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RBI Bi-Monthly Monetary Policy Meet Key Highlights (7th August 2019)

RBI Cuts Repo Rate By 35bps to 5.40% | RBI Monetary Policy Review Aug 2019

RBI Monetary Policy Meet Highlights (7th August, 2019)


Reserve Bank of India, RBI cuts repo rate by 35bps to 5.40% from 5.75% on 7th August 2019. RBI also decided to maintain the accommodative stance of monetary policy and lowered GDP growth forecast to 6.9% from 7%, in its third Bi-monthly monetary policy meet of the financial year 2019-20.

RBI Cuts Repo Rate By 35bps to 5.40% – MPC Meet Key Highlights

  • On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting on 7th August, 2019 decided to reduce the policy repo rate by 35 basis points to 5.40% from 5.75%with immediate effect.
  • 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% within a band of +/- 2%, while supporting growth.

Key HIghlights of RBI’s Bi-Monthly Monetary Policy meet

RBI Monetary Policy Meet Highlights (7th August, 2019)
RBI Monetary Policy Meet Highlights (7th August, 2019)
1.RBI cuts Repo Rate by 35bps to 5.40%
  • RBI cuts repo rate by 35 basis points to 5.40% from 5.75% with immediate effect. Consequently, the reverse repo rate adjusted to 5.15% and the marginal standing facility (MSF) rate and the Bank Rate to 5.65%.
  • This is the fourth cut in a row since Shaktikanta Das took over as the governor in December 2018. RBI had cut the policy rate by 75 basis points prior to this, through 3 rate cuts of 25 bps each in February, April and June MPC meet.
  • All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the accommodative stance of monetary policy. 4 members (Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Shri Bibhu Prasad Kanungo and Shri Shaktikanta Das) voted to reduce the policy repo rate by 35 basis points, while 2 members (Dr. Chetan Ghate and Dr. Pami Dua) voted to reduce the policy repo rate by 25 basis points.
2.Accomodative Stance of Monetary Policy
  • The Monetary Policy Committee (MPC) also decided to maintain the accommodative stance of monetary policy. It is prudent to remain accomodative as stated by MPC. In the second bi-monthly policy review held in June 2019, MPC had changed the monetary policy stance from neutral to accomodative.
  • A significant weakening of growth impulse, slowdown in investment activity and a continuous moderation in private consumption growth is a matter of concern, as noted by MPC.
  • On account of the slowdown in the above mentioned macroeconomic indicators, RBI sees scope to accommodate growth by supporting efforts to boost demand and re-energize the private investment activity.
3.Growth (GDP) Forecast
  • GDP growth for 2019-20 is revised downwards from 7% in the June policy to 6.9% on account of weakening of both domestic and external demand conditions.
  • It is revised in the range of 5.8%-6.6% for H1:2019-20 (April to September FY2019-20) and 7.3%-7.5% for H2 (September 2019 to March 2020) – with risks somewhat tilted to the downside. While, GDP growth for Q1:2020-21 is projected at 7.4%.
  • 5.8-6.6% for H1:2019-20 : As per RBI’s industrial outlook survey, the demand conditions in Q2 FY20 seem to have muted expansion in demand conditions. weakening of both domestic and external demand conditions
  • 7.3%-7.5% for H2:2019-20 : The impact of monetary policy easing since February 2019 is expected to support economic activity in second half of FY2019-20. High capacity utilisation, higher financial flows to the commercial sector, measures to enhance flow of credit to NBFCs are the positive sides which are promising for good investment activity. Moreover, base effects will turn favourable in H2:2019-20.
4.Revision in CPI Inflation
  • RBI has revised Consumer Price Index (CPI) inflation 3.1% for Q2:2019-20 and 3.5-3.7% for H2:2019-20, with risks evenly balanced. CPI inflation for Q1:2020-21 is projected at 3.6%.
  • Following are the key driving factors which are taken into consideration by MPC for the revision in CPI forecast :
    1. Impact of recent policy rate cuts
    2. Rise in food inflation driven by uneven temporal monsoon in 2019
    3. Volatile crude oil prices due to geo-political tensions in middle-east
    4. Ease in the output prices by the manufacturing firms as stated in the industrial outlook
  • A revival in monsoon has dampened agflation (Agriculture Inflation) fears, as it halved seasonal rainfall deficit to 7% of normal from 14% as on July 28. 
5.Transmission Process
  • The success of the accommodative policy would depend entirely on the next level of its application, that is, the transmission of the lower rates to the ultimate borrowers. Thus the key determining factor of expected favourable results of repo rate cut by RBI is the effective cascading of the benefits of lower base rate by the banks. 
  • In simple words, when RBI cuts repo rate, banks should immediately cut the interest rates of the loans. Interest rates of home loans, vehicle loan or business loans should be come down hand-in-hand.
  • The rate cut has sent a strong signal to domestic banks to cut lending rates before the festive season kicks off in September. 
  • 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).
Enhanced Credit Flows to NBFC Sector
  • RBI has taken several measures to facilitate credit flow to the well managed NBFCs or HFCs during the last one year.
  • MPC has declared to raise a bank’s exposure limit to a single NBFC to 20% of Tier-I capital of the bank from earlier limit of 15%.
  • The minimum holding period for assets to be securitised or assigned was reduced from one year to six months, thereby enabling the NBFCs and HFCs to raise funds by securitising their originations without having to wait for a longer period.
  • The durable liquidity in the system was increased through a series of OMOs and Forex SWAPs.
  • MPC has decided to reduce the risk weight for consumer credit, including personal loans, but excluding credit card receivables, to 100% from 125%.
Measures to Boost Payments System
  • RBI will set up central payment fraud registry for tracking payment system frauds.
  • National Electronic Funds Transfer (NEFT) services to be active 24×7 from December from the current timings of 8.00 am to 7.00 pm on all working days (including 1st, 3rd and 5th Saturdays in a month)
  • Expansion of Biller categories for Bharat Bill Payment System : 
    1. BPPS is an interoperable platform for repetitive bill payments and currently covers 5 segments : direct-to-home (DTH), electricity, gas, telecom and water bills. MPC has decided to permit all categories of billers, except prepaid recharges, who provide for recurring bill payments to participate in BBPS on a voluntary basis.
    2. Apart from digitisation of cash-based bill payments, these segments would also benefit from the standardised bill payment experience for customers, centralised customer grievance redressal mechanism and prescribed customer convenience fee.
  • In order to minimise the concentrated risk in retail payment system, to benefit from diversification of risk and also to encourage innovation and competition, RBI decided to offer ‘on tap’ authorisation to entities desirous to function/operate/provide platforms for :
    1. Bharat Bill Payment Operating Unit (BBPOU);
    2. Trade Receivables Discounting System (TReDS); and
    3. White Label ATMs (WLAs).


  • On account of US Fed’s July 31 rate cut Global rates are cycling down. Oil and commodity prices are also slipping on global uncertainty. The domestic inflation outlook remains liberal.
  • 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 remained sluggish.
  • Even as past rate cuts are being gradually transmitted to the real economy, the liberal inflation outlook provides headroom for policy action to close the negative output gap.
  • The growth concerns are addressed by MPC by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate (4% within a band of +/- 2%).
  • The minutes of the MPC’s meeting will be published by August 21, 2019. The next meeting of the MPC is scheduled during October 1,3 and 4, 2019.
5 Reasons of Sensex & Nifty Fall (19th July 2019)

Explained 5 Reasons of Sensex & Nifty Fall (19th July 2019)

Reasons : Why Did Sensex & Nifty Fall on 19th July 2019?


In this article, we have explained 5 reasons of Sensex & Nifty Fall on 19th July 2019. On Friday, July 19, 2019, Sensex and Nifty have seen a big hit, dropped by 560 points and 177 points respectively.

Sensex Dropped by 560 points on Friday, 19th July 2019
Source : www.bseindia.com

Explained 5 Reasons of Sensex & Nifty Fall on 19th July 2019

What are the key reasons of this fall? Lets see the main reasons of Sensex & Nifty fall one by one :

5 Reasons of Sensex & Nifty Fall on 19th July 2019
5 Reasons of Sensex & Nifty Fall on 19th July 2019

1. Continuous FPI Outflow Due to Increased FPI Surchage

  • Stock markets took a hit after Finance Minister Nirmala Sitharaman dashed hopes of any tweaks in the Finance Bill to ring-fence foreign portfolio investors (FPIs) from the effects of the “super-rich” tax proposed in the Union Budget 2019. Finance Minister has said “FPIs registered as trusts will have to pay the new tax surcharge. FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge in Budget 2019“.
  • Thus, Heavy selloff by FPIs was witnessed after Finance Minister Nirmala Sitharaman, on thursday, dismissed the argument that the proposed hike in tax on the super-rich would spook foreign portfolio investors.
  • Foriegn Portfolio Investors have pulled out more than Rs.5,000 crore from the cash segment of Indian equity markets so far in July because of ‘Super-rich Tax’ Concerns. There was already a nervousnesss among FPIs due to introduction of increased Surchage on FPIs in its Taxation in Budget 2019.

2. Weak Corporate Earnings – Q1 FY20 Results

  • Corporate earnings for the June quarter (Q1 FY20) have also failed to impress investors. Q1 FY20 results of many companise were muted and didn’t met the market expectations.
  • Several lenders like Yes Bank, RBL bank were flagging stress in their books. RBL Bank Ltd plunged 13.7% after the lender highlighted risks to its asset quality, despite reporting a 41% jump in quarterly profit.
  • IT heavyweight stock, Tata Consultancy Services Ltd, which had released its Q1 FY20 financials also reported lower margins.
  • Also, for Reliance Industries (RIL) the market was expecting the muted results due to the pressure on the consolidated margins. Investors were in sentiments that this pressure may impact the profitability of RIL considerably.

3. Asian Development Bank Revised India’s GDP TO 7% from 7.2% for FY2019-20

This Downward revision in India’s growth to 7% from earlier 7.2% for FY2019-20 by Asian Development Bank (ADB) also contributed to the FPIs selloff. Thus, it has also become a key reason for FPI outflow from the Indian Equity Market.

4. US Fed Rate Cut Expectation By Market

  • According to the New York Fed President John Williams’s Statement, Federal Reserve officials signaled they are ready to lower interest rates by 0.25% point despite the recent surge in market expectations of 0.50% cut.
  • Though there is a potential for additional reductions in Fed rates, Federal Reserve aren’t prepared for bolder action now, and thus can’t go for aggressive rates cut policy.
  • An aggressive fed rate cuts can be a dampner in short-term, because of the concerns about :
    1. A slowdown in global growth
    2. An increase in trade-policy uncertainty and
    3. The risk of a more prolonged shortfall in inflation from the Fed’s 2% target
  • As a result, the market has reacted negatively over the John Williams’s comment about Fed rate cut and the policy stance.

5. Slowdown in COnsumption & Demand

  • Due to uncertainty in monsoons and below normal level rainfalls till the date, the rural income got impacted adversely. It is resulting into the lowered consumption as well as demand from the rural areas.
  • Also, on a regional cumulative basis, spatial distribution has been deficient across India which could lower income in rural areas and hence lead to lower sales.
  • Auto stocks were the worst sufferers due to this slowdown in demand. Mahindra & Mahindra dropped 4.4%, Eicher Motors 3.8%, Tata Motors 3.4% and Hero MotoCorp 3.3%. At the same time, NBFC stocks like Bajaj Finance and Bajaj Finserv dropped by 4.4% and 3.87% respectively.

Yes Bank Q4 Results FY 2018-19

Why Yes Bank Stock is Falling?

Yes Bank Q4 FY2019 Results Update (26th April, 2019)


Yes Bank shares fell around 30% on April 30,2019 after the company reported weak key financial parameters for the quarter ended March 2019 ie. Q4 FY2019. According to the Q4 results, the bank has reported a net loss of Rs.1,507 Crore on the back of spike in bad loans (mainly IL&FS Group and Jet Airways). Lets analyse the Q4 FY2019 results of Yes bank in detail in this article.

Company Profile

  • Yes Bank Limited is India’s fourth largest private sector bank, incorporated in 2004 by Rana Kapoor and Ashok Kapur. It primarily operates as a corporate bank, with retail banking and asset management as subsidiary functions.
  • The bank offers a full-range of client-focused corporate banking services, including working capital finance, specialized corporate finance, trade and transactional services, treasury risk management services, investment banking solutions and liquidity management solutions among others to a highly focused client base.
Business Areas
  1. Corporate and Institutional Banking- The bank offers a broad range of financial and risk management solutions to clients such as large Indian corporates and groups, multinational companies, central and state governments, government bodies and public sector enterprises.
  2. Business Banking- Yes Bank offers a range of products, services and resources to small and medium businesses.
  3. Corporate Finance- It offers corporate finance solutions to various clients such as local corporates, multinational companies, financial institutions and public sector undertakings.
  4. Retail Banking- Under this, the  bank offers wide range of products and services such as saving account, current account, fixed deposit, retail loan, depository services and many more.
  5. Investment Banking- Yes Bank offers investment banking services in area of mergers and acquisitions, divestitures, private equity syndication and IPO advisory.

Current statistics of Yes Bank

Current Statistics of Yes Bank
Current Statistics of Yes Bank

Q4 FY2019 Results

Yes Bank Q4 FY2019 Results
Yes Bank Q4 FY2019 Results
  • On April 26, 2019 Yes Bank reported its biggest quarterly loss in 14 years at Rs.15,066 Million for the Q4 FY2019 owing to spike in bad loans (mainly IL&FS Group and Jet Airways). Net loss incurred because of the decline in the other income & increased proactive Contingent provision for the bad loans. Net Profit in Q4 FY2018 was Rs 11,794 Million.
  • NII (Net interest income), the difference between interest earned and interest expended, grew by 16.3% year-on-year in Q4FY19 to Rs 25,059 Million with credit growth at 18.7% , but net interest margin contracted by 30 bps. NIMs for Q4FY19 is at 3.1% on account of higher slippages during the quarter. FY19 NIMs at 3.2%.  Lower NII/NIMs are seen on account of higher NPA recognition in Q4.
  • Non-Interest income at  Rs.5,317 Mn for Q4FY19 as Retail Banking Fees witnessed high sequential growth of 18%
  • Taking the entire year into consideration, Net Profit of FY2019 is at Rs.17,203 Million, plunged 59% and net interest income grew by 26.8% to Rs.98,090 Million compared to previous year.
Comparing Yes Bank's Q-o-Q Operating & Net Profit
Comparing Yes Bank’s Q-o-Q Operating & Net Profit

Balance sheet Clean-up by Provisions & Contingencies to Strain Profitability

  • The balance sheet clean-up by Yes Bank will strain its profitability in the next 12-18 months as it makes provisions for stressed assets. The bank is profitable on a full-year basis, with a return on assets of 0.5% as of March 31, 2019, as against 1.4% a year ago.
  • It’s overall stressed assets are about 8%of its gross loans. Thus, the balance sheet clean-up will strain the bank’s profitability in next 1 year since it provides for the stressed assets.
  • The March quarter loss (Q4 FY2019) of Yes Bank was driven by higher credit costs for non-performing loans (NPLs) and the creation of a contingent provision against a pool of identified stressed assets. The bank has created contingency provision of around Rs 21,000 Million pursuant to a review of the credit portfolio.
  • As a result, Provisions and contingencies shot up significantly to Rs 36,617 Million in Q4 FY2019 with a massive increase of 9 times over corresponding period last year and 6.6 times compared to previous quarter.
  • Total provisions for the quarter Q4 FY2019 also included provisions related specific loan loss Rs 1,270 crore, investment Mark to market (MTM) Rs 243 crore and other Rs 48 crore.

Yes Bank Share Price Movement Post Q4 Results

Yes Bank's Share Price Fall Post Q4 FY2019 Results
Yes Bank’s Share Price Fall Post Q4 FY2019 Results
Source : www.marketsmojo.com
  • The share of Yes Bank was closed at Rs. 237 on Friday April 26, 2019.
  • Reacting to the result, the bank’s shares on April 30, 2019 (Tuesday) slumped over 30% to Rs.165.30 apiece on the BSE in the early trade. The scrip ended the day at Rs 168, down 29.23% on the BSE.

Future Outlook

  1. In January 2019, Yes bank appointed Ravneet Gill as its managing director and chief executive officer (CEO) after Rana Kapoor stepped down. Under the new leadership of Mr. Gill, the change in corporate behaviour is expected to be credit-positive after the de-risking is completed.
  2. In the next three financial years, the bank may slow loan growth to about 20%-25% annually, compared with an average loan growth of 34% a year between 2013-14 and 2018-19.
  3. The bank has planned to increase its focus on the retail segment and small- and medium-sized enterprises, reducing the dependence on corporate lending gradually. Thus, a reduction in loan concentration to large corporate groups will be credit-positive. Since these types of loans have lent volatility to the bank’s asset performance in the recent years. Thus, the robust transaction banking, retail and digital platforms will allow the bank to accelerate granularity in our businesses
  4. The bank’s board has approved an equity capital raising plan of up to $1 billion, which, once complete, will help improve loss-absorbing buffers while supporting asset growth. The board has also approved raising fund up to Rs.20,000 crore by issue of debt securities.

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