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OFF-CYCLE REPO RATE AND REGULATORY CHANGES RBI Governor surprised everyone by convening the Monetary Policy Committee (MPC) meeting in advance (originally scheduled for June 3 to 5, 2020) to assess the economic risks arising due to the impact of ongoing COVID-19 pandemic. (i) Affordable lending rates to revive growth, (ii) keep the funds supply chain from the banks hassle free through various liquidity measures and (iii) ease the financial stress through supportive measures had been the hall mark of the RBI approach, ever since the present Governor assumed charge. The announcements were no different this time as well. Salient features: ü Policy Rate reduced by 40 bps and      Effective rates are:  Repo: 4.00%; Reverse Repo: 3.35%; Bank Rate/MSF: 4.25% ü Moratorium on term loan instalments and working capital interest extended upto 31.08.2020 (in effect six month moratorium from 01.03.2020 to 31.08.2020) and ü   Additional liquidity easing ...

WILL THE FINANCIAL STIMULUS REACH NEEDY AND REVIVE ECONOMY? Lot of home work has gone behind Hon'ble Finance Minister’s series of announcements made over five days, each day dedicated to particular sectors.  It really brought out the genuine intentions of the government to reach to the needy and also convert the most challenging moments into opportunities for revival.  There is an on-going debate that much of the Rs.20 lac cr. stimulus has been passed onto financial players like banks and public financial institutions and the impact on the fiscal budget is minimal.  Fiscal Deficit increases when the expenditure is more than the estimates and also when the revenue falls short of the estimates.  In the first quarter, India's GDP is expected to be only 45% of the estimates and consequently there will be a huge shortfall in tax revenues (50% comes from direct taxes).  However, there is no indication that the expenditure will come down by that level as main co...

CRISIL CD RATING OF YES BANK DID NOT REFLECT RISK The general complaint against credit rating agencies in India is that they revise their ratings much after the damage is done to the investors and the other stake holders. CRISIL has recently  (19th March 2020) given a rating of  A2(assigned) to the CD Programme of Rs.20,000 cr. of Yes Bank. A2 (one notch below the best rating) indicates that the instruments have a strong degree of safety and carry low credit risk.  FACTS:   As per the rating rationale made available in public domain, the rating awarded is centrally pinned to the extraordinary support received/likely to be received from the Ministry of Finance, RBI and SBI(now holding 48% equity in yes bank). The report quotes i) Restructuring scheme (scheme)of the bank jointly implemented by the govt and RBI, ii) Overwhelming support received from SBI in raising the equity proposed in the scheme,  iii) Liquidity support promised by RBI and...

CKP CO-OPERATIVE BANK LIQUIDATION CKP co-operative Bank Licence has been cancelled and winding up proceedings have commenced as notified by RBI on 30th April 2020.  So, out of Rs.485 cr deposits as on 31.03.2020, how much money will be refunded to depositors? A small work out is as under: i) Individual Depositors holding deposits upto Rs.5 lacs - Rs.365 cr. ii) No. of depositors holding deposits in excess of Rs.5 lacs - 1120 (As per Mint paper report) iii) Deposits in (ii) protected upto DICGC (1120*5)           - Rs.56 cr iv) Total Deposits not protected by DICGC = 485-(365+56)= Rs.64 cr. As against the above protection given, DICGC has the following right of subrogation over the following: (as per balance sheet as on 31.03.2019)   i) cash and balances with RBI = 25 cr ii) Investments (SLR?)     = 272 cr iii) Loans and Advances = 171 cr iv) Fixed Assets = 34 cr totalling Rs.472 cr.  Excluding ...