Menu

Banking

Astral Pipes posted a net profit of Rs. 96 Cr.

Tata Steel reported a net profit of Rs.7714 crores.

Tata Steel reported a net profit of Rs.7714 crores.

Tata Steel reported a PAT of Rs 7714 crore in Q4FY22, down from Rs 9,835 in Q4Y22. The company in Q1FY23 reported an EBITDA of Rs. 14973 crore, compared to an EBITDA of Rs. 15,891 crore in Q4FY22. During Q1FY22, the company recorded its EBITDA as Rs. 15,892 crore. Tata Steel announced a dividend of Rs 51 per equity share in FY22. Tata Steel’s PAT peaked in the second quarter and has fallen since then. The company’s PAT stood at Rs 12,548 crore in Q2FY22. The steel sector has been under pressure due to high input costs of coal and iron ore.

Plans to invest in India and Europe

Tata Steel plans to invest Rs 12,000 crore in India and Europe in FY23, TV Narendran, the company’s chief executive officer (CEO) and managing director (MD), said on July 18. The company expected to invest Rs 8,500 crore in India and Rs 3,500 in Europe. The major focus is on the Kalinganagar Plant in Odisha and plans to expand the plant’s capacity from 3 MTto 8 MT.
Over the last one-month, domestic hot rolled coil (HRC) prices have been range bound and hovered at 57500-9500/tonne. The domestic steel prices has seen sharp fall in coking coal prices augurs well for Indian steel players. The benefit of lower coking coal costs is likely to feed through to the cost base by September 2022 for Tata Steel Indian operations and by Q3FY22 for Tata Steel European operations. For Q1FY23, Tata Steel European operations reported EBITDA/tonne of US$360/tonne (US$89/tonne in Q1FY22 and US$241/tonne in Q4FY22).
Tata Steel plans to restart NINL’s blast furnace in the next three months and ramp up capacity to 80-100 KT/month run-rate by Mar’23. Tata Steel remains committed to its annual deleveraging target of US$1 billion in line with its capital allocation strategy to reduce debt.
Valuations:
The EPS was Rs. 6.36 in the June quarter. The stock is trading at a PE ratio of 3.32x. The EBITDA was at 2.96x. The ROCE and ROE stood at 31.6% and 42.6%, respectively. The stock was trading at Rs.106 on September 8th, down by 1.63%.

DCB Bank’s (DCBB) Q1 FY23 earnings:

DCB Bank’s (DCBB) Q1 FY23 earnings

DCB Bank’s (DCBB) Q1 FY23 earnings:

The PAT for DCB bank was at Rs. 97 cr. in comparison to Rs. 34 cr. from the same quarter a year ago, with a growth of 188%. Total revenue in the June quarter was Rs. 949 Cr., compared to Rs. 920 Cr. in March 2021 and Rs. 846 Cr. in June 2021. There was an 18% growth in advances YOY and a 14% growth in deposits. The Gross NPA as on June 2022 was at 4.21% while the Net NPA was at 1.82 qoq as on June 2022. Both Gross NPA and Net NPA declined sequentially as well as in comparison to last year.

Ratios to improve in the June quarter:

The Provision Coverage Ratio (PCR) was at 69.480 and the PCR without considering Gold Loans NPAs was at 73.39%. The Capital Adequacy Ratio was at 18.47%, with Tier I at 15.44% and Tier ll at 3.03% as per norms. The CASA (Current Account Savings Account) ratio was at 29% in the June quarter compared to 27% in the previous quarter. The savings account balances between 2 lakh and less than 5 lakh rupees had an interest rate of 5.00%, while balances between 5 lakh and less than 10 lakh rupees had an interest rate of 6.00%. On savings account balances between 10 lakh and less than 25 lakh, there is an interest rate of 6.75%. DCB Bank has given a maximum interest rate of 7% on savings account balances between 25 lakh and less than 2 crore. Savings accounts with balances of between 2 crore and less than 50 crore will now earn interest at a rate of 5.50%, while accounts with balances of over 50 crore will now earn interest at a rate of 5.00%.

Due to lower credit costs and better loan growth, gross slippages continued to remain elevated, mainly stemming from the gold portfolio, largely offset by higher recovery and upgrades, resulting in a GNPA of 4.3%. The stress pool continues to remain sticky, but the management expects improving collection efficiency to reflect in better asset quality on the back of a granular and secured portfolio of approximately 95%. With asset quality still stubborn and loan growth looking soft, there is less room for any positive surprise from operating efficiency.

Valuations:

The price to book ratio stood at 0.64x. The return on assets was 0.68%. The interest coverage ratio was 1.22x for June 2021. The return on capital employed was at 6.30% while the return on equity was at 7.37%. The EBITDA was recorded at 14.0x. The (CAR) capital adequacy ratio continues to be strong at 18.47%. The scrip was trading at Rs. 83.1, down by 0.54% on Wednesday.

Supriya Lifescience Ltd Q1 FY23 Result Updates.

HDFC Limited Q1 FY23 Result Update: Individual loan book strengthens, NII misses estimates.

HDFC Limited Q1 FY23 Result Update: Individual loan book strengthens, NII misses estimates.

Housing Development Finance Corporation Limited reported net profit of Rs. 3,669 crores compared to Rs. 3,001 crores, representing a growth of 22% YoY. The drag on net profit was due to increase in provisions, which went up to Rs 510 crore for the June quarter from Rs 450 crore in the March quarter.

The company recorded net interest income (NII) of Rs. 4,447 crores as compared to Rs. 4,125 crores estimated by the analysts. The monetary policy and interest rate actions have had a short-term impact on the net interest income and to a slightly lesser extent on the net interest margin. This has been due to the transmission lag between the interest rate increase in borrowing costs and the increase in lending rates.

In the corresponding quarter of the previous year, due to the second wave of COVID-19, there was ample liquidity in the system and consequently, overnight interest swap rates fell to very low levels, thus expanding Net Interest Income (NII) and Net Interest Margin (NIM). The reported NIM during the quarter ended June 30, 2022 was 3.4%

On account of volatile equity markets, the net gain on investments fair valued through the profit and loss account stood at Rs. 8 crore (PY: ₹ 402 crore)

Dividend income stood Rs. 687 crore (PY: Rs. 16 crore) and Profit on Sale of Investments Rs. 184 crore (PY: Rs. 263 crore).

Non-interest expense ratios were higher largely due to an increase in upfront expenses on staffing, loan processing, branch expansion and information technology to enable meeting the increased demand for home loans. These expenses have been incurred upfront, though benefits will accrue over the ensuing quarters.

On an AUM basis, the growth in the individual loan book was 19%. This marks the highest percentage growth in the individual loan AUM in 8 years.

Disbursements surged during the quarter to Rs 42,000 crores. Individual loan disbursals grew by 66% YoY. The affordable housing loan segment showed a healthy growth of 10% for the June quarter, however, lower than the 14% growth seen a year ago.

The lender holds Rs 13,328 crore or as total provisions against potential delinquencies.

HDFC’s provision coverage ratio remains high. Gross bad loans improved to 1.78 percent of the total loan book for the reported quarter from 2.28 percent in the year-ago period. This was due to a fall in delinquencies in the non-individual loan book and also resolutions.

Delinquencies in the non-individual loan book fell to 4.44 percent for the June quarter from the peak of 5.05 percent in the December quarter of FY22. In the March quarter, delinquencies were at 4.77 percent. Those of the individual book, too, marginally improved to below 1 percent.

The mortgage lender’s revenue from operations increased 13.5% to Rs 13,240 crore as compared to Rs 11,657 crore in Q1 FY22.

The demand for home loans and the pipeline of loan applications remains strong for the quarter. Growth in home loans was seen in both, the middle income segment as well as in high end properties, with 92% of new loan applications received through digital channels.

The average size of individual loans stood at Rs 35.7 lakh compared to Rs 33.1 lakh in FY22. Individual loans comprise 79% of the AUM.

 

After the announcement of the result the shares of the company closed at Rs. 2377.80, up by 40.25 points or by 1.72% as compared to the previous close of Rs. 2337.55. The stock opened at Rs. 2356. The market cap of the company is Rs. 431,444 crores.

 

Valuations:

The cost-income ratio for the quarter ended June 30, 2022, stood at 9.5%. The Corporation’s capital adequacy ratio (CAR) stood at 21.9%, of which Tier I capital was 21.4% and Tier II capital was 0.5%. As per the regulatory norms, the minimum requirement for the capital adequacy ratio and Tier I capital is 15% and 10% respectively. The debt to equity (D/E) ratio is 2.83. The return on earnings (ROE) stands at 13.4%. The company’s net interest margin (NIM) is 3.4% during the quarter. The price to earning ratio (P/E) of the company is 18.9. The price to book value (P/B) of HDFC LTD is 2.40.

 

 

 

 

Tech Mahindra Q1 Result Update: Net profit falls 16% to ₹1,131.6 cr; revenue rises 25%

 

 

CANF net profit at Rs.162.21Cr. in Q1FY23.

 

 

 

 

 

 

 

Infosys reports a net profit of Rs.5,350Cr. in Q1 FY23. 

 

L&T Technology Services Ltd Q1 Results Update.

 

HUL Q1 FY23 Result Update: HUL beats estimates with Rs 2,381-cr net profit in Q1; revenue up 19.6%

 

 

 

 

 

US FED keeps rate unchanged. Signal possible rate cuts next year

AU Small Finance Bank Q1 results were up by 32% and down 23% sequentially.

AU Small Finance Bank Q1 results were up by 32% and down 23% sequentially.

 

AU Small Finance Bank, a Jaipur-based lender, reported a net profit of Rs. 268 crores with a jump of 32% from 203 crores YOY but was down by 23% sequentially from Rs. 346 crores in March 2022. This result was achieved on account of an improvement in interest income and a sharp fall in provisions. The bank made provisions of Rs. 38 Cr., lower by 81% from a year ago on account of improvement in the asset quality and COVID-19 related provisions.

The bank’s PPoP was at Rs. 394 Cr, down by 18% as other incomes fell and operating expenses rose. The other income fell to Rs. 159 Cr. and was down by 26% due to losses of Rs. 55 Cr. in the treasury operations. The net interest income was reported to have increased by 35% from Rs.924Cr. to Rs.976Cr. The quarterly net interest margin (NIM) was lower by 1 bib from 6% to 5.9% YOY. It intends to maintain the NIM in the current fiscal year due to the rise in floating rates, which is 25% of the book. The asset quality for the bank also improved. Net NPS was at 0.56% on 30 June, down from 2.26% in Q1 FY23. The provision coverage ratio rose from 49% earlier to 72% by June 30. The AUM grew to Rs. 50161 Cr. with a jump of 37% YOY. The deposits witnessed a growth of 48% to Rs. 54,631 Cr. in the June quarter. The company’s market share is only 3% in the banking system and is optimistic about its growth. Almost 90% of the portfolio is secured, which is a good sign.

The banks’ (CAR) stood at 19.4% versus 23.1% in June 2021. The EPS was recorded at Rs. 4.25, which was down from Rs. 11.02 in the previous quarter. The key risks for the bank are surging inflation, resulting in widening losses; exposure to the informal sector; regional dependence on one state; and a slowdown in the economy. However, since the bank primarily serves the underserved category like farmers, low-wage earners, and the informal sector, it provides them with pricing power. As the monsoon was on time, it is likely to be favorable for the bank, since the farmers will be in a better position to repay the debt.

The script gave a 3-year return of 75.01% as compared to the 44.23% return given by the Nifty 100. The market cap for the company is Rs. 37,4111Cr. The stock is currently trading at Rs. 593.65, up by 16 points, or 2.84%, and has touched an intraday high of Rs. 601 and a low of Rs. 570. The 52-week high was at Rs. 732.98 and the 52-week low was at Rs. 462.

 

 

 

Mindtree Q1 FY23 Result Update: Net Profit jumps 37% YoY to Rs. 472 crores.

Tata Motors, Jaguar Land Rover Q1 sale at 78825 units down by 37%.

 

DCB Bank’s (DCBB) Q1 FY23 earnings:

Loan growth, higher margins, and lower costs to drive bank bottom lines in Q1.

Loan growth, higher margins, and lower costs to drive bank bottom lines in Q1.

 

Indian banks are predicted to post strong core earnings growth in the June quarter. This is due to the improved margins and decline in credit costs. However, rising yields may affect the marked-to-market losses impacting the earnings. The analysts estimated that the credit growth for the banking system will increase by 12%, driven by private banks. Net interest margins may go up by 3%. This is due to better net interest income and an upward interest rate cycle. The treasury loss and lower fees may decline the other income by 27%.

 

The net profit of the overall banking is predicted to drop by 11.5% on QoQ basis. The margin outlook, guidance on deposit accretion for some banks and treasury loss have to be monitored.

 

State Bank of India (CMP Rs. 484.95) is expected to report strong PAT growth. HDFC Bank (CMP Rs. 1,391.80) may report a drop in net profit and NIM is expected to remain range-bound. Kotak Mahindra Bank (CMP Rs. 1718.95) could continue improvement in loan growth however net profit might decline on a QoQ basis. ICICI Bank (CMP Rs. 759.90) might maintain its loan growth momentum as retail continues to see traction while Axis margins are expected to improve. The banks that have a higher share of floating rate books, including mortgages, could have increased credit growth, and rising interest rates. Valuations have also been corrected. This provides a margin of safety. Additionally, asset quality is on the mend, with the risk of a fresh NPA cycle remaining low. This should lead to healthy profitability and return ratios for banks. The gross bad loans might ease up and the overall slippages, recoveries and provisions may return to normal.

According to analysts, the overall Gross non-performing assets ratio is estimated to decline by 20 basis points or by 5.2% in the June quarter. Further, there will be lower slippages reflecting a low EMI bounce rate at 22%, better recovery trends in retail and higher w-offs with banks sitting on excess provisions. Asset quality is expected to improve. As increasing interest rates and the end of the moratorium are building pressure, stress behaviour in the MSME segment needs to be monitored.

Loan growth, higher margins, and lower costs to drive bank bottom lines in Q1.
Image shown is for representation only

NBFCs and HFCs securitization volumes almost doubled.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supreme Court's Landmark Ruling Strengthens Insolvency and Bankruptcy Code (IBC), 2016: Implications for Stakeholders

Role of nationalized banks in promoting the Indian economy.

Role of nationalized banks in promoting the Indian economy.

 

Nationalization refers to the transfer from the State or Central Government of public sector assets to be operated or owned. The banks previously functioning under the private sector in India were transferred by an act of nationalization to the public sector. Therefore nationalized banks were established.

 

Following is the role of nationalized banks in promoting the Indian economy:

 

1. It helps in eradicating the shortage of capital formation:

Economic development is not possible in any economy unless an adequate level of capital formation exists. Banks remove the serious capital shortfall in developing countries. A sound banking system mobilizes small community savings and makes them available for productive company investment. Banks mobilize deposits through attractive interest rates and convert savings into active capital. If not, the funds will remain idle in the bank account. Banks distribute such savings through loans to productive companies that help build nations. It facilitates the optimal use of the financial resources in the economy.

 

2. To generate employment:

Banks help provide industries with financial resources and help generate employment opportunities automatically. Income and job generation are two very important contributions that successfully keep a strong lending line to both the industry and the economy. Nationalized banks will generate more jobs with the opening of more branches and having a reach in the deepest rural regions. In addition, the bank can also create more opportunities for employment by encouraging self-employment. It can provide loans to various projects that can promote employment opportunities directly and indirectly.

 

3. To keep a check on the enormous resources and give priority to a particular sector:

The takeover of commercial banks will allow the government to control huge resources from which large-scale factories can be established. It can also redirect funds to various main industries under the prevailing conditions in the world. Private sector banks did not give economic importance to industries such as the agriculture industry, small industries, cottage industries, and rural industries. The nationalization of the commercial banks could effectively enable the priority sector, in particular agriculture and small-scale industry, and encourage them to expand their businesses.

 

4. To develop the backward areas:

Banks from the private sector neglected rural and backward areas, and they focused on urban areas only. The nationalization of these banks and the opening of their branches in rural and retroactive areas will change this pattern. It would also allow banks to provide more credit for start-up industries in rural and backward regions. The above factors could also reduce the problem of regional disparities. People in poor and low-income underdeveloped countries do not have enough financial resources to buy sustainable consumer goods. Commercial banks provide loans to consumers to buy items such as houses, furniture, and refrigerators. They also help to improve the living conditions of people in developing countries by providing loan facilities for meeting their consumption needs.

 

5. To help in the implementation of monetary policy:

Nationalized banks contribute to a country’s economic growth by enforcing RBI’s monetary policy. RBI relies on Nationalised banks to ensure the effectiveness of its money management strategy, which is compatible with the needs of a developing economy.

 

6. To improve the efficiency in the banking sector:

The modernization and productivity of banks may be increased with more banks in the public sector. A better recruitment policy can be adopted that employs efficient men and women. Effective operations will improve and benefit banking services and consequently, it will benefit the economy.

 

7. To improve profits:

With the banking industry under government regulation, higher revenues will be generated. The government will reap all the income received by those banks. 

 

8. To have uniformity in banking rules and regulations:

Banking operations could be uniform across the country. The interest rates in banks will also be the same. This will create unbiased competition in the banking sector. Banks will grant loans based on the borrower’s productivity rather than the borrower’s security. This will help to finance the ventures and industries effectively with the same norms and a standardized lending policy.

 

9. For better mobilization of Savings and money lenders prevention:

In the absence of a proper banking network, private financiers use the market to deliver competitive interest rates. In addition, interest earned from these banks is to some extent exempt from income tax. Banks may also promote various types of deposits for various sectors of the population.

 

10. To make aware of baking habits:

The Bank attracts depositors with competitive deposit plans and higher interest rates. Banks provide their customers with various forms of deposit schemes. With rising literacy in rural areas, rural people should realize the value of banking practice. This means that banks, like schools and hospitals, will also be a part of everyday life in rural areas. When maximum people adopt banking habits, there are more money transactions in the country. The need for capital or hard cash is diminishing gradually. The use of electronic media will easily move funds from one location to another. Economic development in the country will intensify. As a result, the government’s income will also increase.

 

"<yoastmark

 

 

Why do commodities Exchange Exist?

 

 

Equity Right

What Happens when Businesses go Bankrupt.

What Happens when Businesses go Bankrupt.

 

How India handles Bankruptcies:

In recent years, India has changed the way it handled bankruptcy. From a bad bankruptcy system to one where simple laws and regulations are in a position to assist promoters, company owners, businessmen, and other stakeholders to deal with bankruptcy in an organized manner. For example, the new Insolvency and Bankruptcy Act specifically outlines how bankruptcies can be managed and how companies can be liquidated to benefit all stakeholders in the process of bankruptcy rather than tackling losses. The law was enforced due to huge pressure from small companies. Since the government had a perception of the very relaxed process towards large promoters and well-known industrialists.

 

What is the process of Bankruptcy:

Towns Insolvency Act of 1909 will be the rule if you live in Chennai, Mumbai, or Kolkata. However, the Provincial Insolvency Act of 1920 applies to other places in India. You can apply for insolvency under Provincial Insolvency Act if you don’t repay the debt of more than ₹500. You need to fill out an application. The court may approve or reject the request after evaluating the criteria for filing. A temporary recipient will take possession of the debtor’s property until any decision. The court is entitled to stay in legal proceedings against the debtor’s property or assets if the application is accepted. In other words, creditors may order you to be against further recovery efforts.

Once your request is accepted, the property will be handed, to the receiver’s designation by the court. The representative will then distribute the assets to creditors. The debtor will be released from bankruptcy after the process is completed by the courts. There will be no restrictions to establish and live with no concern for previous creditors. One can ask for a minimum maintenance charge for your survival as a result of the ongoing court proceedings. However, several restrictions apply to you until released from the case. The unreleased insolvent under existing law cannot act as a director, public servant, elected or sit or cast a vote as a representative of any local authority. However, you are not completely free if you have government debt or involvement in any fraudulent activity.

 

Righteousness to all the stakeholders:

Although, there is no reason to worry when companies go bankrupt. However, bankruptcy does not give a good experience for promoters, employees, or shareholders. The employees are dismissed immediately after fraud. While the shareholders risk losing their money. The rules around the world often fail to protect shareholders. As per corporate law, shareholders are paid only, if money is left after the payment of the creditors.

The debtholders are assisted to recover their money and the legislation focuses to ensures that the assets are disposed to the new owner. Moreover, there are no explicit guarantees in the legislation specifically to protect employees. Although, provisions exist for the fair disposal of the assets and the payment of dues to the employees. Hence, it is always important that shareholders and employees must exercise their proper research before investing or joining the companies.

 

Cases of the bankruptcies in the Aviation sector:

After reviewing the Indian aviation industry, which can show how bankruptcies can become messy and trigger pleasant turnarounds. For instance, Kingfisher is an example of how bankruptcies can turn the company if not managed. For the last decade, the case has dragged on, without an end to the afflicted creditors or the former staff. The former promoter lives abroad. The case of Spice Jet is, on the other hand, an example of how to deal with severe financial distress well. To turn the companies around somewhere is the main objective of Jet Airways, which seems to be trying to move towards some kind of resolution after a prolonged fight to tide the crisis. In a nutshell, all stakeholders should make sure that they do not rest when companies go bankrupt and focus instead on discovering their feet again.

 

Analysing the law on Airline Insolvency in India

 

 

Easy Steps to File a Bankruptcy Petition in India

Stamp duty and registration laws for rentals in Maharashtra

How this pandemic will change the Auto Industry?

How co-working spaces can restart post lock down

 

Banks' risky bet on unsecured loans

RBI introduces Operation Twist

RBI bond introduces Operation Twist

 

The Reserve Bank of India (RBI) came up with a bond-swapping programme and coined it as Operation Twist. RBI had announced that it would conduct a synchronous buying and selling option under the Open market operations (OMO). So, an OMO of ₹10,000 Crores each was held on 27 April, 2020. The RBI mentioned that the 10,000 Crores amount will be made up of purchase of long term securities having tenure of 6 to10 years.

The sale amount of 10,000 Crores will be made up by selling short term securities having maturity dates like June 2020, October 2020 and April 2021. Short term further having two categories of cash management bills, one of 77 days and another of 84 days and two treasury bills of 182 and 364 days respectively. These short term bills are being put on sale by the RBI keeping in mind the interim cash mismatches the government is facing recently due to economic difficulties the pandemic has produced.

Auction result reveals that the cut-off yields on which the RBI bought securities was much higher than secondary market.

To illustrate:

1) 7.26% Government security (G-sec) 2029 which had secondary market return of 6.38% was bought at 6.4%.

2) 7.59% G-sec 2026 was bought at 5.9% versus the secondary market that gave 5.8%.

Under this programme, the aggregate amount of Face Value (FV) notified by RBI was 10,000 crores, against which the participants offered a total amount of 64,746 crores . RBI received bids that were six times more than the FV of the bonds. On the other hand, bids received for the sale of securities were nearly five times than the offer, which amounted to nearly ₹50,260 Crores. The near term paper was giving lower yield than normal. The Operation Twist further aggravated the same.

 

When and why does the Central Bank conduct an OMO?

Generally, the OMO sales are undertaken when the RBI wants to take out excess liquidity from the system. Whereas, OMO purchases are done to infuse instant money into the market. Recently, RBI was seen carrying out these operations to balance the sovereign yield curve. Particularly, ensuring lower returns at the shorter end of the curve.

Referring to the auction results, Naveen Singh, senior VP, ICICI Securities Primary Dealership says since RBI could buy securities at higher percentages, this believably implies that the banks are interested to book profit on the stock.

The Stocks which were held previously for maturity were made available for sale. Inversely, the cut-off rates on the sale of near-term paper was lower than prevailing market rates. For example, the 364-day T- bill was auctioned at 3.9%, when the market rate stood 4.074%. Distinctly, the RBI is desirous to lower the interest rates at the shorter end. This move is taken to enable an economic comeback against the upset which the pandemic has produced.

 

 

MSME seek fiscal aid amid crisis

Equity Right

SEBI and RBI review situation after Franklin fiasco

SEBI, RBI review situation after Franklin fiasco

The RBI and SEBI look to determine the damage from Franklin Templeton’s decision. After their decision to close six debt funds, RBI and SEBI look to contain the fallout from this decision. Franklin Templeton’s decision has raised concerns that investors will withdraw from similar categories across the industry.

RBI’s take on Franklin Templeton’s decision:

The RBI may change rules to encourage banks to borrow more. Through the reverse repo window, RBI may limit the amount it absorbs from banks. The amount may be set at Rs. 2 lakh crore. With banks parking Rs 7 lakh crore from reverse repo, RBI believes there is enough liquidity. To deal with liquidity positions and redemption, RBI officials has communicated with fund managers and banks. One of the proposals was to goad banks to purchase bonds of firms that are investment category. The bonds should not be triple-A rated.

SEBI seeks details from mutual funds:

SEBI also needs information from mutual funds regarding liquidity position and extent of redemption from their debt schemes portfolio. Based on current portfolios, SEBI wants to determine whether mutual funds can handle huge redemption. They also want to know the position of mutual funds regarding debt fund liquidity and days required to liquidate holdings. Debt mutual funds capital is estimated at Rs. 12 lakh crore approximately. According to estimations, Franklin Templeton froze about Rs. 55,000 crore of this credit funds.

Mutual funds approach:

To contain the fallout, mutual funds have also sought help from finance ministry and Niti Aayog for measures. RBI believes there is enough liquidity for fund houses and it is only a matter of channelizing it. However, Fund houses desire to have a separate lending window. The reverse repo rate has already been cut down to 3.75%.

On April 24, mutual funds sold a few top-rated securities assuming the pressure of redemption in the coming days. In the bond market, risk aversion led to yields higher than normal by 20-30 points on April 24.

A few of the large mutual funds persuaded SEBI to boost the borrowing limit. This increase is sought due to the COVID-19 pandemic causing financial markets to freeze as there are sharp outflows. These outflows are from different debt products.

Franklin Templeton stop redemptions:

Following the massive outflows in the last 2 months, Franklin Templeton were compelled to stop redemption. Franklin Templeton has mostly low rated papers in the rest of the portfolio. They only have a select number of buyers in the current market. They have also drained the lending limits in these schemes with banks.

RBI’s inquiry:

RBI inquiry to the mutual find industry is to assess the loan amounts taken from banks. They also need information on the ‘lines of credit’ used by asset management companies and the ‘un drawn lines’. These details are required for March 31 and April 24. To meet the other payout and redemption demands, mutual funds are granted to borrow 20% of their capital from banks. If this limit is exhausted, a raise up to 40% is allowed by SEBI based on merit.

Majority of the mutual funds except Franklin Templeton has not even utilized the 20% limit after RBI pumped money. The money was injected through long-term repo operations (LTRO) in to the system in March.

As of April 23, the borrowings of four mutual funds including Franklin Templeton was Rs. 4,427 crore. On March 31, the assets under debt schemes of the mutual fund industry was Rs. 10.3 lakh crore. This figure is 16% less from the earlier month.

 

 

Mergers and Acquisitions may boost in this Covid-hit season

RBI Introduces Revisions in Redemption Funds and CP Buyback Norms

Opted for Moratorium and EMI got debited? Read Here

What to do if even after applying for moratorium, the EMI still gets debited To cushion the economic impact of the outbreak of Covid-19, the Reserve Bank of India (RBI)...