2017
Volume 9
THIS MONTH
In this issue, Mr. Anand Natarajan, Head of Strategy and Business Execution, Fullerton India
Credit Company Ltd. has presented his views on Key Consideration for NBFCs. We thank Mr.
Natarajan for his contribution to the APAS Monthly publication.
This month, the APAS column presents its views on consolidation in banking.
The economic indicators showed mixed performance. Manufacturing PMI increased from 47.9 in
July to 51.2 in August 2017. The growth of core sectors increased to 4.9% in August. India's Index
of Industrial Production (IIP) increased by 1.2% in July 2017 over July 2016. PMI services and
composite PMI increased from 45.9 and 46 in July to 47.5 and 49 in August, respectively. Inflation
increased to 3.36% in August from 2.36% in July. Wholesale Price Index (WPI), increased to
3.24% in August from 1.88% in July.
The Reserve Bank of India (RBI) has given its stance on Monetary policy. The RBI has released
amendments to Master Directions – Reserve Bank of India (Financial services provided by Banks)
Directions, 2016. Also, the limits for investments by Foreign Portfolio Investors (FPIs) in
Government Securities Medium Term Framework for the next quarter Oct-Dec 2017, have been
revised.
The Insurance Regulatory and Development Authority of India (IRDAI) issued a notification for
clarifications on Guidelines on insurance e-commerce and electronic issuance of insurance
policies.
APAS
MONTHLY
The Union Cabinet approved rationalization/merger of the Government of India Press (GIPs) and
their modernization.
Securities and Exchange Board of India (SEBI) amended SEBI (Infrastructure Investment Trusts)
Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014.
We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts, and
encourage you to share them with us.
Ashvin parekh
On the cover
GUEST COLUMN
Mr. Anand Natarajan
Head of Strategy and Business Execution - Fullerton India Credit
Company Ltd.
Key Considerations for NBFC’s
APAS COLUMN
Consolidation in Banking
ECONOMY
➢ Index of Industrial Production – July
➢ Inflation update – August
➢ PMI update – August
➢ Core Sector update – August
BANKING
➢ RBI’s Fourth Bi-Monthly Monetary Policy, 2017-18
➢ Amendments to Master Direction- Reserve Bank of India
(Financial Services provided by Banks) Directions, 2016
➢ Investment by Foreign Portfolio Investors (FPI) in
Government Securities Medium Term Framework
INSURANCE
➢ Clarifications on Guidelines on insurance e-commerce and
electronic issuance of insurance policies
INFRASTRUCTURE
➢ Cabinet approves Rationalization/Merger of the Government
of India Press (GIPs) and their modernization
CAPITAL MARKETS
➢ Amendments to the SEBI (Infrastructure Investment Trusts)
Regulations, 2014 and SEBI (Real Estate Investment Trusts)
Regulations, 2014
CAPITAL MARKET SNAPSHOT
ECONOMIC DATA SNAPSHOT
Non-bank finance companies have historically played a pivotal role in providing formal financing solutions
to sectors of the Indian industry that have typically been under-attended to. A deep local connect, an
understanding of the sector being serviced and an ability to underwrite assets not normally within banking
remit allowed these institutions to become an important source of MSME and rural financing. Important
though they were, the absence of a comprehensive regulatory oversight in the manner of banks, and the
largely family/privately owned nature of these entities meant that these institutions were usually
regarded as non-mainstream financial service corporates.
This perception, however, has seen a major shift over the last decade. Strengthened regulatory oversight
and capitalisation standards, and expansion of shareholder base to include professional investors have
led to improved transparency and a resultant increasing recognition of these entities as mainstream
financial institutions. Most institutions are now run professionally, to strong and improving governance
standards – with some of the larger institutions even operating in the nature of broad-spectrum financial
services conglomerates.
At about 15% of credit being supplied by NBFCs, they now represent a major pillar of the Indian economy,
and provide much needed financial support to the hitherto excluded ‘bottom of the pyramid’ and MSME
segments. These are also segment that have to grow at a rate much faster than has been observed, for
the country to deliver a ~ 8% GDP growth and to generate employment – and this is a developmental
responsibility that NBFCs will have to continue to shoulder.
The constraints to fully unleashing the energy of the NBFC sector – to deliver to these goals are relevant
to understand, but these are also relatively easy to address:
Access to funding
Unlike banks, most NBFCs need to rely on wholesale financing to fund their asset book. The nature of
funding, reliance on a generally limited source of financing (and often competing with alternate
deployment options that the lenders need to balance) expose the institutions to potential vulnerability,
especially under volatile monetary and/or economic conditions (with the flow-through convulsive effect
on borrowers), and present a potential cap to the size that these institutions can grow to.
Key Considerations for
NBFCs
Mr. Anand Natarajan, Head of Strategy and Business
Execution - Fullerton India Credit Company Ltd.
A pressing need is to enable these institutions diversify their funding pools and obtain access to more
durable funds. Systemically important NBFCs – today – are better capitalized, governed and more
rigorously regulated than earlier. Under these circumstances, the regulator should consider allowing
systemically important institutions – access to two specific pools of liquidity: (a) retail liabilities and (b)
refinance windows from RBI.
Retail liabilities offer mutually valuable incentives to the borrower and to the depositor: borrowing NBFCs
benefit from a more sticky liability base that affords more stability and - especially given the under-banked
segments that NBFCs operate in – an opportunity for depositors to enter the banking system.
Refinance windows – especially under volatile market conditions – offer a degree of stability and
assurance to the NBFCS – and – with the liquidity support so available – provide a degree of assurance to
wholesale lenders as well, that extreme shocks will not derail such systemically important NBFCs.
Risk Weighting and Capitalisation
Capitalisation requirements of NBFCs have been enhanced over time, and now present a strong buffer
against asset quality and underperformance. There is empirical evidence that these capital buffers have
enabled larger NBFCs manage through portfolio turbulence of varying severity without experiencing
existential challenges.
Tighter NPA provisioning norms, more stringent capital adequacy standards and the convergence in
accounting standards obtained through Ind AS are reducing the degrees of separation between Banks and
NBFCs. In this context, it is important that the manner in which capital adequacy is computed and the risk
weights that should apply over asset classes also converge.
Unlike NBFCs, which attract a uniform risk weight across asset classes, banks benefit from differentiated
risk weights being applied over various asset classes, and reliance on credit ratings to moderate weights
over lending portfolios. Applying reasonably similar weight over various asset classes – reflecting the
underlying risk – will benefit the NBFC sector in two ways:
a. This will reflect the true underlying risk of the relevant asset class and allocate the right level of
capital to the appropriate underlying risk and
b. This will incentivize the NBFC to shape the book in a more balanced manner, and importantly,
price appropriately for risk.
Differentiated Treatment
It is recognized that NBFCs cannot entirely be compared with banks and regulatory flexibility will vary.
There are however areas of operational differentiation that are at times imposed – that impact the ability
of NBFCs to operate effectively, at times even enhancing risk. Examples include
a. the inability of NBFCs (notwithstanding the fact that they are regulated entities and also have a
reporting obligation to FIO) to accept demonetized currency notes from customers as loan
installment obligations (although banks were permitted to accept such notes) – a measure that
impacted ability of NBFCs to collect their dues, with the consequent goodwill decline across
borrowers and delinquency increases and
b. inability to collect cash above INR 200,000 per day as loan installment obligations, which is at
variance with banks who – for the same customer segment – can collect cash
c. differential tax treatment of interest on NPAs between banks and NBFCs
Ironing out such asynchroncities – if just for the better rated and systemically important NBFCs – will serve
the enhance the effectiveness of these entities to operate better and fulfil the obligation that they hold –
viz. improving financial inclusion and fueling the growth of the MSME segment.
The Union Cabinet has given in-principle approval for Public Sector Banks (PSBs) to amalgamate through
an Alternative Mechanism (AM). In 1991, it was suggested that India should have fewer but stronger PSBs.
However, it was only in May 2016 that effective action to consolidate PSBs began to be taken by
announcing amalgamation of 6 banks into State Bank of India (SBI). Bharatiya Mahila Bank and 5
subsidiaries of SBI were absorbed into SBI. The merger was completed in record time, unlike earlier
mergers of State Bank of Indore and Saurashtra. SBI is now a single bank with about 24,000 branches, over
59,000 ATMs, 6 lakh POS machines and over 50,000 BCs.
There are now 20 PSBs other than SBI. The banking scenario has changed since 1970-80 when banks were
nationalized, with an increased banking presence from private sector banks, non-banking finance
companies (NBFCs), RRBs, payment banks and SFBs.
Historically, most bank mergers have been offshoots of the central bank’s efforts to protect the financial
system and depositors’ money and very few of them have been driven by the need for consolidation and
growth, right from 1969, when Bank of Behar was merged with SBI, to 2015, when Kotak Mahindra Bank
took over ING Vysya Bank. The only instance of a state-owned bank being merged with another was in
1993, when New Bank of India was merged with Punjab National Bank, which was not a voluntary merger.
The Cabinet decision is expected to facilitate consolidation among the nationalized banks to create strong
and competitive banks in public sector space to meet the credit needs of a growing economy, absorb
shocks and have the capacity to raise resources without depending unduly on the state exchequer. Hence,
it would be interesting to see how the mergers are done and whether they would help in the consolidation
of PSBs.
Based on the description provided in the approval framework, the process of PSB consolidation could be
envisaged in four phases and PSBs could follow the below approach for consolidation. The first phase in
the process is shortlisting a possible partner suiting the requirements. Based on detailed diligence, cost-
benefit analysis, cultural fit, synergies and various other parameters, the process can move forward. The
required communication and agreement between parties can then be achieved with mutual consent. The
Consolidation in
Banking
second phase involves preparation of a merger scheme. Once the partner is selected, the merger scheme
needs to be prepared and presented to the Cabinet. Upon its approval, the third phase of implementation
of merger scheme shall start. After preparation and approval, the merger scheme needs to be
implemented. The banks may choose to appoint independent advisors or consultants to complete the
transaction. Once the transaction is completed, the final step of post-merger implementation has to be
effectively managed to see that all the synergies identified, in terms of technology, products and services,
branches, culture, etc. are realized.
There are different views regarding the impact that consolidation will have on the PSBs. One view is that
consolidation would be beneficial as it would help in reducing costs and achieving greater efficiency. It
would make the PSBs healthier and help them stand up to competition from global banks. The banks may
be able to avert a loss of market share to private banks and NBFCs to some extent.
However, there is another view that there would also be some challenges associated with it. Firstly, it may
be difficult to arrive at the swap ratio as the rights of minority shareholders need to be protected.
Another critical point to ponder upon is whether the relatively large banks have the ability to absorb
weaker peers. Punjab National Bank, which is the largest among them, with assets worth INR 7.21 trillion,
has gross NPAs of 12.53%, which is 92% of its capital and reserves, or net worth, as of March 2017.
Similarly, Bank of Baroda has gross NPAs of 10.46%, Bank of India has 13.22%, Canara Bank has 10.56%
and Union Bank has 11.17% gross NPAs.
Even though the merger of SBI with its associates catapulted it in the league of top 50 global banks in
terms of assets, it has not been able to escape the pain associated with it. Following the merger, its gross
NPAs jumped from INR 1.08 trillion to INR 1.79 trillion, which was a rise from 7.23% of advances to 9.04%.
While its own net profit was INR 2815 crore in the March quarter, the merged entity reported a loss of
INR 3300 crore. If this could happen to India’s largest lender following the merger of its own entities run
by the same management, the other banks could face a worse situation.
While PSBs are evaluating their options, private sector banks are also examining innovative methods of
value creation by way of acquisition of NBFCs, be it MFIs or consumer lending NBFCs. The mergers in the
past, between ICICI Bank and ITC Classic Finance, or between HDFC Bank and Times Bank, have provided
the banks good value.
In the last couple of years, IDFC Bank acquired a 9.99% stake in ASA International India Microfinance and
also acquired Grama Vidiyal Microfinance.
Recently, IDFC and the Shriram Group have agreed to finalise a merger of their financial services
businesses. All operating businesses of the two groups will come together under IDFC Ltd. The retail
consumer centric business of Shriram Capital – Shriram City Union Finance (SCUF) – will be merged into
IDFC Bank. The transport finance business will remain a standalone NBFC that would become a subsidiary
of IDFC Ltd. The proposed merger would create a financial giant that will have businesses like mutual
funds and insurance as well.
In another transaction, IndusInd Bank and Bharat Financial Inclusion Ltd. have entered into an exclusivity
agreement to evaluate the possibility of a strategic merger between them. The deal is expected to help
IndusInd Bank to scale up its microfinance book and gain deeper penetration in rural areas.
While bank consolidation is the flavor of the season, we must not forget that there is also a need for more
banks to reach the last mile. As per the Narasimham committee, a large number of regional and local
banks are needed at the lowest tier of banking structure. Additionally, the Indian banking sector is
currently facing a bad loan crisis. Consolidation is likely to help private banks, if the regulatory approvals
are in place. However, whether PSBs will truly strengthen from the government’s consolidation plans
remains to be seen. The focus should be on cleaning up the balance sheets of the banks before going
ahead with consolidation.
-APAS
IIP (Index of Industrial Production) – July
The Index of Industrial Production (IIP) witnessed a growth of 1.2% in July, rebounding from a contraction
of 0.1% in June. Improvements in performance at the mining and electricity sectors buoyed the index, with
expansion in the mining sector at 4.8%, up from 0.4% in June.
The electricity sector grew 6.5% in July, accelerating from 2.1% in the previous month.
Manufacturing, however, grew only 0.1%. Still, this was an improvement from June’s 0.4% contraction.
While the overall primary goods category of IIP grew 2.3% in July, rebounding from a contraction of 0.2% in
June, the capital goods sector continued to contract, shrinking by 1% in July following June’s 6.8%
contraction. Consumer durables, too, contracted in July, by 1.3%, compared with a contraction of 2.1% in
June.
Source: APAS BRT, www.eaindustry.nic.in
2.7
3.1
1.7
-0.1
1.2
Mar-17 Apr-17 May-17 Jun-17 Jul-17
IIP (% YoY)
ECONOMY
CPI (Consumer Price Index) – August
India's retail inflation or Consumer Price Index (CPI) grew 3.36% in August 2017 as against 2.36% in July 2017
and 5.05% in the corresponding month of the previous year, as per Ministry of Statistics and Program
Implementation (MOSPI).
This rise was due to soaring food and petrol prices, higher housing expenses and a “transient” impact of the
recently-introduced indirect levy goods and services tax (GST). Inflation in petrol jumped to 24.55% in
August, from 9.6% in the previous month, showed the official data. Similarly, diesel moved up to 20.30%
from 5.49% in this period.
For the month of August 2017 inflation rate of food indicators were: food & beverages at 1.96%, while pan,
tobacco and intoxicants were at 6.85%, clothing and footwear at 4.58% and miscellaneous (health,
transport, education, personal care, etc.) stood at 3.85%.
The fuel and light segment witnessed a marginal increase standing at 4.94% from 4.86% in July. The housing
segment saw an acceleration in inflation to 5.58% from 4.98%.
Source: APAS BRT, www.mospi.gov.in
2.99
2.18
1.54
2.36
3.36
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Apr-17 May-17 Jun-17 Jul-17 Aug-17
CPI
WPI (Wholesale Price Index) – August
Double-digit inflation in petrol and diesel, along with skyrocketing tomato prices, pushed the Wholesale
Price Index (WPI)-based inflation up to a four-month high of 3.24% in August, from 1.88% in the previous
month.
Inflation based on the wholesale price index (WPI) was 1.09 % in August 2016. The government data showed
that the prices of food articles went up by 5.75 % in August on a yearly basis, as against 2.15 % in July while
fuel inflation shot up to 9.99% in August against 4.37% in the previous month.
Vegetable prices shot up by 44.91 % in August, as against 21.95 % in July. Onion prices witnessed a sharp
surge at 88.46 % in August, as against a contraction of 9.50 % in the previous month.
Inflation in manufactured products witnessed a slight increase at 2.45 % in August, against 2.18 % in July.
Apart from vegetables, prices of pulses, fruits (7.35 %), egg, meat and fish (3.93 %), cereals (0.21 %) and
paddy (2.70 %) also was on the increase. However, potato continued to see deflation at 43.82 % and pulses
at 30.16 %.
Primary articles inflation rose 2.66% last month from 0.46% in July.
Source: APAS BRT, www.mospi.gov.in
3.85
2.17
0.9
1.88
3.24
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Apr-17 May-17 Jun-17 Jul-17 Aug-17
WPI
Manufacturing PMI – August
August saw a rebound in manufacturing new orders and output across India. The expansions were modest,
but represented a substantial turnaround from July’s GST-related contraction.
Companies responded to the improvement in operating conditions by creating jobs and purchasing
additional raw materials and semi-finished items. Meanwhile, input cost inflation was reined in as the new
tax system meant that some raw materials became cheaper. In fact, the overall increase in input prices was
the weakest in a year. Up from July’s 101-month low of 47.9 to 51.2 in August, the Nikkei India
Manufacturing Purchasing Managers’ Index reported a renewed improvement in the health of the sector.
The upturn reflected resumed growth of new orders, production and employment. Order book volumes
increased in August, after having posted the worst performance since early- 2009 during July.
According to the reports, the rise in new work stemmed from a better understanding of the new taxation
system, alongside greater promotional activities and a pick-up in demand. Despite being moderate, the
upturn in factory orders was the quickest since May. New export business also rose, although at the slowest
pace in the current three-month period of growth. Companies, in turn, increased production. The expansion
was moderate, but contrasted with the sharp decline recorded in July. As was the case for new orders,
output grew in the consumer, intermediate and investment goods categories.
To cope with higher workloads, manufacturers hired extra staff at the fastest pace since March 2013. At the
same time, greater quantities of raw materials and semi-finished products were purchased. Buying levels
expanded at a moderate rate that was the quickest since May. The rate of charge inflation was, however,
negligible by historical standards. Indian manufacturers remained cheerful around growth prospects, with
marketing efforts, the launch of new products and favourable economic conditions expected to lead to
output growth in the year ahead.
Source: www.tradingeconomics.com
Service PMI – August
The Indian service sector was impacted by the goods and services tax (GST) during August as a second
consecutive drop in new business resulted in another monthly decline in activity. The downturn was less
severe than in July, however, with rates of contraction softening in both cases. Jobs were shed, due to fewer
workloads, and backlogs were accumulated. A slightly quicker rise in cost burdens was registered, whereas
output charge inflation softened from July’s recent peak. Companies remained optimistic towards growth
prospects, though overall sentiment fell.
Registering 47.5 in August, the seasonally adjusted Nikkei India Services PMI Business Activity Index pointed
to a second successive decline in output. Rising from 45.9 in July, however, the latest figure was indicative
of a softer rate of reduction that was moderate overall. The downturn was often associated with the
implementation of the GST, though there were also mentions of shortages of inputs. Although
manufacturing production rebounded from July’s downturn, growth was insufficient to offset the
contraction in services activity. Private sector output subsequently declined again. However, rising from
July’s 100-month low of 46.0 to 49.0 in August, the seasonally adjusted Nikkei India Composite PMI Output
Index was consistent with a weaker pace of reduction that was only slight. The trend for services activity
mirrored that for new business, which decreased for the second month in a row but at a slower rate.
Analyst Reports indicated that the new taxation system and advertising campaigns are anticipated to
support growth, but there were worries about competitive pressures. Similarly, goods producers were less
upbeat than in July. Price indicators continued to point to relatively muted inflationary pressures in the
service sector. Input costs rose at a quicker rate in August, though one that was well below its long-run
average. At the same time, output charge inflation softened from July’s 53-month peak. Companies
reported having paid more for beverages, food, fuel and paper and passing on to consumers only part of
the additional cost burden. In the manufacturing industry, purchase prices increased at the slowest pace in
one year. Whereas charges were raised, the rate of inflation was only marginal. Meanwhile, service
providers indicated that outstanding business volumes rose due to delayed payments from clients. Despite
being modest, the rise in backlogs was the most pronounced since February. Across the private sector as a
whole, work-in-hand increased to the greatest extent since February.
Finally, payroll numbers in the service economy decreased in August amid evidence of the non-replacement
of voluntary leavers. The decline in employment was the second in successive months.
Core Sector Data – August
The index of eight core industries grew by 4.9% in August this year as compared to the index of August 2016.
It grew by just 2.6% in July.
As per data released by commerce and industry ministry, coal and natural gas production increased by
15.3% and 4.2% respectively in the month. Crude oil and fertilizers production declined by 1.6% and 0.7%
respectively whereas refinery products production increased by 2.4% in August. Cement production also
declined by 1.3% in August 2017 over August 2016.
Production of steel and electricity registered a growth of 3% and 10.3% respectively in August as against a
year ago in the month.
Source: APAS BRT, www.eaindustry.nic.in
3.2
5.0
6.6
4.95.6
3.4
1.0
5.0
2.5
3.6
0.4
2.4
4.9
Co
re s
ect
or
dat
a %
Month
Core sector Trend - Monthwise
RBI’s Fourth Bi-Monthly Monetary Policy
In its Fourth Bi-Monthly Monetary Policy Statement, 2017-18, The Reserve Bank of India (RBI) has
decided to maintain status quo and keep its key interest rate, the repo rate, unchanged at 6%. RBI had
cut rates by 25 bps two months earlier in its August review.
The committee projected that inflation will move in the 4.2% to 4.6% range over the next half year.
The RBI also noted that, the factors that would continue to impart upside risks to this baseline inflation
trajectory were
a) implementation of farm loan waivers by States – this may result in possible fiscal slippages and
undermine the quality of public spending, thereby exerting pressure on prices;
b) States’ implementation of the salary and allowances award – this is not yet considered in the
baseline projection; an increase by States similar to that by the Centre could push up headline
inflation by about 100 basis points above the baseline over 18-24 months, a statistical effect
that could have potential second round effects
The monetary policy committee (MPC) of the RBI has cut its GDP forecast, revising it down to 6.7% this
year as against 7.3% projected earlier in August. GDP growth had fallen to 5.7% in the first quarter and
has been coming down continuously over the past five quarters. The RBI noted that the loss of
momentum in Q1 of 2017-18 and the first advance estimates of kharif food grains production are early
setbacks that impart a downside to the outlook.
According to RBI, the implementation of the GST so far also appears to have had an adverse impact,
rendering prospects for the manufacturing sector uncertain in the short term, which may further delay
the revival of investment activity, which is already hampered by stressed balance sheets of banks and
corporates
BANKING
Also, consumer confidence and overall business assessment of the manufacturing and services sectors
surveyed by the Reserve Bank weakened in Q2 of 2017-18; on the positive side, firms expect a
significant improvement in business sentiment in Q3.
The MPC was of the view that various structural reforms introduced in the recent period will likely be
growth augmenting over the medium - to long-term by improving the business environment, enhancing
transparency and increasing formalization of the economy. The Reserve Bank would continue to work
towards the resolution of stressed corporate exposures in bank balance sheets which should start
yielding dividends for the economy over the medium term.
The MPC also called for recapitalizing public-sector banks adequately to ensure that credit flows to the
productive sectors are not impeded and growth impulses not restrained.
MPC suggested various steps to boost the growth. It suggested the following measures could be
undertaken to support growth and achieve a faster closure of the output gap, a concerted drive to close
the severe infrastructure gap, restarting stalled investment projects, particularly in the public sector,
enhancing ease of doing business, including by further simplification of the GST and ensuring
faster rollout of the affordable housing program with time-bound single-window clearances and
rationalization of excessively high stamp duties by States.
Amendments to Master Direction- Reserve Bank of India (Financial Services provided by
Banks) Directions, 2016
RBI amended the statutes making it possible for lenders to invest in real estate investment trust (Reits)
and infrastructure investment trust (InvIts) capping such exposures to 10% of the unit capital of such
instruments, and also to regulate their commodity derivatives play.
In amendments to the master direction—Reserve Bank of India (Financial Services provided by banks)
Directions, 2016, the central bank said banks should not invest more than 10% of the unit capital of a Reit
or an InvIt subject to overall ceiling of 20% of its net worth.
The master directions first issued in May last year did not provide for investments in the Reits and Invits,
both newly introduced instruments. The RBI also prohibited banks from becoming a professional clearing
member of commodity derivatives segment of SEBI-recognized exchanges unless it satisfies certain
prudential criteria.
These include bank satisfying membership criteria of the exchanges and complying with the regulatory
norms laid down by SEBI and the respective stock exchanges and putting in place board-approved risk
control measures, among others.
The RBI also prohibited banks from offering broking services for commodity derivatives segment of SEBI
recognized stock exchanges except through a separate subsidiary set-up for the purpose or one of its
existing subsidiaries.
Laying down the conditions for allowing broking services, it said there should be an effective risk control
measures, including prudential norms on risk exposure, in respect of each of its clients, taking into account
their net worth and business turnover.
The central bank also barred the subsidiary from undertaking proprietary positions in commodity
derivatives. The amendments also removed references to corporate debt restructuring and strategic debt
restructuring in the earlier master directions.
Investment by Foreign Portfolio Investors (FPI) in Government Securities Medium Term
Framework
The limits for investments by Foreign Portfolio Investors (FPIs) for the next quarter Oct-Dec 2017, have
been revised.
They have been increased by INR 80 billion in Central Government Securities and INR 62 billion in State
Development Loans. The revised limits notified, are allocated as per the modified framework prescribed
in the RBI/2017-18/12 A.P.(Dir Series) Circular No.1 dated July 3, 2017, and given as under –
Limits for FPI investment in Government Securities
₹ Billion
Quarter
Ending
Central Government securities State Development Loans Aggregate
General Long-
term
Total General Long-
term
Total
Existing
Limits
1877 543 2420 285 46 331 2751
December
31st, 2017
1897 603 2500 300 93 393 2893
These revised limits will be effective from October 3, 2017. The operational guidelines relating to
allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (SEBI).
Also, the AD Category – I banks may bring the contents of this circular to the notice of their constituents
and customers concerned. The directions contained in this circular have been issued under sections 10(4)
and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions/approval, if any, required under any other law.
Clarifications on Guidelines on insurance e-commerce and electronic issuance of insurance
policies
The Insurance Regulatory and Development Authority of India has issued a circular providing clarifications
on -
a) Revised guidelines on Insurance Repositories and electronic issuance of insurance policies dated
29.05.2015
b) Guidelines on insurance e-commerce dated 9th March, 2017
According to the guidelines, an e-signature of the e-Insurance Account (eIA) holder on the
application form for opening an eIA is considered as a valid authentication. However, the IRDAI
(issuance of e-Insurance policies) (First Amendment) Regulations, 2016 dated 2nd December, 2016
provided an option of validation by ‘One Time Password’ for electronic signature on e-proposal
form. Therefore, in order to facilitate opening of e-insurance account through online/ electronic
means, the Authority has permitted validation by ‘One Time Password’ for eIA opening as an
alternative to e-signature under clause 60(b) and Annexure 11 of the revised guidelines on
Insurance Repositories and electronic issuance of insurance policies.
Also, an eIA has given an option to the customer to provide either an email id or mobile number.
Email id and mobile number both have been made mandatory to open eIA, as the Insurance
Repository is required to send OTP1 on the registered email id and OTP2 on the registered mobile
number of the eIA holder.
In order to bring consistency between the two guidelines, the Authority allowed opening of eIA
on the basis of email id or mobile number with only one OTP being sent to email id/ mobile
number.
It further said that insurers can perform the verification of the client through e-KYC authentication
facility provided by UIDAI. UIDAI provides biometric authentication of a person based on Aadhaar.
INSURANCE
The insurance regulator further said that e-PAN facility offered by NSDL for compliance to the
Know Your Customer (KYC) / Anti-Money Laundering (AML) has been done away with.
An e-insurance account shall be created within 15 days post selling of insurance policies on the
applicant’s ISNP (Insurance Self-Network Platform). It has been clarified that opening of e-
insurance account for all policies that are sold on the ISNP Platform has to be necessarily and
compulsorily followed up with opening of an e-insurance account within 15 days post selling of
insurance policies. Any non-compliance will be seen as a violation of the aforesaid guidelines.
Cabinet approves Rationalization/Merger of the Government of India Press (GIPs) and their
modernization
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi gave its approval for
rationalization/merger and modernization of 17 Government of India Presses (GIPs)/Units into 5
Government of India Presses (GIPs) at Rashtrapati Bhavan, Minto Road and Mayapuri, New Delhi; Nashik,
Maharashtra and Temple Street, Kolkata, West Bengal.
These 5 Presses will be redeveloped and modernized by monetization of their surplus land. Land
measuring 468.08 acres of the other merged Presses will be given to Land & Development Office, Ministry
of Urban Development. Land measuring 56.67 acres of the Government of India Text Books Presses
(GITBPs) at Chandigarh, Bhubaneswar and Mysuru will be returned to the respective State Governments.
Modernization of the Presses will enable them to undertake important confidential, urgent and multi-
colour printing work of the Central Government Offices all over the country. This will be carried out at
zero cost to the exchequer and without any retrenchment.
INFRASTRUCTURE
Amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real
Estate Investment Trusts) Regulations, 2014
The SEBI Board meeting took place on 18th September 2017 and decided to amend Infrastructure
Investment Trust Regulations, 2014 and Real Estate Investment Trusts Regulations, 2014.
In order to facilitate growth of Infrastructure Investment Trusts (InvITs) and Real Estate investment Trust
(REITs), SEBI Board, has approved certain changes in the captioned regulations, which, inter alia, include
the following:
• Allowing REITs and InvITs to raise debt capital by issuing debt securities
• Introducing the concept of Strategic Investor for REITs on similar lines of InvITs
• Allowing single asset REIT on similar lines of InvIT
• Allowing REITs to lend to underlying Holdco/SPV
• Amending the definition of valuer for both REITs and InvITs
Further, the Board, after deliberations, decided to have further consultation with the stakeholders on a
proposal of allowing REITs to invest at least 50% of the equity share capital or interest in the underlying
Holdco/SPVs, and similarly allowing Holdco to invest with at least 50% of the equity share capital or
interest in the underlying SPVs.
CAPITAL MARKETS
CAPITAL MARKETS SNAPSHOT
Source: National Stock Exchange Source: Bombay Stock Exchange
Sources: APAS Business Research Team Sources: APAS Business Research Team
Sources: APAS Business Research Team
Indian equity market witnessed record selling
by foreign institutional investors and record
purchases by domestic institutions, in a single
day, on 28th September, 2017.
Domestic institutions net bought shares worth
INR 5,197 crore while their foreign
counterparts sold shares worth INR 5,328
crore.
The Sensex and Nifty continued to trade higher
by nearly 0.5% as the RBI's decision to keep
repo rate unchanged at 6.0% was in line with
market expectations.
1-S
ep
-17
3-S
ep
-17
5-S
ep
-17
7-S
ep
-17
9-S
ep
-17
11
-Se
p-1
7
13
-Se
p-1
7
15
-Se
p-1
7
17
-Se
p-1
7
19
-Se
p-1
7
21
-Se
p-1
7
23
-Se
p-1
7
25
-Se
p-1
7
27
-Se
p-1
7
29
-Se
p-1
7
CNX Nifty (Sept - 2017)
1-S
ep
-17
3-S
ep
-17
5-S
ep
-17
7-S
ep
-17
9-S
ep
-17
11
-Se
p-1
7
13
-Se
p-1
7
15
-Se
p-1
7
17
-Se
p-1
7
19
-Se
p-1
7
21
-Se
p-1
7
23
-Se
p-1
7
25
-Se
p-1
7
27
-Se
p-1
7
29
-Se
p-1
7
BSE Sensex (Sept-2017)
10.00
10.80
11.60
12.40
13.20
14.00
14.80
Indian VIX (Sept-2017)
62.5063.0063.5064.0064.5065.0065.5066.00
1-S
ep
-17
3-S
ep
-17
5-S
ep
-17
7-S
ep
-17
9-S
ep
-17
11
-Se
p-1
7
13
-Se
p-1
7
15
-Se
p-1
7
17
-Se
p-1
7
19
-Se
p-1
7
21
-Se
p-1
7
23
-Se
p-1
7
25
-Se
p-1
7
27
-Se
p-1
7
29
-Se
p-1
7
$/₹ (Sept-2017)
6.35
6.40
6.45
6.50
6.55
6.60
6.65
6.701
-Se
p-1
7
3-S
ep
-17
5-S
ep
-17
7-S
ep
-17
9-S
ep
-17
11
-Se
p-1
7
13
-Se
p-1
7
15
-Se
p-1
7
17
-Se
p-1
7
19
-Se
p-1
7
21
-Se
p-1
7
23
-Se
p-1
7
25
-Se
p-1
7
27
-Se
p-1
7
29
-Se
p-1
7
GIND10Y (Sept - 2017)
ECONOMIC DATA SNAPSHOT
* The Economist poll or Economist Intelligence Unit estimate/forecast;
^ 5-year yield
Quarter represents a three-month period of a financial year beginning 1st April
Countries GDP CPI
Current
Account
Balance
Budget
Balance
Interest
Rates
Latest 2017* 2018* Latest 2017*
% of GDP,
2017*
% of GDP,
2017*
(10YGov),
Latest
Brazil 0.3 Q2 0.6 2.1 2.5 Aug 3.7 -0.8 -8.1 9.24
Russia 2.5 Q2 1.7 1.9 3.3 Aug 4.2 2.7 -2.2 8.13
India 5.7 Q2 7.0 7.5 3.4 Aug 3.6 -1.2 -3.2 6.67
China 6.9 Q2 6.8 6.5 1.8 Aug 1.8 1.5 -3.9 3.62*
S Africa 1.1 Q2 0.6 1.3 4.8 Aug 5.3 -3.2 -3.2 8.65
USA 2.2 Q2 2.1 2.3 1.9 Aug 1.9 -2.4 -3.4 2.23
Canada 3.7 Q2 2.6 2.0 1.4 Aug 1.7 -2.6 -2.4 2.13
Mexico 1.8 Q2 2.1 2.2 6.7 Aug 5.8 -1.9 -1.9 6.81
Euro Area 2.3 Q2 2.0 1.8 1.5 Aug 1.5 3.2 -1.3 0.47
Germany 2.1 Q2 2.1 1.9 1.8 Aug 1.6 8.0 0.7 0.47
Britain 1.7 Q2 1.5 1.3 2.9 Aug 2.7 -3.4 -3.6 1.36
Australia 1.8 Q2 2.3 2.7 1.9 Q2 2.1 -1.4 -1.8 2.79
Indonesia 5.0 Q2 5.2 5.4 3.8 Aug 4.2 -1.7 -2.4 6.64
Malaysia 5.8 Q2 5.4 5.0 3.7 Aug 3.9 2.3 -3.0 3.89
Singapore 2.9 Q2 2.9 2.1 0.4 Aug 0.7 19.7 -1.0 2.18
S Korea 2.7 Q2 2.9 2.7 2.1 Sept 1.9 5.6 0.9 2.36
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