Category: Banking & Finance

Banking major HSBC sees no scope for further policy rate cuts in the near to medium term by the Reserve Bank of India (RBI) even though retail inflation has come off in December 2020, within the RBI’s targeted range of 2-6 per cent.

“This fall in retail inflation in December 2020 might be temporary and you might see inflation tick up again in this quarter which really removes the potential or scope for further rate cuts”, Frederic Neumann, Co-Head of Asian Economics Research, HSBC Bank said while discussing the bank’s outlook for the Asian economies and financial markets in 2021.

After staying stubbornly above the 2-6 per cent inflation target range for the past 8 months, India’s retail inflation based on consumer price index dipped sharply in December 2020 to 4.59 per cent from 6.93 per cent in November last year on the back of fall in vegetable prices, official data released on Tuesday showed. Food inflation fell sharply to 3.41 per cent in December 2020 from 9.5 per cent in November 2020.

It is widely expected that much of the RBI’s policy fine tuning will be focused on the liquidity space while keeping the repo rate on hold. RBI’s monetary policy committee is expected to meet next month for a customary review.

Andre de Silva, Head of Global EM Rates Research said that HSBC was much more bearish on interest rates. RBI’s recent shift away from ultra loose to loose monetary policy is a tell tale sign of higher rates, he noted. RBI had last week announced plan to conduct a 14-day reverse Repo auction of ₹ 2 lakh crore on January 15 to “restore normal liquidity management”. This plan, which comes earlier than expected, is being seen as a soft tap by the RBI on the liquidity brakes.

GROWTH FORECAST

On economic outlook for India, Neumann said that the near term outlook is bright. “One of the reasons it is bright is that the COVID19 infection rates have seemingly come down faster than expected. Mobility numbers has quickly normalised. This has raised upside risk to growth”, he said.

HSBC has now revised upwards its GDP growth forecasts for India to 9 per cent in 2021-22 as against 7.8 per cent growth estimated earlier. Also for the current fiscal, the GDP contraction is now estimated at 8.5 per cent as compared to contraction of 11 per cent forecast earlier.

“ Our growth forecast now for 2021-22 is 9 per cent growth after 8.5 estimated contraction for the current fiscal. This looks like a strong recovery and puts India just above of the level what they (India) were before the pandemic”, he said.

Herald van der Linde, Head of Equity Strategy, Asia Pacific said that HSBC had a Sensex index target of 48,500 and added that India is considered by it as an “expensive market”.

“Performances has been very polarised. A Couple of companies have done well and dragged valuations higher. We are looking at the domestic exposed companies like auto companies, jewellery, retail and private banks we continue to like and also select telecoms”, he said.

The Reserve Bank of India (RBI) has set up a Working Group (WG) to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players, in a bid to put in place an appropriate regulatory approach.

This move comes in the backdrop of the recent spurt and popularity of online lending platforms/ mobile lending apps raising certain serious concerns which have wider systemic implications, the central bank said.

The constitution of the WG should also be seen in the context of agents of China-based money lending apps being arrested in Hyderabad in the last one month or so for harassing borrowers for repayments.

The six-member WG, comprising four senior RBI officers and two external members, will evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI-regulated entities.

The group, headed by Jayant Kumar Dash, Executive Director, RBI, will identify the risks posed by unregulated digital lending to financial stability, regulated entities and consumers.

As per the terms of reference, the WG is expected to suggest regulatory changes, if any, to promote orderly growth of digital lending; and recommend measures, if any, for expansion of specific regulatory or statutory perimeter, and suggest the role of various regulatory and government agencies.

The group is expected to suggest a robust Fair Practices Code for digital lending players, insourced or outsourced; and measures for enhanced Consumer Protection. Further, it will also recommend measures for robust data governance, data privacy and data security standards for deployment of digital lending services.

The group has been advised to submit its report in three months.

The central bank observed that while penetration of digital methods in the financial sector is a welcome development, the benefits and certain downside risks are often interwoven in such endeavours.

“A balanced approach needs to be followed so that the regulatory framework supports innovation while ensuring data security, privacy, confidentiality and consumer protection,” the RBI said.

Bank of Baroda (BoB) has raised ₹969 crore via Basel III-Compliant Additional Tier (AT) 1 Bonds on private placement basis.

The bank issued and allotted these bonds to 11 allottees.

These perpetual bonds, carrying a coupon rate of 8.15 per cent, are unsecured, subordinated, non-convertible, fully paid-up and listed, the public sector bank said in a regulatory filing.

The issue opened and closed on January 11 on the BSE Bond Platform. The date of allotment of the bonds is January 13.