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INDIAN ECONOMY: OVERVIEW, GROWTH & DEVELOPMENT
After ADB and RBI, now IMF cuts India’s growth forecast

The International Monetary Fund (IMF) has cut India’s growth forecast for the current fiscal, following similar action by the Asian Development Bank (ADB) and the Reserve Bank of India (RBI).

“In India, growth is projected to pick up to 7.3percent in 2019 (2019-20) and 7.5percent in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy,” IMF said in its World Economic Outlook (WEO) report released on Tuesday.

IMF’s downward revisions in India’s growth forecasts are 20 basis points (bps) each in 2019-20 and 2020-21 from its outlook released in January.

Both ADB and the RBI last week cut their 2019-20 growth projection for India to 7.2percent from 7.4percent earlier, blaming rising risks to global economic growth as well as weakening domestic investment activity.

The Indian economy grew 6.6percent in the December quarter, the slowest in five quarters. That prompted the Central Statistics Office to trim its 2018-19 forecast to 7percent in February from 7.2percent estimated in the previous month.

With the Indian economy projected to slow down further in the fiscal fourth quarter, the central bank’s focus has shifted from inflationary concerns to sustaining the growth momentum.

RBI effected two back-to-back rate cuts by 25bps each to boost growth.

Of the high-frequency indicators of industry, growth in the manufacturing component of the index of industrial production (IIP) slowed to 1.3percent in January.

The growth of eight core industries remained sluggish in February at 2.1percent. Data released by Society of Indian Automobiles Manufacturers (Siam) on Monday signalled a slowdown in urban demand as car sales grew 2.4percent in 2018-19, the worst performance in 14 years.

State Bank of India cuts lending rate

State Bank of India, the country’s largest lender, has reduced its one-year marginal cost of fund based lending rate (MCLR) by 5 basis points (bps) to 8.50percent per annum from 8.55percent per annum effective Wednesday. This is the first MCLR cut since November 2017.

Most SBI retail loans, including home loan, car loan and personal loans, are currently linked to one-year MCLR. One basis point is one hundredth of a percentage point. The impact of a 5 bps rate cut on Rs 50 lakh loan for a 20-year tenure will mean a marginal saving of Rs 38,500.

SBI’s marginal rate cut of 5 bps comes after the Reserve Bank of India’s (RBI) consecutive rate cut by 50 bps in the February and April monetary policy. For loans up to Rs 30 lakh loan, SBI has reduced the interest rate by 10 bps which will now range 8.60percent-8.90percent from 8.70percent-9.00percent. Here along with the 5 bps cut in MCLR, the bank has reduced the spread, or the margin above the benchmark rate, by 5 bps from 15-45 bps to 10-40 bps.

In February, as well, the bank had reduced the spread on home loans by 5 bps. From May 1, the bank will also pass on the effective repo rate cut to its short-term loans and savings deposits above Rs 1 lakh. This means if you have a balance above Rs 1 lakh, your savings deposit interest rate will come down from 3.50percent to 3.25percent per annum.

Analysts attribute the rate cut to the linking of external benchmark repo rate to short term loans and savings deposit.

“Since certain part of the deposit is linked to repo, typically the bank’s cost of funds reduces and that benefit has been passed on the lending side. In case of other banks, unless they voluntarily change the deposit rate, which is difficult since there is a low deposit growth, it is unlikely they will cut rates,” said Hatim Broachwala, analysts at IDBI Capital.

SBI is not the first public sector bank to cut rates. Indian Overseas Bank and Bank of Maharashtra have also reduced their MCLR by 5 bps each. According to him, the chances of rate transmission are higher before elections.

“Government may try to ask public sector banks to cut rates as a political move. PSU banks may oblige but private banks won’t do so,” said Broachwala.

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SBI cuts lending rates, home loans to get cheaper

The nation’s largest lender State Bank of India Tuesday reduced the lending rates by a marginal 5 basis points across all tenors, effective April 10.

The revised one-year marginal cost of funds-based lending rate (MCLR) stands at 8.50 percent down from 8.55 percent earlier, the bank said in a statement.

The lender has also cut interest rates on housing loans up to Rs 30 lakh by 10 bps. Accordingly, the interest rate on housing loans below Rs 30 lakh will be in the range of 8.60-8.90 percent, from 8.70-9 percent earlier.

The move follows a 25 basis points cut in repo rate by the Reserve Bank in its first monetary policy review announced last week. In the February policy review also the monetary authority had lowered the key rates by a similar quantum.

In a 4:2 majority vote, the central bank had cut the repo rate to 6 percent from 6.25 percent earleir, citing the need to support growth that has been sluggish since many months.

Planning to take a loan for used car?

The auto sales have been witnessing a prolonged slowdown owing to weak consumer demand. As per data from the Society of Automobile Manufacturers Association (SIAM), the total sales in retail declined by 8.06percent in February. However, there is an uptick in the used car market.

“The new car market sales have been muted—hardly growing by 2.5-3percent year-on-year. However, used car market is growing at 15-18percent. Last year, new cars closed at 3.3 million in sales, while used car market would have sold not less than 4 million cars. Around five years ago, sales of used cars were lower than new cars. Now it is 1.3 times of the new car market. Globally, used car market is usually 2.5 to 3 times the new car market,” said Ravi Narayan, head-secured assets, ICICI Bank Ltd.

“The RC book needs to be clean. The financial institution would want to know if all the documents of the asset are clear. For instance, what if it is a car stolen,” said Narayan.

The financial institution will not want to take the risk.

“Banks will evaluate the document and value the car independently as well as based on internal parameters before deciding to lend,” said Vyomesh Kapasi, chief executive officer and managing director of Kotak Mahindra Prime Ltd.

India highest recipient of remittances in 2018

India retained its position as the world’s top recipient of remittances with its diaspora sending a whopping USD 79 billion back home in 2018, the World Bank said in a report Monday.

India was followed by China (USD 67 billion), Mexico (USD 36 billion), the Philippines (USD 34 billion), and Egypt (USD 29 billion), the global lender said.

With this, India has retained its top spot on remittances, according to the latest edition of the World Bank’s Migration and Development Brief. Over the last three years, India has registered a significant flow of remittances from USD 62.7 billion in 2016 to USD 65.3 billion 2017.

“Remittances grew by more than 14 percent in India, where a flooding disaster in Kerala likely boosted the financial help that migrants sent to families,” the Bank said.

In Pakistan, remittance growth was moderate (seven per cent), due to significant declines in inflows from Saudi Arabia, its largest remittance source. In Bangladesh, remittances showed a brisk uptick in 2018 (15 per cent).

According to the report, remittances to low-and middle-income countries reached a record high of USD 529 billion in 2018, an increase of 9.6 per cent over the previous record high of USD 483 billion in 2017.

Global remittances, which include flows to high-income countries, reached USD 689 billion in 2018, up from USD 633 billion in 2017, it said.

 

Lakshmi Vilas board okays merger deal with Indiabulls housing

India’s Lakshmi Vilas Bank Ltd said on Friday its board has approved a share swap acquisition by housing finance firm Indiabulls Housing Finance Ltd.

For every share held, the shareholders of the private-sector bank would be entitled to get 0.14 share in Indiabulls, Lakshmi Vilas Bank said in a statement.

Indian Oil Corporation stops fuel supply to Jet Airways over non-payment of dues: report

Indian Oil Corporation (IOC) Friday stopped fuel supply to the struggling carrier Jet Airways for non-payment.

The public sector oil marketing firm stopped supplying fuel to the cash-starved carrier from 12 noon Friday, sources told PTI.

Response to a query sent to Jet Airways on this issue was awaited.

Jet Airways, in which SBI-led consortium of lenders is set to take management control under a debt-recast plan, has drastically curtailed operations with a fleet of 26 planes.

On March 25, Jet Airways board had approved a resolution plan formulated by SBI-led domestic lenders, under which had agreed to infuse an emergency funding of Rs 1,500 crore into the airline, and convert the same into equity worth 50.1 percent for a notional value of just Re 1 each share.

The airline, however, has not yet received the much-needed funds.

India grabs most of foreign inflows into Asian equities in March

Indian equities attracted the biggest foreign money in seven years in March and grabbed a major chunk of inflows into Asia on optimism about the upcoming general election, while most others in the region had a lacklustre show due to lingering global slowdown worries and weaker exports.

Overseas investors bought $4.96 billion worth of Asian shares in March, data from stock exchanges in South Korea, Taiwan, India, Thailand, the Philippines, Indonesian and Vietnam showed.

Indian stock markets received $4.89 billion, the biggest since February 2012, on expectations that Prime Minister Narendra Modi will come back to power in the over-a-month-long polls that commence next week.

On the back of solid flows, Sensex and Nifty gained about 7.7 percent last month, the highest among emerging markets.

“Most recent opinion polls have swayed in favour of the ruling coalition compared to three months ago, which had predicted a tighter contest,” ANZ said in a report.

“This has helped revive sentiment towards Indian asset prices as a close contest is not considered the best outcome by markets.”

South Korean markets witnessed inflows of $262 million, while Indonesia, Thailand, Vietnam and Philippines all had received about $100 million or less.

However, foreigners sold $512 million worth of Thai equities due to political uncertainty after a general election.

Delays in final results from Thailand’s first polls in five years have added to uncertainties facing the slowing economy, raising the risk of political gridlock that could disrupt government spending and keep foreign investors away.

Overall, foreigners purchased $15.87 billion worth of stocks in the seven markets in the first quarter, the biggest in two years, data showed.

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