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Nirmala Sitharaman Says Banks Have Sufficient Liquidity

Finance Minister Nirmala Sitharaman said on Monday that there is sufficient liquidity in the banking system. Addressing the media after a meeting with chiefs of public sector banks, the Finance Minister said banks have been asked to provide a bill discounting facility to the micro, small and medium enterprises (MSME) sector against dues from large corporates, in order to ensure liquidity for small businesses. Efforts are being made to ensure that dues are released to the MSME sector by large corporates, Ms Sitharaman said.

Here are 10 things to know:

1. All efforts would be made to ensure that the MSME sector gets its dues ahead of Diwali, the Finance Minister said.

2. According to the returns filed by large corporates to the Corporate Affairs Ministry, there are dues worth Rs. 40,000 crore to the MSME sector, she said.

3. Talks between the Finance Ministry and the state-run lenders come at a time the government has announced a slew of measures to revive economic growth.

4. The finance minister said on Monday that the the bank merger process was "going smoothly".

5. In August, the government announced a mega consolidation plan in a bid to strengthen the financial system and push economic growth.

6. The four mergers proposed to combine Punjab National Bank with Oriental Bank of Commerce and United Bank; Canara Bank with Syndicate Bank; Union Bank of India with Andhra Bank and Corporation Bank, and Indian Bank with Allahabad Bank. 

7. The consolidation plan would lead to 12 public sector banks in the system instead of 27, the government said. 

8. India's GDP or gross domestic product expanded 5 per cent in the quarter ended June, marking the lowest pace of growth in more than six years.

9. The Finance Minister has earlier said that GDP growth is likely to pick up in the October-March period as consumer demand is expected to improve in the festival season.

10. Meanwhile, the Finance Ministry said that loans worth Rs. 81,781 crore were disbursed during the nine-day outreach programme organised by banks.

RBI Monetary Policy: Repo rate cut by 25 basis points; loans to get cheaper

As per expectations, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Friday cut the key repo rate by 25 basis points to 5.15 per cent -- its fifth straight cut this year -- and maintained its 'accommodative' stance. "The MPC also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target," says the MPC report.

The MPC noted the "negative output gap has widened further. While the recent measures announced by the government are likely to help strengthen private  consumption and spur private investment activity". All six members of the MPC voted to reduce the policy repo rate and to continue with the accommodative  stance  of monetary policy.

The central bank, which in its August MPC meet had predicted GDP growth of 6.9 per cent in FY20, revised its forecast to 6.1 per cent. The RBI's projection of 5.8 per cent for the first quarter went horribly wrong when India registered six-year low of 5 per cent GDP. The reverse repo rate has also been reduced to 4.90 per cent, and the marginal standing facility rate and the bank rate to 5.40 per cent, said the RBI.

Inflation, however, remains well within the RBI's range of 4(+/-2) per cent. "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," says the MPC report, adding the inflation was seen below 4 per cent in the rest of the financial year and early months of FY21.

During his press conference, RBI Governor says: "Since the MPC's last meeting in August 2019, global economic activity has weakened further. Heightened uncertainty emanating from trade and geo-political tensions continues to cloud the outlook. Among advanced economies, the slowdown in the US economy in Q2 appears to have  extended into Q3, weighed down by softer  industrial production."

Motilal Oswal, Managing Director at Motilal Oswal Financial Services said, "RBI has cut policy repo rates by 25 bps to 5.15% but the issue is transmission of these rates into the system. RBI has been asking banking system to offer loans at a level that reflect the benchmark cut, but the system is reluctant to pass on, due to risk aversion. Equity markets are cautious and watchful about the earnings season which at this juncture looks less enthusiastic. There is a possibility that equity markets will trade cautious and range bound. In medium to long term, I see good investment opportunity in equities." 

In its August MPC meet, the RBI had surprised everyone by going for a 35-basis-point cut to 5.40 per cent. The apex bank's decision to cut the repo rate further seems to be in sync with the government's recent measures, including a reduction in the corporate tax, to promote credit offtake to boost economic activity during the festive season amid the ongoing slowdown.

After a crash in sales, auto dealers now witness 10% drop in service spends

Automobile dealers across the country facing the brunt of the slowdown in sales of cars and two-wheelers have also witnessed a 10 per cent drop in spends on service by customers.

The reluctance by current owners to spend more on their cars is another dampener for the community that typically makes more money by servicing cars than by selling them. Typically dealers earn 31 per cent of their profits from after-sales and 25 per cent from sales. According to the JD Power 2019 India Customer Service index Study, there has been a 10 per cent drop in the average amount spent per service visit compared with 2018.  On average, customers spent Rs 5,000 per service visit this year, compared with Rs 5,600 in 2018. The decline is greatest among after-sales customers who are 39 years or older - non millennials - whose spend declined 17 per cent year-on-year.

"Typically, dealers rely on service work to keep their businesses profitable especially during a downturn in new-vehicle sales," said Kaustav Roy, Director and Country Head for India, J.D. Power. "A drop in average service spend bodes negatively for overall dealer profitability. More than ever, dealers need to focus on delivering an excellent service experience to retain customers and encourage loyalty and advocacy."

Among the brands, Hyundai was ranked highest in overall service satisfaction with a score of 903 followed by Tata at 870 and Mahindra at 863. Higher score indicates the likelihood of customers recommending their brand to others. The market average score was 826.

India's largest carmaker Maruti Suzuki (799) along with Datsun (799), Honda (796) and Renault (787) formed the bottom quartile of the service index. The study is based on responses from 7,177 new-vehicle owners who purchased their vehicle between March 2016 and August 2018. The study was fielded from March through August 2019. It measures new-vehicle owner satisfaction with the after-sales service process by examining dealership performance in five factors (listed in order of importance): service quality (30 per cent); service initiation (18 per cent); service facility (18 per cent); service advisor (17 per cent); and vehicle pick-up (17 per cent).

Majority of 89 per cent of the customers who rated their experience in the top quartile of satisfaction (929 points and above on a 1,000-point scale) are more likely to return for post-warranty service work. 90 per cent of them were also likely to recommend the service centre to a friend or a relative. Other findings of the study indicated a reluctance among customers to go digital for after sales service with customers rarely using digital channels to set appointments despite indicating higher satisfaction when used. Satisfaction was 875 among just 1 per cent of customers who used a manufacturers' app and 868 for 2 per cent who used a dealer's website. The majority (81 per cent) still prefer to call a dealer and reported a satisfaction score of 831. Customers who walk in without an appointment (14 per cent) were the least satisfied with a score of 786.

The study also stated fewer number of customers now wait at dealerships while the cars are being serviced- down 10 percentage points to 21 per cent in 2019. However, satisfaction is typically higher among customers who wait for their vehicle service (837) against those who opt to leave and then return (821).

SBI have come out with repo-linked home loans

The State Bank of India is the first bank to have come out with a repo-linked home loan scheme after the Reserve Bank of India (RBI) made it mandatory for all banks to offer external benchmark-linked floating loan products from October 1.

SBI had introduced floating rate home loan products on July 1. However, it was discontinued and re-launched after few modifications to comply with latest regulatory guidelines.

As this is a new product targeted at increasing the transparency in the interest rate fixing mechanism, as a borrower you must know what all will change from the next month. The new home loan offering is timely as it synchronises well with festivities, the time of the year when higher number of people prefer buying houses.

Setting the industry trend

The SBI being the largest mortgage lender in the country has set the trend. Most of other banks are expected to follow suit. The product will give you an idea about how the banking system will respond to the RBI mandate to link their floating loan rates to one of the external benchmarks published by Financial Benchmarks India Private Ltd (FBIL).

Spread over external benchmark

The most crucial part to know about the new loan is the spread that a lender may charge over the external benchmark. SBI has decided to keep the spread at 2.65 per cent. Currently, the repo rate is 5.40 per cent. So, the SBI will have external benchmark rate (EBR) of 8.05 per cent.

Interest rate for borrowers

If you are a male salaried borrower taking a floating rate term loan up to Rs 30 lakh for a home, you will have to pay an effective interest rate of 8.20 per cent, 0.15 per cent more than EBR of 8.05 per cent. In case of a female borrower, the bank is giving a concession of 0.05 per cent. As a result, female borrower will get the same loan at 8.15 per cent. Additional 0.10 rate will be charged if your loan to value (LTV) goes above 80 per cent. The maximum LTV allowed is 90 per cent.

For loans between Rs 30 lakh to Rs 75 lakh SBI is charging Rs 0.40% over the EBR. So a salaried male borrower will get the loan at 8.45% while female borrowers will get it 8.40%.

For the loans above Rs 75 lakh, the bank will charge an interest rate of 8.55 per cent from the salaried male borrower while 8.50 per cent from salaried female borrowers.

For non-salaried borrowers the bank will charge additional 0.15 per cent interest rate. The lender will also charge additional 0.10 per cent from borrowers falling into Risk Grade (RG) 4-6 that is considered riskier.

Repo Rate as the benchmark

SBI has selected repo rate as its external benchmark, which is significant as there were multiple options such as three-month and six-month treasury bills or any other benchmark rate published by FBIL. While many other rates change frequently, repo rates are reviewed (and changed, if required) during bi-monthly meetings of Monetary Policy Committee of the RBI. As the minimum reset period to adjust the lending rate is three months, any change in repo rate will not be immediately passed on to borrowers.

Easier to track future changes in interest rates

Once the spread is decided, it can only be changed after a gap of three years. So, borrowers can easily calculate the changes in their effective interest rates as per the changes in the repo rate. If the repo rate falls by 0.25 per cent, their home loan interest rates will go down by 0.25 per cent by the beginning of the next quarter.

Besides the spread, the bank is also allowed to change the interest rate if the risk profile of a borrower goes through a substantial change, which is unlikely to happen with most of borrowers.

PM Modi announces $150 million line of credit to group of Pacific island nations

Prime Minister Narendra Modi has announced a USD 150 million line of credit to the group of Pacific island nations for undertaking solar, renewable energy and climate related projects based on their requirement.

Modi, who attended the India-Pacific Islands Developing States (PSIDS) Leaders' Meeting, also announced a total allocation of USD 12 million to the member states towards implementation of high impact developmental project in the area of their choice.

The meeting was held here on Tuesday on the sidelines of the 74th session of the UN General Assembly. This is the first time he has met the leaders of the PSIDS on the margins of UNGA in a plurilateral format.

The meeting was attended by the Heads of delegation of Fiji, Republic of Kiribati, Republic of Marshall Islands, Federated States of Micronesia, Republic of Nauru, Republic of Palau, Independent State of Papua New Guinea, The Independent State of Samoa, Solomon Islands, Kingdom of Tonga, Tuvalu and Republic of Vanuatu.

"In the spirit of his fundamental Mantra "Sabka Saath, Sabka Vikas aur Sabka Vishwas (together with all, for the development of all and with the trust of all)," Modi announced allocation of 12 million dollars grant (1 million dollar to each PSIDS) towards implementation of high impact developmental project in the area of their choice.

In addition, a concessional Line of Credit of USD 150 million which can be availed by the PSIDS for undertaking solar, renewable energy and climate related projects based on each country's requirement was announced, according to a press release issued here.

Modi emphasised that India and the PSIDS have shared values and a shared future and he highlighted the need for development policies to be inclusive and sustainable to reduce inequality and contribute to empowerment and improvement of the quality of people's lives.

The press release added that Modi said India is equally committed to tackling the impact of climate change and supports efforts of the PSIDS to achieve their developmental goals through necessary developmental and technical assistance.

Modi underlined the reality of climate change and called for increasing the share of renewable energy in the total energy mix to mitigate many adverse effects of climate change.

He also expressed India's readiness to share its experiences in developing alternate energy. He expressed his satisfaction as many countries from the region have joined the International Solar Alliance and invited others to join this initiative.

Prime Minister Modi also invited Leaders of PSIDS to join the Coalition for Disaster Resilient Infrastructure (CDRI).

The press release said that India's relationship with Pacific Island nations has deepened with the evolution of Act East Policy, resulting in the setting up of the action-oriented Forum for India Pacific Island Cooperation (FIPIC).

The first and second editions of the FIPIC took place in Fiji (2015) and Jaipur (2016).

During the FIPIC Summits the Prime Minister articulated India's desire to be a close partner of the Pacific Island nations and its readiness to work closely to advance their developmental agenda.

The meeting deliberated on wide range of issues, including sharing of development experiences for attainment of SDGs, enhancing cooperation in renewable energy, joining the newly launched Coalition for Disaster Resilient Infrastructure, capacity building, implementation of projects under the India-UN Development Partnership Fund and a roadmap for future India-PSIDS cooperation.

Modi reaffirmed his commitment for providing developmental assistance for capacity building and proposed to depute technical experts to provide training and offered to organise specialized courses also under ITEC programme in priority areas identified by partner countries, including training of diplomats from Pacific Island nations at the Foreign Service Institute.

In the health sector, Modi offered to organise a Jaipur Foot Artificial Limb Fitment Camp in a Pacific regional hub under 'India for Humanity' programme.

With a view to further enhancing people-to-people contact, Modi announced a Distinguished Visitors Programme under which eminent persons from these countries can visit India.

India would also welcome the visit of a Parliamentarian delegation from the PICs to India. To continue High-Level engagement, Modi extended an invitation to all the leaders for the 3rd FIPIC Summit to be held in Port Moresby in first half of 2020.

The leaders of PSIDS welcomed the initiatives proposed by PM Modi to strengthen engagement and cooperation between the two sides and reassured full support from their respective governments.

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