QBiz: Surge in Bad Loans; Banks Set to Slash Interest Rates & More

The Quint brings you the top stories in the world of business from dailies across India. 

Published
Business
5 min read
The worst of the bad loan problem plaguing Indian banks may not be over just yet.(Photo: Reuters)

1. Demonetisation Drive Ends Today

First the good news. Demonetisation has crippled the parallel economy thriving mostly around gold and real estate.

Black money will make a strong comeback once liquidity returns to various markets, economists opine. Demonetisation has applied the brakes on economic progress due to low liquidity in the system.

Usage of cards — credit and debit — has grown four-fold in number of transactions since November 8. Average ticket size of card transactions has fallen, signalling card usage for low-ticket daily purchases. But a totally cashless society may well be a pipe dream and the clamour for cash will persist.

2. Bad Loans May Surge To Above 10 Percent By March 2018, Cautions RBI

The worst of the bad loan problem plaguing Indian banks may not be over just yet.

The Reserve Bank of India (RBI), in its Financial Stability Review (FSR) released on Thursday, has cautioned that gross non performing assets (NPAs) for the banking system could rise further to 9.8 percent by March 2017 from 9.1 percent in September. This ratio, under the baseline scenario of economic growth, could rise 10.1 percent by March 2018.

If macroeconomic conditions deteriorate further, the bad loan ratio may even increase beyond those levels, said the central bank.

The RBI, in its December monetary policy review, had reduced its growth forecast for the year to 7.1 percent from the earlier estimate of 7.6 percent. Private forecasters expect growth to fall below those levels due to the impact of the government’s decision to withdraw notes of Rs 500 and Rs 1,000.

(Source: BloombergQuint)

3. Raghuram Rajan on Democracy, Inclusion and Prosperity

It is a truism that people everywhere want to live in a safe, prosperous country where they enjoy freedom of thought and action, and can exercise the democratic right to choose their government. But the world faces a disarming question in 2017 and the years ahead: How can we be sure that political freedom and economic prosperity go together?

The American political scientist Francis Fukuyama has argued that liberal democracies, with their political freedom and economic success, have three important pillars: A strong government, the rule of law, and democratic accountability. I would add a fourth: Free markets.

Strong government doesn’t mean simply military power, or an efficient intelligence apparatus. Instead, it should mean effective, fair administration—in other words, “good governance”.

(Source: Livemint)

4. Business Giants Bring in Investments Worth Over Rs 3.30L Crore in Telecom Space

Prime Minister Narendra Modi-led NDA government has received more than Rs 3.30 lakh crore, or 70 percent of the proposed investments, in less than two years of the commitments, led by country’s top business houses including Mukesh Ambani’s Reliance Industries and Kumar Mangalam Birla-driven Aditya Birla Group.

“Rs 3.30 lakh crore has already come in with a large part in the telecom sector from companies like the Aditya Birla Group and Reliance Industries. Companies have also made investments in the manufacturing segment,” Aruna Sundararajan, secretary at the Ministry of Electronics and Information Technology (MeitY), said.

5. Cash Withdrawal Limits to Be Rolled Back in Phases

The government is proposing a staggered relaxation of existing restrictions on cash withdrawals from banks after 30 December.

This is aimed at smoothening the transition as the Reserve Bank of India (RBI) supplies new currency notes to replace the Rs 500 and Rs 1,000 notes withdrawn after demonetisation, said a person familiar with the development.

The withdrawal limit for an individual at present is Rs 24,000 per week from a bank and Rs 2,500 per day from an ATM.

Separately, finance minister Arun Jaitley told select media that robust revenue collections and winter crop sowing suggest that the 50-day demonetisation exercise had benefited the economy.

(Source: Livemint)

6. Small Industries Now Entitled To More Working Capital Credit

The Reserve Bank of India has advised banks to provide additional working capital to micro and small industries in the aftermath of the demonetisation. In a notification issued on Thursday, the RBI asked banks to consider providing additional credit to small companies till 31 March to help them tide over the cash crunch following the decision to demonetise old Rs 500 and Rs 1,000 notes in November.

In a circular last year, the RBI had urged banks to consider extending additional credits to small and micro industries in the event of unforeseen or seasonal increase in demand of products produced by them.

In light of that circular, the central bank on Thursday said that it received reports of business owners facing difficulties after withdrawal of high-denomination currency notes, which prompted the decision.

(Source: BloombergQuint)

7. Myntra's App-Only Move Slowed Down FY16 Sales Growth

Online fashion retailer Myntra, which is owned by Flipkart, reported a sharp slowdown in sales growth for the year ended March 2016, as its move to become an app-only platform alienated customers.

For the financial year 2015-16, Myntra Designs Pvt. Ltd, the holding company for Myntra’s marketplace platform, reported revenue of Rs 1,069 crore, compared with Rs 773 crore a year earlier. Losses widened to Rs 816 crore, from Rs 741 crore a year earlier, according to regulatory filings sourced from data platform Tofler.

The 38 percent increase in sales in the last financial year reflects a slowdown in growth for Myntra from the past two years, when its sales expanded by at least 75 percent.

(Source: Livemint)

8. After Govt's Nudge, Banks Set to Slash Interest Rates in Next Few Days

Nudged by the government, banks are poised to slash interest rates in the next few days as they move in lockstep with the administration to lift the spirits of borrowers following the dislocation caused by demonetisation.

Bankers said the reduction in lending rates could be accompanied by a steeper cut in deposit rates. Large commercial banks currently pay about 7 percent for one-year deposits and charge 8.9 percent for loans of the same tenor. A senior bank official said the government has sought to persuade banks to lower rates on the grounds that the cost of deposits had dropped due to demonetisation and the benefits should be passed on to customers to boost consumption.

9. Alibaba to Open Its First India Office

Alibaba, largest e-commerce entity in China, is setting up its first India office in Mumbai, apparently an indication that it plans to step up investment in the country in the coming year.

So far, the Jack Ma-founded enterprise has been a preferred platform for small businesses in India to source industrial goods from China. Alibaba has invested in Indian e-commerce company Snapdeal, and in Paytm, the mobile payments service platform, through Ant Financials, its payment arm.

It has, though, kept its plan to enter e-commerce in India under wraps. By setting up a office at Platina in the Bandra-Kurla Complex (BKC) in Mumbai, closer to that of US rival Amazon, it appears to now be signalling the intent that it is serious on entering.

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