2019
Volume 7
THIS MONTH
Season’s greetings!
In this issue, Mr. Ashish Kumar Srivastava, MD & CEO, PNB MetLife India Insurance, has presented
his thoughts on ‘Life Insurance Industry: Shape of Things to Come’. We thank Mr. Ashish Kumar
Srivastava for his contribution to the APAS Monthly.
This month, the APAS column presents its views on ‘Savings: Growth and trends; Savings Avenues
in India.’
The economic indicators showed mixed performance. Manufacturing PMI fell to 52.1 in June from
52.7 in May. India’s annual infrastructure output in June grew at 0.2%. India's Index of Industrial
Production (IIP) slowed to 3.1% in May. PMI services fell to 49.6 in June from 50.2 in May, while
composite PMI fell to 50.8 in June from 51.7 in May. CPI inflation rose to an 8-month high of 3.18%
in June from 3.05% in May. WPI inflation slipped to a 23-month low of 2.02% in June from 2.45% in
May.
The Reserve Bank of India (RBI) announced the Third Bi-monthly Monetary Policy Statement, 2019-
20 Resolution of the Monetary Policy Committee (MPC). The RBI launched Utkarsh 2022 – RBI’s
Medium-term Strategy Framework. The RBI released Financial Benchmark Administrators (Reserve
Bank) Directions, 2019. The RBI also released regulations on Rupee Interest Rate Derivatives
(Reserve Bank) Directions, 2019. The RBI announced Additional Liquidity Facility to Banks for
Purchase of Assets from and/or on lending to NBFCs/HFCs.
APAS
MONTHLY
The Insurance Regulatory and Development Authority of India (IRDAI) released guidelines on
Insurance Regulatory and Development Authority of India (Non-Linked Insurance Products)
Regulations, 2019.
Ministry of Finance announced norms on FDI in Multi - Brand Retail.
Securities Exchange Board of India (SEBI) released norms on Guidelines for Liquidity Enhancement
Scheme (LES) in Commodity Derivatives Contracts. The SEBI also released Guidelines on Disclosure
of divergence in the asset classification and provisioning by banks.
We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts and encourage
you to share them with us.
Ashvin parekh
On the cover
GUEST COLUMN
Mr. Ashish Kumar Srivastava MD & CEO PNB MetLife India Insurance Life Insurance Industry: Shape of things to come
ECONOMY
➢ Index of Industrial Production – May
➢ Inflation update – June
➢ PMI update – June
➢ Core Sector – June
APAS COLUMN
Savings: Growth and trends; Savings Avenues in India
INSURANCE ➢ Insurance Regulatory and Development Authority of
India (Non-Linked Insurance Products) Regulations,
2019
INFRASTRUCTURE & OTHER
GOVT. INITIATIVES
➢ FDI in Multi - Brand Retail
BANKING
➢ RBI Third Bi-monthly Monetary Policy Statement, 2019-20
➢ Launch of Utkarsh 2022 – RBI’s Medium-term Strategy
Framework
➢ Financial Benchmark Administrators (Reserve Bank)
Directions, 2019
➢ Rupee Interest Rate Derivatives (Reserve Bank)
Directions, 2019
➢ RBI Announces Additional Liquidity Facility to Banks for
Purchase of Assets from and/or onlending to NBFCs/HFCs
CAPITAL MARKETS SNAPSHOT
➢ CNX Nifty, BSE Sensex, India VIX, $/₹, GIND 10Y
CAPITAL MARKETS
➢ Guidelines for Liquidity Enhancement Scheme (LES)
in Commodity Derivatives Contracts
➢ Disclosure of divergence in the asset classification
and provisioning by banks
ECONOMIC DATA SNAPSHOT
➢ Global GDP, CPI, Current account balance, budget
balance, Interest rates
The Indian Life Insurance industry has demonstrated an impressive growth over the years with 15.7% CAGR growth in total new business premium between FY 2016 and FY 20191. This momentum is further expected to accelerate and as per a recent report by IBEF, life insurance industry in the country is estimated to grow by 12%-15% annually for the next three to five years2.
In spite of the protection gap of the country being one of the highest globally and the life insurance penetration during 2017 being reported low at 2.8% as compared to the global average of 3.3%3, Indian life Insurance industry has huge promises to hold.
Among the various factors that have contributed to the growth of life insurance industry, demographic conditions such as rise in middle class and the young insurable population have been major driving forces. India is one of the Nations with the highest youth population and the median age of the Country’s population is 28 years. Also, 90% of Indians estimated to be under 60 years by 20204. This large segment of young insurable population coupled with rapid urbanization and rising affluence, is further expected to propel Indian life insurance sector.
With the growth of young population, it becomes imperative for life insurers to find ways to effectively tap
this segment. The easiest way to reach out to this generation (also referred to as millennials) is through
technology. Hence, along with the other industries and sectors, life insurance companies are also now
welcoming new-age technology in form of Data Analytics, Artificial Intelligence, Chatbots among others.
Alongside, life insurers are also experimenting in studying big data to understand predictive behaviour among
the next generation of customers, so they can use the right vehicle to reach out to this segment. At PNB
MetLife our focus has been on 3Ds – Data, Digitize and Disrupt. We leverage ‘data’ to improve our ability to
generate meaningful and actionable insights, invest in ‘digitization’ to improve operational efficiencies,
productivity and the scalability of our operations and develop ‘disruptive’ technology to differentiate our
business from our competitors. We were in fact the first life insurance company in India to introduce khushi,
a virtual assistant based on an artificial intelligence framework that can chat with an existing or prospective
customer and help respond to queries related to their policies.
The adoption of technology, along with delivering superior customer experience, is also beneficial to the life insurance companies. As per the recent report published by PwC, digitisation can reduce around 15–20% of the cost of life insurance product offerings.5 At PNB MetLife, we have been driving our digitization efforts
Life insurance industry:
Shape of things to come
Mr. Ashish Kumar Srivastava MD & CEO PNB MetLife India Insurance
through innovating platforms, as well as by utilizing artificial intelligence, machine learning, blockchain technology, robotic process automation, chatbot platforms and natural language processing. Our recently implemented Robotic Process Automation (RPA) for Auto Debit Mandate Process, which along with reduction of errors has resulted 80% reduction in TAT from 15 man-hours to 3 man-hours – all leading to cost reduction and operating efficiency.
While technology does aid in driving operational efficiencies, much needs to be done to move away from the
traditional ‘product-driven approach’ to ‘customer-driven strategies’. In this context, it is of prime importance
for the life insurers to assess the needs of their customers and thereby offer solutions. At PNB MetLife, we
partner with our customers for their ‘Circle of Life’ or at their 4 different stages of life – Child Education, Family
Protection, Long Term Savings and Retirement. Customers also value such a gesture and we have seen that
this type of proposition not only results in longer association with customers but also triggers them with a
thought to take up additional protection cover for their family. Such initiatives will help in altering perception
towards life insurance as a mere tax saving product to a financial solution providing security to the family.
Along with focus on increasing the scalability of life insurance products to the customers, it is also important for life insurers to concentrate on claims management process. It is important to understand that the ultimate goal of life insurance is to offer protection to the family and hence as life insurers it becomes important for us to ease the processes for our customers when they actually need it. At PNB MetLife we made a conscious effort towards this objective of offering hassle free claims management process to our customers which, resulted in reduction of average claims TAT from 2 calendar days to 1 calendar day. Globally our promoter Company ‘MetLife Inc.’ is bringing in innovative concepts around this aspect. Recently LumenLab, MetLife’s Asia innovation centre at Singapore, launched ‘Life Chain’, in collaboration with NTUC Income, the Singapore based Insurance cooperative, and Singapore Press Holdings. This Ethereum based blockchain platform has capability to retrieve the deceased’s National Registration Identity card and send a trigger to NTUC, looking for a match with life insurance policy. If the match is found, then Singapore Press Holdings will release an obituary and NTUC will initiate the claims process. In India, also we would need such technologies, which can enable hassle-free claims process.
Given the huge opportunity that lies within the Indian life insurance sector, it is imperative for the organizations to leverage technology, which can help in addressing the needs of the customers. The world is moving at a fast pace and like other industries, life insurance industry is also adapting its touchpoints and processes basis the behaviour pattern of the customers.
1 Source – CRISIL 2 https://www.ibef.org/industry/insurance-sector-india.aspx 3 As per CRISIL report, 2017 4 CRISIL
5 https://www.pwc.in/assets/pdfs/consulting/financial-services/competing-in-a-new-age-of-insurance.pdf
*Views are personal. Neither APAS nor any of its employees endorse any view, product or services mentioned in the article
Income security during retirement is primary social achievement in 20th century. In light of withdrawal of
Government sponsored savings and pension plans and increasing private jobs, savings have assumed all the
more importance in the past decade.
The world economy stands on the brink of a sizable, long-term decline in household savings, driven by a global
aging process that is set to become faster and more synchronous in the coming decades. The trend in savings
across the world varies from developed to developing countries. The savings portfolio scenario in developed
countries appears grim due to several factors including aging population, increase in life spans and
dependence on Government sponsored schemes (which is further aggravated due to Global financial crisis,
rising oil prices and low yields).
The savings space is in India is spread across different avenues including bank deposits, life insurance products
like ULIPs - which offer market-linked returns embedded with insurance, mutual funds, stock markets, NPS,
postal savings scheme and physical savings such as real estate, gold, etc.
The Gross Financial Savings during 2014-15, 2015-16 and 2016-17 were INR 12,572 billion, INR 15,207 billion
and INR 14,048 billion. As per the data for 2017-18, around INR 18,800 billion were invested in Financial assets.
As of March 2018, India’s Gross National Savings (GNS), as a percentage of GDP, stood at 30.5 per cent.
Traditionally, banks have been an important avenue where the investors preferred to park their household
savings. However, during the recent years, there has been a dramatic shift within the savings space. Bank
deposits in India have been trending down since FY10, falling off to sub-10% over the past one year from an
average of 17% over FY09–13 and 12% over FY13–16.
The important avenues which have been actively replacing Bank deposits as an investment destination have
been mutual funds. The AUM of the Indian MF Industry has grown from INR 5.83 trillion as on 30th June 2009
to INR 24.25 trillion as on 30th June 2019, more than 4-fold increase in a span of 10 years. There has been
around 22% increase in AUM of Mutual Funds in India during 2017-18.
This tremendous shift can be attributed to the continuous yet massive demographic shift. The simultaneous
development of the capital markets has also been responsible for continuous development of the mutual fund
as savings environment. Furthermore, tax-saving of certain mutual funds has further lured investors into it,
along-with very good returns. Increase in mutual funds have led to a surge in capital markets also. The annual
average of share price index of BSE Sensex was 27,338 and Nifty was 8,638 for FY 2016-17. The annual average
Savings: Growth and
trends; Savings Avenues in
India
of share price index of BSE Sensex was 32,396 and Nifty was 10,424 for FY 2017-18. The below given table
gives a year-wise breakup of quantum of financial savings apart from mutual funds from 2012-18.
Based on the above data, we can observe that there has been a steep decrease of savings in Bank deposits
and a steep increase of investments in Shares during 2017-18.
Apart from financial savings, the physical assets also accounted for sizeable portion of savings. The savings in
physical assets were around INR 14,164 billion, INR 15,000 & INR 12,700 billion during 2013-14, 2014-15 and
2015-16 respectively. For 2016-17 it was around INR 13,900 billion.
While understanding the savings scenario in India, we may consider certain facts:
There has been a demographic shift and transformation of Indian household from savings-focused loan-averse
investor to consumption-focused leveraged consumer. The shift from Government-jobs to IT-sector jobs have
led to huge amount of urbanization and a lifestyle change, along-with greater amount of investor awareness.
With greater risk-taking ability and ability to understand markets, the investors have turned towards avenues
such as mutual funds and capital markets. The Association of Mutual Fund Industry (AMFI)’s concentrated
efforts like ‘Mutual funds sahi hai’ campaign have also helped in big way in increasing mutual fund segment
in India.
Drilling down further, we find that banks are incrementally becoming more of a transaction avenue and less
of savings destination given the low differential between savings rates and term deposits. This explains the
outsized growth in savings deposits vis-a-vis retail term deposits.
With the increase in private jobs, the savings have to suffice for pension in old age too. National pension
scheme (NPS) has emerged as a preferred voluntary pension fund destination for both public and private
sector employees.
Within the insurance segment, we can see unit-linked savings schemes which link together the market returns
and protection scheme as becoming one of popular saving options.
Savings avenues in rural areas are still limited to bank deposits, postal savings schemes, LIC, etc. The huge
presence of public-sector banks like SBI has encouraged the rural population to opt for bank deposits as
preferred avenue for savings. In progressive rural areas, local banks usually fund the business activities which
eventually results in deposit-accounts for such population.
Among the high-net worth individuals, wealth management services would include tax planning and financial
planning. High net worth households have grown at a fast rate, from 2011-19 growing at a CAGR of about 21.5
per cent.
A young, risk-taking population prefers greater returns with greater risk. However, the savings scenario in
India remains as diverse as its population. The investors should also understand the cyclical nature of the
markets and benefits of portfolio diversification. Also, when the population shifts from income generating
phase to savings utilization-focused phase (when the aged-population wants to consume its savings), a further
shift can be expected towards traditional savings product which are less risk-prone.
There has been a positive growth in each savings avenue. Certain sections like mutual funds have become
quite popular among investors. The trend of market-linked savings might continue for a while and may benefit
from the growing capital markets. However, as can be seen from the trend in last year, mutual funds have to
an extent replaced certain traditional avenues of savings like bank deposits.
-APAS
IIP (Index of Industrial Production) – May
Index of Industrial Production (IIP) or factory output for the month of May 2019 slowed to 3.1%, compared to
4.3% in April 2019, and 3.8% in May 2018.
The General Index for the month of May 2019 stands at 133.6, which is 3.1% higher as compared to that in
May 2018.
The growth was weighed down by muted growth in mining and manufacturing sectors.
The cumulative growth for the period April-May 2019-20 over the corresponding period of last year stood at
3.7%.
As per Use-based classification, the growth rates in May 2019 over May 2018 are 2.5% in primary goods, 0.8%
in capital goods, 0.6% in intermediate goods and 5.5% in infrastructure/construction goods.
Consumer durables and non-durables have recorded growth rates of -0.1% and 7.7% respectively.
The manufacturing sector, which constitutes 77.63% of the index, slowed to 2.5% in May, compared to 3.6%
growth last year.
Electricity generation rose sharply to 7.4% in May, compared to 4.2% last year.
Mining sector output slipped to 3.2% in May, compared to 5.8% last year.
In terms of industries, 12 out of 23 industry groups in the manufacturing sector have shown growth in May
2019 from May 2018.
The industry group ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of
articles of straw and plaiting materials’ has shown the highest growth of 24.8%, followed by 15.9% in
‘Manufacture of food products’ and 9.4% in ‘Manufacture of computer, electronic and optical products’.
On the other hand, the industry group ‘Manufacture of paper and paper products’ has declined most by
12.2%, followed by 9.9% in ‘Manufacture of furniture’ and 8.7% in ‘Manufacture of fabricated metal products,
except machinery and equipment’.
ECONOMY
Source: APAS BRT, www.mospi.gov.in
CPI (Consumer Price Index) – June
India's consumer price index (CPI) or retail inflation rose to an 8-month high of 3.18% in June 2019, compared
to 3.05% in May 2019 and 4.92% in June 2018.
The corresponding provisional inflation rates for rural and urban areas are 2.21% and 4.33% respectively.
The Consumer food price index (CFPI) rose to 2.17% in June from 1.83% in May.
Among the CPI components, inflation for food and beverages increased to 2.37% in June 2019 from 2.03% in
May 2019.
Within the food items, the inflation rose for pulses and products to 5.68%, meat and fish to 9.01%, fruits to -
4.18%, milk and products to 0.63%, prepared meals, snacks, sweets, etc. to 2.7%, spices to 1.59% and cereals
and products to 1.31%. On the other hand, the inflation eased for vegetables to 4.66%, sugar and
confectionery to -0.09%, oils and fats to 0.74% and non-alcoholic beverages to 3.07% in June 2019.
The inflation for housing was flat at 4.84%, while that for miscellaneous items fell to 4.45% in June.
Within the miscellaneous items, the inflation declined for transport and communication to 0.73%, household
goods and services to 4.28% and recreation and amusement to 5.2%, while it moved up for personal care and
effects to 3.23%, health to 8.22% and education to 6.79% in June 2019.
The inflation for clothing and footwear eased to 1.52%, while that for fuel and light also eased to 2.32% in
June.
2.4
1.7
0.1 0.1
3.4
3.1
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19
IIP (% YoY)
Base rate 2011-12
Source: APAS BRT, www.mospi.gov.in
WPI (Wholesale Price Index) – June
India's wholesale price index (WPI) inflation slipped to a 23-month low of 2.02% in June 2019, as compared to
2.45% in May 2019 and 5.68% in June 2018.
The rate of inflation based on WPI Food Index eased slightly to 5.04% in June 2019 from 5.1% in May 2019.
The index for primary articles rose by 1.4% from the previous month.
Under primary articles, ‘Food articles’ group rose by 1.1% due to higher prices were fish-marine (6%), pork,
arhar, barley, peas/chawali and moong (4% each), fruits & vegetables and urad (3% each), beef and buffalo
meat, masur and maize (2% each) and mutton, condiments & spices, rajma and paddy (1% each). However,
the prices declined for betel leaves (26%), tea (2%) and ragi and poultry chicken (1% each).
The ‘Non-Food Articles’ group rose by 0.7% due to higher prices of raw rubber (12%), fodder (5%), groundnut
seed (4%), safflower (kardi seed) (3%), mesta, hides (raw), rape & mustard seed and soyabean (2% each) and
raw silk and cotton seed (1% each). However, the prices declined for floriculture (8%), gingelly seed and copra
(coconut) (3% each), castor seed and guar seed (2% each) and niger seed, raw jute, linseed, industrial wood
and sunflower (1% each).
‘Minerals’ group rose by 14.5% due to higher prices of copper concentrate (41%), bauxite (6%) and manganese
ore (4%). and chromite (2% each). However, the prices declined for limestone (12%), lead concentrate (4%),
zinc concentrate (3%) and iron ore (1%).
‘Crude petroleum and natural gas’ group declined by 0.3% due to lower prices of crude petroleum (1%).
2.05
2.572.86 2.92
3.053.18
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19
CPI
Base rate 2011-12
The index for fuel and power declined by 1.3% from the previous month.
Under fuel and power, ‘Coal’ group rose by 0.3% due to higher prices of lignite (7%).
‘Mineral oils’ group declined by 2.2% due to lower prices of naphtha (10%), furnace oil (5%), bitumen (4%),
petrol (2%) and HSD (1%). However, the prices moved up for kerosene (2%) and lube oils and LPG (1% each).
The index for manufactured products remained unchanged from the previous month.
Source: APAS BRT, www.eaindustry.nic.in
Manufacturing PMI – June The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) lost growth momentum in June, due to
slower order growth, leading to slower output and employment growth.
The Manufacturing PMI fell to 52.1 in June 2019 from 52.7 in May 2019. It stayed above the 50 level, that
separates expansion from contraction, for the 23rd consecutive month.
A softer increase in new work intakes translated into slower rises in output and employment.
Also, new export order growth eased to the second slowest in over a year.
Meanwhile, input buying strengthened to a 4-month high, with stocks rising the most in over 2 years, while
there was another decline in inventories of finished goods.
In terms of prices, June data continued to show only a moderate increase in input costs, which in turn,
supported another round of selling charges discounting.
Lastly, sentiment remained upbeat, though weakened slightly from that recorded in May.
2.762.93
3.18 3.07
2.45
2.02
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19
WPI
Base rate 2011-12
Source: www.tradingeconomics.com
Services PMI – June
The Indian services sector activity contracted for the first time since May 2018, as weak sales, competitive
pressures and unfavourable taxation hampered output.
The Nikkei India Services Purchasing Managers’ Index (PMI) Business Activity Index fell to 49.6 in June 2019
from 50.2 in May 2019. The index fell below the neutral mark of 50, which separates expansion from
contraction.
New orders were broadly stagnant amid competitive pressures and weak underlying demand.
Meanwhile, foreign sales rose for the fourth straight month, albeit at a slower pace and employment growth
slowed to a 22-month low.
Unfinished business continued to rise, which was linked to delayed client payments.
On the price front, despite accelerating from May’s 28-month low, overall rate of input cost inflation was
negligible and below the average.
Selling prices rose further, but the rate of charge inflation was marginal, holding close to May’s 3-month low
and remaining below its long-run trend.
Finally, confidence weakened to a 4-month low, though remained positive.
The seasonally adjusted Nikkei India Composite PMI Output Index fell to 50.8 in June from 51.7 in May, its
lowest mark in over a year.
Source: www.tradingeconomics.com
Core Sector Data – June
Eight infrastructure sectors grew at their slowest rate in over 4 years in June 2019, rising 0.2%, mainly due to
a contraction in oil-related sectors as well as in cement production.
The eight core sectors – coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity
– had grown by 4.3% in May 2019 and 7.8% in June 2018.
The combined index of eight core industries stood at 131.4 in June 2019.
Crude oil output contracted by 6.8%, while refinery segment de-grew by 9.3%.
Cement output declined by 1.5%, whereas natural gas output declined by 2.1%.
Coal production expanded by 3.2%, fertilisers by 1.5%, steel by 6.9% and electricity by 7.3%.
Cumulatively, the growth in the eight core sectors during April-June 2019-20 was 3.5%, as against 5.5% in the
same period last financial year.
Source: APAS BRT, www.eaindustry.nic.in
6.7 6.6
4.2 4.34.8
3.52.6
1.8 2.1
4.7
2.6
5.1
0.2Co
re s
ect
or
dat
a %
Month
Core sector Trend - Monthwise
RBI Third Bi-monthly Monetary Policy Statement, 2019-20
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy
Committee (MPC) at its meeting decided to:
• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75
per cent to 5.40 per cent with immediate effect. Consequently, the reverse repo rate under the LAF stands
revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.
• The MPC also decided to maintain the accommodative stance of monetary policy.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price
index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main
considerations underlying the decision are set out in the statement below:
Assessment
Global Economy
Global economic activity has slowed down since the meeting of the MPC in June 2019, amidst elevated trade
tensions and geo-political uncertainty. Economic activity remained weak in major emerging market economies
(EMEs), pulled down mainly by slowing external demand.
Crude oil prices fell sharply in mid-May on excess supplies from an increase in non-OPEC production, combined
with a further weakening of demand. Consequently, extension of OPEC production cuts in early July did not
have much impact on prices. Gold prices have risen sharply since the last week of May, propelled by increased
safe haven demand amidst rising downside risks to growth and a worsening geo-political situation. Inflation
remained benign in major advanced and emerging market economies.
Financial markets were driven by the monetary policy stances of major central banks and intensifying geo-
political tensions.
BANKING
Domestic Economy
On the domestic front, the south-west monsoon gained intensity and spread with the cumulative rainfall 6
per cent below the long-period average (LPA) up to August 6, 2019. In terms of its spatial distribution, 25 of
the 36 sub-divisions received normal or excess rainfall as against 28 sub-divisions last year. The total area
sown under kharif crops was 6.6 per cent lower as on August 2 than a year ago. The live storage in major
reservoirs on August 1 was at 33 per cent of the full reservoir level as compared with 45 per cent a year ago.
The transmission of policy repo rate cuts to the weighted average lending rates (WALRs) on fresh rupee loans
of banks has improved marginally since the last meeting of the MPC. Overall, banks reduced their WALR on
fresh rupee loans by 29 bps during the current easing phase so far (February-June 2019).
Outlook
In the second bi-monthly monetary policy resolution of June 2019, CPI inflation was projected at 3.0-3.1 per
cent for H1:2019-20 and 3.4-3.7 per cent for H2:2019-20, with risks broadly balanced. The actual headline
inflation outcome for Q1:2019-20 at 3.1 per cent was in alignment with these projection
The MPC notes that inflation is currently projected to remain within the target over a 12-month ahead horizon.
Since the last policy, domestic economic activity continues to be weak, with the global slowdown and
escalating trade tensions posing downside risks. Private consumption, the mainstay of aggregate demand, and
investment activity remain sluggish. Even as past rate cuts are being gradually transmitted to the real
economy, the benign inflation outlook provides headroom for policy action to close the negative output gap.
Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the
highest priority at this juncture while remaining consistent with the inflation mandate.
Launch of Utkarsh 2022 – Reserve Bank of India’s Medium-term Strategy Framework
Shri Shaktikanta Das, Governor launched ‘Utkarsh 2022’, the Reserve Bank of India’s Medium-term Strategy
Framework, in line with the evolving macroeconomic environment, to achieve excellence in the performance
of RBI’s mandates and strengthening the trust of citizens and other institutions.
A formal strategic management framework was launched in April 2015 to rearticulate the core purpose, values
and vision statement of the Reserve Bank so as to delineate its strategic objectives in contemporary terms, to
provide a framework and backdrop within and against which its policies would be formulated. These core
purposes (reflecting the RBI’s commitments to the nation) and values (Public Interest, Integrity and
Independence, Responsiveness and Innovation, Diversity and Inclusiveness, and Introspection and Pursuit of
Excellence) still remain relevant and valid; however, a need has been felt to have a medium-term dynamic
Vision statement reflecting our responses to emerging challenges and dynamics of the economic, social and
technological environment in which we operate.
The strategic framework contains, inter alia, the Bank’s Mission, Core Purpose, Values and Vision Statements,
reiterating the Bank’s commitment to the Nation. The Medium-term Vision Statements set out the following:
• Excellence in performance of statutory and other functions;
• Strengthened trust of citizens and other Institutions in the RBI;
• Enhanced relevance and significance in national and global roles;
• Transparent, accountable and ethics-driven internal governance;
• Best-in-class and environment friendly digital as well as physical infrastructure; and
• Innovative, dynamic and skilled human resources
These vision statements are mutually reinforcing and will guide the RBI during the medium-term period (2019-
22) through various strategies. The strategies are essentially well thought-out actions to capitalize on the
emerging opportunities and meet challenges of the future. The desired outputs are proposed to be realized
in terms of achievement of strategic goals through one or more tangible and time-bound milestones.
The Management of the Reserve Bank attaches high importance to ‘Utkarsh 2022’ and will periodically
monitor its implementation and progress through a Sub-committee of the Central Board.
Financial Benchmark Administrators (Reserve Bank) Directions, 2019
The main content of these regulations pertaining to Financial Benchmark Administrators (FBA) are as follows:
1. Extent and applicability
2. Definitions
3. Authorization of FBA
4. Eligibility criteria for FBAs
5. Grant of authorization to administer a ‘significant benchmark’
6. Authorized FBAs shall adhere to the following directions for administering ‘significant benchmarks
a. Overall Responsibility of FBAs
b. ‘Significant Benchmarks’: Formulation, Determination and Review
c. Organizational and Process Controls (Role of Oversight Committee)
d. Internal Control
e. Outsourcing of ‘significant benchmark’ related work
f. Complaint Management
g. Data Preservation
7. Exemption from the provisions of these directions
8. Revocation of authorization
9. Transition or Termination of administration
10. Benchmark Publication
11. Reporting
Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019
The main content of these regulations pertaining to Rupee Interest Rate Derivatives are as follows:
1. Short title, scope and commencement of the directions
2. Definitions
3. Eligible Participants
4. Trading Venues
5. Interest Rate Derivatives on Recognized Stock Exchanges
6. Interest Rate Derivatives in the OTC Market
7. Transactions by non-residents for the purpose of hedging interest rate risk
8. Transactions by non-residents for purposes other than hedging interest rate risk
9. Remittance/Payments by non-residents
10. KYC for the non-resident
11. Conditions applicable to IRDs on both exchanges and in the OTC market
12. Regulatory reporting
RBI Announces Additional Liquidity Facility to Banks for Purchase of Assets from and/or onlending
to NBFCs/HFCs
As articulated during the post-MPC media conference on June 6, 2019, the RBI has been closely monitoring
top NBFCs/HFCs, identified on the basis of their size and credit behavior. Over the past six months or so, the
Reserve Bank has also infused adequate liquidity into the system through OMOs, currency swaps, phased
increase in Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR), etc. For more than a month now,
there is surplus liquidity in the system. In the meantime, an Internal Working Group in RBI is reviewing the
liquidity management framework and their recommendations are expected towards the middle of July 2019.
The Government has made the following announcement in the Union Budget 2019-20:
Non-Banking Financial Companies (NBFCs) are playing an extremely important role in sustaining consumption
demand as well as capital formation in small and medium industrial segment. NBFCs that are fundamentally
sound should continue to get funding from banks and mutual funds without being unduly risk averse. For
purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rupees one lakh crore
during the current financial year, Government will provide one time six months' partial credit guarantee to
Public Sector Banks for first loss of up to 10%.
In order to enable the banks to implement this announcement and deal with the NBFCs/HFCs issue effectively,
the Reserve Bank of India will provide required liquidity backstop to the banks against their excess G-sec
holdings. A circular in this regard will be issued separately. In addition to the above, the RBI has also decided
to frontload the FALLCR scheduled to increase by 0.5 percent each in August and December 2019 and permit
banks to reckon with immediate effect the increase in FALLCR of 1.0 per cent of the bank’s NDTL, to the extent
of incremental outstanding credit to NBFCs and Housing Finance Companies (HFCs) over and above the
amount of credit to NBFCs/HFCs outstanding on their books as on date, which will enable the banks to avail
additional liquidity of INR 1,34,000 crores
Insurance Regulatory and Development Authority of India (Non-Linked Insurance Products)
Regulations, 2019
These Regulations shall be applicable to all the products offered by the life insurers under the non-linked
platform.
The main chapters under these regulations are:
I. Product Structures
a. Product Structures: The product structure shall be classified as participating products and
non-participating products.
b. Par Products: Regulations for Par products c. Non-par products: Regulations for non-Par products
II. Minimum death benefit
III. Administration of non-linked insurance products
IV. Policy term, premium paying term, commission, remuneration and expenses a. Minimum Policy Term b. Premium Payment Term c. Commission, Remuneration and Expenses
V. Pension products a. Defined Assured Benefits b. Surrender Value and Options on Surrender or Vesting c. Group Savings Non-Linked Pension Products
VI. Annuity products VII. Group products
a. Group Non-Linked Products b. Non-Employer-Employee Group Products c. Declaration of Interest Rates under Group Savings Insurance Products
INSURANCE
VIII. Surrender value a. Acquisition of Surrender Value b. Special Surrender Value
IX. Miscellaneous provisions X. With profit fund management
XI. Market value adjustment
FDI in Multi - Brand Retail
India has received FDI in multi-brand retail from one foreign company of United Kingdom. State/UT-wise data
of FDI inflow is not centrally maintained.
The retail market sector depends on a number of factors, including FDI. However, FDI is largely a matter of
private business decisions. FDI inflows depend on a host of factors such as availability of natural resource,
market size, infrastructure, general investment climate as well as macro-economic stability and investment
decision of foreign investors.
Under the Foreign Direct Investment (FDI) Policy, the details of norms for undertaking multi-brand retail
trading in the country is given below:
FDI Policy in Multi Brand Retail Trading
Sector/Activity % of Equity/
FDI Cap
Entry Route
Multi Brand Retail Trading 51% Government
FDI in multi brand retail trading, in all products, will be permitted, subject to the following conditions:
(i) Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and
meat products, may be unbranded.
(ii) Minimum amount to be brought in, as FDI, by the foreign investor, would be USD 100 million.
(iii) At least 50% of total FDI brought in the first tranche of USD 100 million, shall be invested in 'back-end
infrastructure' within three years, where ‘back-end infrastructure’ will include capital expenditure on all
activities, excluding that on front-end units; for instance, back-end infrastructure will include investment
made towards processing, manufacturing, distribution, design improvement, quality control, packaging,
logistics, storage, ware-house and agriculture market produce infrastructure. Expenditure on land cost and
INFRASTRUCTURE &
OTHER GOVT.
INITIATIVES
rentals, if any, will not be counted for purposes of backend infrastructure. Subsequent investment in backend
infrastructure would be made by the MBRT retailer as needed, depending upon its business requirements.
(iv) At least 30% of the value of procurement of manufactured/processed products purchased shall be
sourced from Indian micro, small and medium industries, which have a total investment in plant & machinery
not exceeding USD 2.00 million. This valuation refers to the value at the time of installation, without providing
for depreciation. The ‘small industry’ status would be reckoned only at the time of first engagement with the
retailer, and such industry shall continue to qualify as a ‘small industry’ for this purpose, even if it outgrows
the said investment of USD 2.00 million during the course of its relationship with the said retailer. Sourcing
from agricultural co-operatives and farmers’ co-operatives would also be considered in this category.
The procurement requirement would have to be met, in the first instance, as an average of five years’ total
value of the manufactured/processed products purchased, beginning 1st April of the year during which the
first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.
(v) Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii), (iii) and (iv)
above, which could be cross-checked, as and when required. Accordingly, the investors shall maintain
accounts, duly certified by statutory auditors.
(vi) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census
or any other cities as per the decision of the respective State Governments, and may also cover an area of 10
kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to
conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for
requisite facilities such as transport connectivity and parking.
(vii) Government will have the first right to procurement of agricultural products.
The above policy is an enabling policy only and the State Governments/Union Territories would be free to take
their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in
those States/Union Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy.
The list of States/Union Territories which have conveyed their agreement is at (2) below. Such agreement, in
future, to permit establishment of retail outlets under this policy, would be conveyed to the Government of
India through the Department of Industrial Policy & Promotion and additions would be made to the list at (2)
below accordingly. The establishment of the retail sales outlets will be in compliance of applicable State/Union
Territory laws/ regulations, such as the Shops and Establishments Act etc.
Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI,
engaged in the activity of multi-brand retail trading.
Guidelines for Liquidity Enhancement Scheme (LES) in Commodity Derivatives Contracts
As per a previous circular, the manner in which exchanges can provide LES is as follows:
I. Discount in fees, adjustment in fees in other segments or cash payment - The incentives during a
financial year shall not exceed 25% of the net profits or 25% of the free reserves of the stock exchange,
whichever is higher, as per the audited financial statements of the preceding financial year.
II. Shares, including options and warrants, of the stock exchange - The shares that may accrue on exercise
of warrants or options, given as incentives under all liquidity enhancement scheme, during a financial
year, shall not exceed 25% of the issued and outstanding shares of the stock exchange as on the last
day of the preceding financial year. Further, the stock exchange shall ensure that this is in compliance
with the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations,
2012 at all times.'
Therefore, the regulator recognized that an exchange in early years of its formation/commencement of
business may not be able to generate profits or have free reserves from business operations. In this regard, it
has now been decided to exempt such exchanges, during their first five years of operation from the date of
SEBI’s approval for commencement / recommencement of their business, subject to adherence to the
following conditions:
i. The yearly incentives that such an exchange can earmark for LES shall not exceed 25% of the audited
net-worth of the said exchange as on the last day of the previous financial year.
ii. Such exchange shall create a reserve specifically to meet its LES incentives/expenses and transfer
funds to such reserve accordingly. However, such reserves shall not be included in the calculation of
Exchange net worth.
iii. Such exchange however shall continuously comply with the minimum net worth requirement as per
Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.
CAPITAL MARKETS
Disclosure of divergence in the asset classification and provisioning by banks
SEBI mandates that banks which have listed specified securities shall disclose to the stock exchanges,
divergences in the asset classification and provisioning wherever the additional provisioning requirements
assessed by RBI/ the additional Gross NPAs identified by RBI exceeded a certain threshold.
This was derived from an RBI circular, which required listed banks to make disclosures in the asset
classification and provisions in the “Notes to Accounts” to the Financial Statements.
It is noted that RBI has now modified the disclosure requirements. Therefore, SEBI now mandates the
execution of above-mentioned circular in following manner:
In line with the revised RBI requirements, all banks which have listed specified securities shall disclose to the
stock exchanges divergences in the asset classification and provisioning, if either or both of the following
conditions are satisfied:
a. The additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit
before provisions and contingencies for the reference period, and
b. The additional Gross NPAs identified by RBI exceed 15 per cent of the published incremental Gross
NPAs for the reference period.
CAPITAL MARKETS SNAPSHOT
Source: National Stock Exchange
Sources: APAS Business Research Team
Source: National Stock Exchange
Source: Bombay Stock Exchange
Source: Bombay Stock Exchange
Sources: APAS Business Research Team
Indian equities reversed the two-week positive trend. S&P
BSE Sensex and Nifty 50 lost about 2% each. Sentiments were
affected earlier on disappointment over some proposals in
the budget. Weak global cues in the form of US-China trade
uncertainty weighed on the benchmarks. Investors’ mood
also dampened following weak auto sales numbers and rising
crude oil prices. However, some losses were reduced on
tracking intermittent gains in global equities after the US
Federal Reserve (Fed) hinted at a rate cut later this month. As
per AMFI data, the assets under management of mutual
funds fell 6% in June to INR 24.25 lakh crore compared with
INR 25.93 lakh crore in May owing to heavy outflow from
income- and debt-oriented schemes.
Sources: APAS Business Research Team
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CNX Nifty (July-2019)
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BSE Sensex (July - 2019)
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Indian VIX (July 2019)
68.00
68.20
68.40
68.60
68.80
69.00
69.20
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$/₹ (July - 2019)
6.006.106.206.306.406.506.606.706.806.907.00
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GIND10Y (July- 2019)
ECONOMIC DATA SNAPSHOT
* The Economist poll or Economist Intelligence Unit estimate/forecast;
^ 5-year yield
Quarter represents a three-month period of a financial year beginning 1st April
Countries GDP CPI
Current
Account
Balance
Budget
Balance Interest Rates
Latest 2019* 2020* Latest 2019*
% of GDP,
2019*
% of GDP,
2019* (10YGov), Latest
Brazil 0.5 Q1 0.8 2.2 3.4 Jun 3.8 -0.9 -5.8 5.52
Russia 0.5 Q1 1.3 1.5 4.6 Jul 4.8 7.2 2.1 7.42
India 5.8 Q1 6.7 6.6 3.2 Jun 3.6 -1.8 -3.5 6.85
China 6.2 Q2 6.2 6.1 2.7 Jun 2.9 0.2 -4.5 2.92^
S Africa Nil Q1 1.0 2.0 4.5 Jun 4.8 -3.4 -4.2 8.38
USA 2.3 Q2 2.2 1.7 1.6 Jun 2.0 -2.4 -4.7 1.7
Canada 1.3 Q1 1.6 1.6 2.0 Jun 2.0 -2.6 -0.9 1.24
Mexico -0.7 Q2 0.4 1.2 3.9 Jun 3.7 -1.6 -2.5 7.42
Euro Area 1.1 Q2 1.2 1.5 1.1 Jul 1.5 2.9 -1.1 0.0
Germany 0.7 Q1 0.8 1.4 1.7 Jul 1.6 6.5 0.7 0.0
Britain 1.8 Q1 1.3 1.3 2.0 Jun 1.8 -4.1 -1.6 0.61
Australia 1.8 Q1 2.2 2.3 1.6 Q2 1.7 -0.4 0.1 1.04
Indonesia 5.0 Q2 5.1 5.0 3.3 Jul 3.1 -2.6 -1.9 7.45
Malaysia 4.5 Q1 4.5 4.4 1.5 Jun 0.7 2.6 -3.5 3.56
Singapore 0.1 Q2 0.9 1.3 0.6 Jun 0.6 15.8 -0.6 1.76
S Korea 2.1 Q2 1.9 2.2 0.6 Jul 0.8 4.2 0.9 1.26
Sources: The Economist
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