How the Yes Bank crisis has caused a domino effect

Masses were only reviving and starting to gain their faith in the financial system of the country when we witnessed yet another setback, this time to the banking segment of the nation. Private banking player Yes Bank, which once had a dominant position in the country saw its NPAs climbing fast with the bank’s primary lenders currently undergoing steep valuation declines or started undergoing an investigation itself.

The resultant cash crunch was responsible for the trickle-down effect that not only affected the direct account holders but had an impact on various other fronts as well.

The first and foremost effect of the Yes Bank crisis was on Life Insurance Corporation of India. The insurer has usually seen a high amount of revenue collection coming in the month of March every year. The premiums usually flow in these days as online payments. With the automation of processes, the bank for NACH debit and cheque clearances for LIC was Yes Bank which is expected to affect the collections for the corporation for the month of March for Q4 ‘20.

LIC had also earlier sent a message stating there would be a delay in premium debit for policies. This would add to the distress that the crisis has already been causing.

Another impact is on the account holders as the bank is under a moratorium restricting the monthly withdrawal to Rs 50,000, subject to certain exceptions and prior approvals from RBI. This is not only bound to hinder the day to day activities for people whose, primary bank accounts were in yes Bank, but may also hamper small businesses.

Not only would this affect the daily lifestyle, but it may also demotivate the people who wanted to apply for the SBI Card IPO. Out of all the applications for allotments received for the IPO, applications worth Rs 1,500 crore were through people with their accounts in Yes Bank.

Even though the company said that if the applicants are able to pay the amount through an alternative bank account the allotment would still be done, this may not be a practically feasible option for many in such a short notice. Thus, the crisis is expected to have its effects on the IPO too, affecting the listing price and number of participants to a huge extent.

On the other side however, one should also keep in mind that a good participation even if after the effects of the crisis, may help Yes Bank in the long run. This can be said based on the fact that SBI would be infusing capital in the beleaguered bank soon, taking a 49 percent stake as a part of restructuring scheme that has been proposed. The collections of the IPO would thus help SBI fund this move too. However, whether each process would be executed successfully is based upon the IPO’s performance in the current bearish markets.

Gains from massive bond buying helped transfer higher surplus: RBI

MUMBAI : The Reserve Bank could transfer an additional ₹1.23 trillion from its surpluses to the government, thanks to the gains from bond buying and a change in the accounting practices of its forex operations, sources said Wednesday.

These two heads alone have contributed as much as ₹57,000 crore to the income of the central bank, people in the know explained.
There has been widespread criticism after the RBI agreed to part ₹1.76 trillion with the government following the Bimal Jalan committee report on the appropriate economic capital framework for the central bank. The ₹1.76 trillion includes a surplus of ₹1.23 trillion and ₹52,000 crore in one-time surplus.

The higher quantum of bond buying to inject liquidity into the system has resulted in additional income of ₹36,000 crore, while the changes in accounting practices resulted in gains of ₹21,000 crore, the source said.
Without quantifying the gains, the source also said that there is no need to provide money against potential risks as the capital required is falling within the levels prescribed by the Jalan committee.

"These three heads (OMO income, change in forex accounting and zero provisions) are all independent events that have taken place at the some point during the fiscal year," the source explained.

On the one-time transfer of ₹52,000 crore, the source said passing the money to the government is considered a "much neater" way of transferring the excess reserves identified by the Jalan committee.

The source said the Jalan committee was extra conservative while prescribing the preferred levels of buffers required to be maintained, and takes into account a scenario where the 10 largest banks go down simultaneously in an ownership-agnostic way.
The levels prescribed are such that the RBI will be able to carry on its role as the lender of last resort even if these 10 banks were to go down, the source pointed out.

The Jalan panel has asked the central bank to maintain its risk buffers in the range of 5.5-6.5 percent of its overall balance sheet and that the transfer of ₹52,000 crore will not force the RBI to sell any assets to meet this requirement, the source said.

Replying to the initial excitement after papers, including those published by some "respected people" which pegged the excess reserves at ₹3 trillion, the source explained that the same stems from the size of the currency and gold revaluation account (CGRA).

The CGRA stood at ₹7.3 trillion for the year June 2019 (RBI follows a July-June accounting calendar which will be changed to April-March from this year as per the Jalan panel), which resulted in such expectations. However, the panel has made it clear that investments in both forex and gold are prone to volatilities, and only transaction on sale should lead to booking of profit or losses which led to the expectations being belied.

The panel has also felt that paying interim dividend as has been done in the last two years, is "not the right thing to do", the source said.

Interestingly, the source also said the RBI's thinking is still aligned to the concerns expressed by then deputy governor Viral Acharya in an October 2018 speech against raiding the balance sheet of the RBI.
However, the panel has defined the right level of the buffers which takes care of many of those concerns, the source said, adding the levels are arrived at with a lot of rigour.

The Jalan committee also makes the distinction between the sovereign and the RBI's balance sheet very clear, giving a separate place of importance for the latter, the source said.

"This debate the committee has put to rest by saying that the RBI is the primary bulwark of monetary and financial stability," the source said.

36 stocks return over 100% in 2019, many more multibaggers in making

• Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful”. Most experts suggest this is the time to turn greedy

Given the dismal performance of the equity market, it may be ironical but experts feel that 2019 could be the golden year for investments. There are many stocks that are trading at attractive valuations and can turn out to be multi-baggers in years to come.

In recent years, the number of stocks that gave multi-bagger returns has come down. The number of stocks that rose more than 100 percent tanked from 611 in 2017 to 36 in 2019. The number of stocks that gave more than 500 percent return fell from 15 in 2017 to 1 in 2019. And, the number of stocks that rose more than 1,000 percent also reduced from 4 in 2017 to 1 in 2019.

Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.” Most experts suggest this is the time to turn greedy. Market valuations, at an aggregate level, are still not cheap, however many stocks do look attractive.

Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.” Most experts suggest this is the time to turn greedy. Market valuations, at an aggregate level, are still not cheap, however many stocks do look attractive.

“After the trough in the last three corrections, equities were up 28 percent one year after the date of the trough. Midcaps have done better, up 39 percent during similar periods. Our opinion is that this would be a good time to buy stocks with an investment horizon of one year or longer,” he said.

The investor sentiment has turned sour in 2019 thanks to fears of a slowdown in the economy. Trade war tensions between the US and China is not helping either.

For the sentiment to improve, private capex has to pick up. The Reserve Bank of India reduced rates by 35 bps earlier in August to kick start the economy but the results are still some time away. Hence, investment should be made with a time horizon of 3-4 years.

“Given a three to five-year time horizon, stock nibbling won’t be such a bad idea, especially if done in a staggered manner,” Amar Ambani, President-Head of Research, YES Securities said.

To push growth, RBI cuts repo rate by 35 basis points to 5.4%

In an unusual move, the Reserve Bank of India (RBI) on Wednesday, 7 August, reduced the benchmark lending rate by 35 basis points to 5.40 percent amid concerns over slowdown in economy.

The fourth consecutive rate cut is expected to lower equated monthly installments (EMIs) for home and auto buyers, and borrowing cost for corporate. Earlier this week, banks had assured Finance Minister Nirmala Sitharaman of passing on the benefits of RBI's rate cut to borrowers.

The 35 basis points (bps) cut in repo is unusual, as the RBI has been changing the interest rate by 25 or 50 bps in the past.

When asked why the RBI opted for a 35-basis point rate cut, RBI Governor Shaktikanta Das said it is not unprecedented, and added that a 25-basis point reduction was inadequate while 50 bps was excessive, so the MPC took a balanced shell.

RBI imposes Rs 50 lakh fine on SBI

State Bank of India (SBI) on August 3 said the Reserve Bank has imposed a penalty of Rs 50 lakh on it for non-compliance relating to reporting of frauds.

The RBI in exercise of the powers conferred under various sections of the Banking Regulations Act, has imposed a penalty of Rs 50 lakh on the bank for non-compliance with its directions relating to reporting of frauds, SBI said in a regulatory filing.

The RBI in exercise of the powers conferred under various sections of the Banking Regulations Act, has imposed a penalty of Rs 50 lakh on the bank for non-compliance with its directions relating to reporting of frauds, SBI said in a regulatory filing