friday, while domestic institutional investors (DIIs) purchased shares worth Rs 1,724.39 crore, provisional data showed.

The rupee, meanwhile, appreciated 16 paise to close at 69.14 against the US dollar on Friday.

"Investors should look for the line up events in the Indian market for this week. Where, one should keep an eye on Nikkei manufacturing PMI on Tuesday, while related to banking industry one should look for RBI's monetary policy on Thursday. Auto stocks will be in focus as sales number is coming on this week," said Debabrata Bhattacharjee, Head of Research, CapitalAim.

Over the last week, the Sensex advanced over 508 points, or 1.33 per cent, while the Nifty gained 167 points or 1.45 per cent.

"India is likely to continue its outperformance among emerging markets due to FII inflow, expectation of revival in earnings growth and political stability," said Vinod Nair, Head of Research, Geojit Financial Services.

As this week marks the beginning of the new financial year, all eyes are set on the Lok Sabha elections scheduled to be held in seven phases beginning April 11.

RBI defers launch of IndAs again, awaits amendments to the banking laws

The Reserve Bank of India (RBI) has postponed roll out of the new accounting standards (IndAS) for the second time.

It is awaiting amendments to the banking laws before adopting the norms. The central bank, however, did not specify the new date for its implementation.

In a late night statement, the RBI said the legislative amendments recommended by it are under consideration of the Centre. Acco­rdingly, it has been decided to defer implementation of the IndAS till further notice.

Earlier, at its first bi-monthly monetary policy for 2018-19 (on April 5, 2018), the RBI had postponed the launch by one year, pending necessary legislative amendments to the Banking Regulation Act, 1949, and also because some banks were not prepared for the change.

Banks, while seeking deferment of the IndAS, had called for higher capital for bad loan provisioning, pending legislative amendments, and delay in finalising rules by the RBI as some of the reasons.

The government has given capital to banks with great difficulty and banks are under pressure to improve their financials. The IndAS will further add to banks’ compliance burden, especially for loan-loss provisions, bankers had said.

The loan-loss provision under the IndAS is recognised based on the expected credit loss (ECL) model. Here, a bank has to make provisions based on its historical loan-loss experiences. It also has to factor in future expectations and the economic environment it operates in.

Moreover, the RBI is yet to come out with specific guidelines on particular accounting items, and banks are in the last few days of the financial year.

Banks would also need to evaluate software system changes covering assessment of processes and develop as well as strengthen data capture systems.

There will be changes required in the software also. So, it seems difficult to implement this from April, bankers had pointed out.

After the deferment last year, many banks had put the work of changing software and systems on the back burner, according to the head of an accounting advisory with a multinational consultancy.

The implementation of such changes would take at least a quarter. In 2016, the RBI, in a preparatory guidance note for the IndAS, had asked banks to conduct a diagnostic analysis of differences between the two accounting frameworks.

Banks, on their part, are conducting parallel accounting based on the IndAS. Banks would be required to prepare financial statements for the financial year beginning April 2019 as well as for the previous year for comparative purpose under the IndAS.

Also, changes in the legislation are unlikely to happen with Lok Sabha elections round the corner.

Non-banking financial companies, another group of financial sector players under the RBI’s regulation, have already migrated to the IndAS regime in the current financial year.