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BUSINESS AND ECONOMY - July 2019

Jul 2019

Jul 16, 2019

Private Carriers Make Hay

  •  After the closure of Jet Airways, the international segment continues to offer huge opportunity for Indian airlines, mainly private carriers, as Air India is shying away from aggressive capacity expansion.
  • According to a report by ICICI Securities Ltd, Air India could manage to increase its international capacity by only 1% in the first two months of FY20.
  • While IndiGo could increase its international capacity share from 15% in the first two months of FY19 to 19% in the first two months of FY20, SpiceJet managed to grow it from 22% to 24% in the same time period.
  • GoAir has been able to take its international capacity share to 10%, ICICI Securities said in a note.

Exports Contract

  •  India's merchandise exports contracted for the first time in nine months in June 2019 while imports shrank first time in four months, signalling that rising protectionism and trade tensions between the US and China are impacting India's trade prospects as well.
  • Data released by the commerce ministry showed exports in June 2019 fell 9.71% to $25.01 billion, while imports dipped 9.06% to $40.29 billion, leaving behind a trade deficit of $15.28 billion during the month.
  • Comparatively, China's exports in June 2019 fell 1.3%, while imports shrank 7.3%, leading to a trade surplus of $50.98 billion, significantly higher than what analysts projected.
  • Commerce secretary Anup Wadhawan said the temporary shutdown of ONGC Mangalore Petrochemical Ltd and Jamnagar refinery for maintenance in June 2019 adversely impacted exports of petroleum products.

RBI Fines Banks for Flouting Norms

  •  The Reserve Bank of India (RBI) penalised State Bank of India and Union Bank of India for violating certain regulatory guidelines.
  • SBI was fined Rs. 7 crore for non-compliance with the directions issued by the RBI on Income Recognition and Asset Classification (IRAC) norms, code of conduct for opening and operating current accounts and reporting of data on Central Repository of Information on Large Credits (CRILC), and fraud risk management and classification and reporting of frauds.
  • RBI said that the statutory inspection of the bank with reference to its financial position as on March 31, 2017 revealed that the lender had violated those norms.
  • The central bank also imposed a Rs. 10-lakh fine on Union Bank for non-compliance with the directions on the cyber security framework in banks issued by the RBI.
  • In 2016, the RBI carried out an examination of the cyber security framework after reports of generation of seven fraudulent messages worth $171 million through the SWIFT system of the bank.

Aditya Birla Fashion Buys Stake in Finesse

  •  Aditya Birla Fashion and Retail Ltd (ABFRL), which owns brands such as Louis Philippe, Peter England and Van Heusen, acquired a 51% stake in Finesse International Design that retails bespoke ceremonial wear and contemporary apparel for men and women under the Shantanu and Nikhil brand for Rs. 60 crore.
  • The acquisition comes a month after ABFRL acquired ethnic apparel and lifestyle retailer Jaypore for Rs. 110 crore.
  • The latest acquisition would help ABFRL expand its presence in the branded ethnic apparel and accessories market covering both bespoke ceremonial wear and prêt lines. 
  • The acquisition is a combination of primary equity infusion and secondary share purchase.
  • ABFRL would not only grow the brand's existing couture business but also launch new ready-to-wear collections to extend the reach of the brand across more consumer and market segments.
  • Finesse was set up in 2007 and runs five stores selling bespoke ethnic wear and contemporary Indian designs by Nikhil Mehra and Shantanu.
  • It owns the brand Shantanu and Nikhil under which it also sells apparel, footwear and accessories.

IL&FS Invites Bids to Sell Office Space

  •  Infrastructure Leasing and Financial Services (IL&FS) invited expression of interest from potential buyers to sell its commercial office space in Gujarat International Finance Tec-City (GIFT City). It expects Rs. 480 crore from the sale of two towers at GIFT City.
  • The 9,600 sq. m of office space in the buildings, known as GIFT One and GIFT Two, are held by Sabarmati Capital One Limited and Sabarmati Capital Two Limited, wholly owned subsidiaries of IL&FS Township & Urban Assets Limited, which, in turn, is a wholly owned subsidiary of IL&FS.
  • Separately, IL&FS entered into an agreement with secured lenders of three group entities that have a debt of Rs. 5,071 crore, as part of the resolution process.
  • A binding term sheet was signed with secured lenders of three entities — Moradabad Bareilly Expressway Ltd., Jharkhand Road Projects, and West Gujarat Expressway Ltd.
  • The company said that total debt across these three entities is around Rs. 5,071 crore, of which Rs. 3,242 crore is from secured lenders and Rs. 1,829 from unsecured lenders.
  • The revised proposal involves certain concessions and modification of terms of financial debt availed by these entities from lenders.

DHFL Needs Equity Infusion to Survive

  •  Mortgage lender Dewan Housing Finance Corp. Ltd (DHFL) needs between Rs. 2,500 crore and Rs. 3,000 crore of fresh equity investments to sustain lending operations.
  • DHFL, which declared its worst quarterly loss of Rs. 2,224 crore, said in its notes to accounts that the National Housing Bank has restated the company's FY18 capital adequacy ratio, which measures a bank's capital in relation to its risk-weighted assets, at 10.24%, lower than its own assessment of 15.29% and the regulatory minimum of 12%.
  • The company, however, said it does not concur with the housing finance regulator's observation and would provide an appropriate response.
  • Yet, DHFL's survival hinges on additional capital inflows. Unless it finds fresh money, many lenders, especially banks, would be reluctant to give fresh loans.
  • These loans would enable DHFL to on-lend to some committed but unfinished projects, which would then fetch interest income. 
  • The mortgage lender was the worst hit by the liquidity crisis triggered by defaults at Infrastructure Leasing and Financial Services Ltd (IL&FS) that dried up access to funds for many non-banks.

Jul 14, 2019

Sachin Bansal Invests in Piramal Debt

  •  Flipkart co-founder and tech entrepreneur Sachin Bansal has invested Rs. 200 crore in debt paper issued by Piramal Enterprises Ltd.
  • Bansal subscribed to non-convertible debentures (NCDs) issued by Piramal Enterprises, which has business interests in pharmaceutical and financial services.
  • Bansal's loan to Piramal Enterprises follows investments by him in debt deals worth more than $100 million.
  • In February, 2019, the co-founder of e-commerce major Flipkart has invested Rs. 250 crore each, via debt, in non-banking financial companies (NBFCs) Altico Capital India Ltd and IndoStar Capital Finance Ltd.
  • The investment was made through BAC Acquisitions Pvt. Ltd, the holding company Bansal started with investment banker Ankit Agarwal.
  • The debt investments in Altico and IndoStar marked a broad basing of Bansal's investment strategy, who had till then largely invested his billion-dollar fortune in technology start-ups.

Allahabad Bank Reports Fraud

  •  The Allahabad Bank became the second Indian state-owned bank to report a major alleged fraud by bankrupt steelmaker Bhushan Power & Steel Ltd in July 2019.
  • Allahabad Bank said that it had told the Reserve Bank of India (RBI) that it had identified a fraud worth $259 million in Bhushan's accounts.
  • Earlier in July 2019, state-run Punjab National Bank (PNB) had reported an alleged fraud of $554.6 million in the steelmaker's accounts.

Jul 13, 2019

Infosys Raises Revenue Outlook

  •  Tech bellwether Infosys posted 'encouraging' first quarter revenue numbers on the back of strong deal wins and robust growth in its digital transformation business.
  • Buoyed by these, the company has revised its revenue growth guidance upwards for FY20.
  • However, the company said that growing attrition had been a major cause for concern.
  • For the quarter ended June 30, 2019, Infosys's revenue was Rs. 21,803 crore, a growth of 14% year-on-year (YoY) and 1.2% quarter-on-quarter (QoQ). 

SBI to Waive IMPS Charges

  •  State Bank of India waived charges on NEFT and RTGS transactions through Internet and mobile banking from July 1, 2019 after the Reserve Bank of India decided to do away with the charges with an aim to move the country towards less-cash economy.
  • The country's largest bank, which has about 25% market share, also decided to do away with the charges on fund transfer through mobile phones using the IMPS (Immediate Payment Service) from August 1, 2019.
  • The Real-Time Gross Settlement (RTGS) system is meant for large-value instantaneous fund transfers, while the National Electronic Funds Transfer (NEFT) system is used for fund transactions of up to Rs. 2 lakh.
  • Before July 1, 2019, SBI used to charge between Rs. 1 and Rs. 5 for transactions through NEFT, and Rs. 5 to 50 for RTGS transactions.

Jul 12, 2019

L&T bags Significant Orders

  •  Infrastructure company Larsen & Toubro (L&T) received significant orders across various business segments in the domestic and international market.
  • The company did not provide value of the contracts but said the orders fall under "significant" category which ranges between Rs. 1,000 crore and Rs. 2,500 crore as per its classification of contracts.
  • The construction arm of L&T secured orders from prestigious clients across various Indian states for its varied businesses. 
  • L&T's power transmission and distribution business secured orders for multiple clients in the domestic and international markets. 
  • The company's heavy civil infrastructure business' defence unit secured order from one of the major defence PSUs for the construction of a strategic project for the Indian Air Force. 
  • L&T's water and effluent treatment business secured orders from the Gujarat Water Infrastructure for MS pipeline from Brahmani Dam-2 to Chakampar village (Package II) and from Chakampar village to Nava Sadulka (Package III) including its operation and maintenance for five years in Morbi district, Gujarat.   

Amnesty for Commercial Tax Disputes

  •  The Union government is set to open a three-month window for taxpayers to resolve existing excise and service tax disputes on a no penalty, no interest, no prosecution principle in a new one-time scheme that aims to monetise a chunk of the Rs 3.75 lakh crore of disputed taxes stuck in various tribunals.
  • The Union finance ministry, which is working on the details of the scheme, would announce it soon to fulfil two objectives — augment its revenue in the current financial year, and settle old legacy issues from the previous indirect tax.

Bank of Baroda to Foray into E-commerce Business

  •  Bank of Baroda plans to launch an online marketplace to its customers offering banking services and farm-related products. 
  • The state-owned lender invited bids seeking a partner to supply 'digital commerce platform' to provide assistance to merchants on catalog management, purchase management fulfilment, pricing, promotion and other similar services. 
  • Bank of Baroda is keen to strategise and enhance online digital capabilities with a focus on creating a marketplace to fulfil services relating to different segments of customers' daily needs and lifestyle needs. 
  • The bank would offer various kinds of banking services and farm-related products on its e-commerce platform.
  • The online platform partner would be required to provide assistance to merchants on catalog management, purchase management fulfilment, pricing, promotion and other similar services.

Carlos Slim's Bank to Acquire Stake in Brazil Unit

  •  As per reports, Brazilian antitrust watchdog Cade approved Mexican lender Inbursa's acquisition of a roughly 33% stake in the Brazilian unit of payment technology company Global Payments Inc.
  • Inbursa, which is controlled by the family of billionaire Carlos Slim, intends to have a card processor business in Brazil through Banco Inbursa SA.
  • Inbursa informed it that Global Payments and Slim's Brazilian subsidiary of America Movil may forge a partnership in the future.    

GIC, ADIA Invest in Hyderabad-based Greenko Energy

  •  In one of the largest funding rounds by an Indian clean energy producer, sovereign wealth funds GIC Holdings Pte. Ltd and Abu Dhabi Investment Authority (ADIA) agreed to pump in an additional $329 million in Greenko Energy Holdings.
  • This fresh tranche follows the $495 million investment in June 2019 by the sovereign wealth funds in Greenko to build power storage projects.
  • With multilateral and bilateral agencies, as well as sovereign wealth funds, not showing interest in businesses contributing to climate change, the two sovereign funds have so far infused $2.2 billion in Greenko (including the fresh round), which was founded by Mahesh Kolli and Anil Kumar Chalamalasetty.
  • Greenko Energy Holdings (Greenko), one of India's leading renewable energy companies, announced the signing of definitive agreements for a primary equity raising of $824 million, which includes a previously announced $495 million raising towards IREP (integrated renewable energy project) Projects Equity commitment, from an affiliate of GIC and by the Abu Dhabi Investment Authority (ADIA).
  • The investment comes in the backdrop of a power sector package, comprising a new tariff policy and structural reforms in the offing, announced by finance minister Nirmala Sitharaman in her budget speech.
  • While GIC and ADIA hold 61% and 15%, respectively, in Greenko, Kolli and Chalamalasetty own the remaining 24%.
  • Greenko has a total renewable energy operational capacity of 4.2 gigawatts (GW), with 7GW under construction.

Jul 11, 2019

India Inc.'s FDI Down

  • According to data from the Reserve Bank of India (RBI), India Inc.'s foreign direct investment in June fell by over two times from a year ago to $820.36 million.
  • The outward foreign direct investment (OFDI) by the Indian firms stood at $2.29 billion in the year-ago same month.
  • In May, the Indian firms had invested over $1.56 billion in their overseas ventures.
  • Of the total overseas direct investment during June, $340.28 million was in the form of equity infusion, $222.06 million was through loan and $258.02 million came in through issuance of guarantee.
  • Among the major investors included ONGC Videsh Ltd. $61.74 million in its various joint ventures in Myanmar, Russia and Vietnam; Asian Paints $43.45 million in a wholly-owned unit in Singapore and Alok Infrastructure $24 million in a wholly-owned subsidiary in the British Virgin Islands.

OBC Cuts MCLR

  • Oriental Bank of Commerce (OBC), a public sector bank, cut its Marginal Cost of Fund-based Lending Rate (MCLR) by 5-10 basis points across various tenors.
  • A basis point is one hundredth of one percentage point. While OBC's one-year MCLR now stands reduced at 8.65 per cent from 8.70 per cent, the six months' MCLR was reduced to 8.55 per cent from 8.60 per cent earlier.
  • The latest revision in MCLR is applicable from Thursday till the next review by the bank. MCLR refers to the minimum interest of a bank below which it cannot lend.

Change in Timings for Foreign Exchange Market

  • An internal committee of the Reserve Bank of India (RBI), which was set up to review timings of different financial markets, suggested that the foreign exchange market could function from 9 am to 9 pm At present, the currency market works from 9 am to 5 pm.
  • "Calibrated extension of market hours, and to begin with, revised market timings of 9 am — 9 pm, may be considered to gauge demand and potential benefits," the draft report of the committee said.
  • The report noted that there are mixed views on the benefits of extension of market timing.
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