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RBI turns down Sebi plan for credit rating agencies' access to defaults

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The Reserve Bank of India (RBI) has expressed disagreement over the Securities and Exchange Board of India’s (Sebi) proposed framework enabling credit rating agencies(CRAs) to legally access borrower database, helping them in timely recognition of default.

A panel of financial regulators, including the Pension Fund Regulatory and Development Authority and the Insurance Regulatory and Development Authority of India as well as the RBIand Sebi, met last month and discussed a proposal to give CRAs limited access to the RBI’s Central Repository of Information on Large Credits (CRILC).

The CRILC is a borrower-level data set focusing on systemically important credit exposures. Banks report to the CRILC credit information on all their borrowers having aggregate fund-based and non-fund-based exposure of Rs 50 million and above.

Sources said the central bank had cited sensitivity and confidentially issues for allowing third-party access to large credit data information. The RBIhad also assured that it would ask lenders to improve the information sharing under the current mechanism of Credit Information Company (CIC).

Currently, the rating agenciescan access the CIC that is an independent, third-party institution collecting financial data regarding loans, credit cards, and more about individuals and shares it with its members. Banks and non-banking financial institutions usually take data from the CIC.

Chart

Sebiargued rating agenciescannot decide ratings based on the CIC, as it is not rapid, clean and accurate. It also said the CIC did not provide the updated data about the history of borrowers, repayment dues and so on.

The market regulator said there was a substantial difference in the default data disclosed by rating agencies and the one available with the CRILC. Even the central bank has raised this concern over divergence in default rates identified by the CRAs and the CRILC.

“Banks are mandated to provide all updates about borrowers to the RBI’s repository. But, the lenders have been reluctant on sharing the same with CRAs due to their confidentiality clause with the said borrower,” said the source cited above.

To address this, Sebirecently amended its regulations on rating agencies by adding a clause in the agreement between an issuer and a rater to provide an “explicit consent” from the issuer to obtain information related to loans, repayment, delay, etc. from banks or other lending institutions.

Sources said banks are miffed with this amendment as giving individual borrower data is a tedious job which would increase their workload. The RBI, too, is not willing to allow banks to give individual credit account information.

Amid surging cases of debt defaults including in IL&FS, the role of rating agencies have come under the regulatory glare. The market regulator has been making constant changes in the CRA rules for better monitoring and improving performance.

CRAs have been complaining they are dependent on the information provided by the borrowers as banks never disclose borrowing and lending information.

In 2017, Sebihad proposed it make it mandatory for listed companies to make disclosure of their loan defaults to the stock exchanges if they fail to make repayment of dues and interest within 24 hours. However, the proposal was then turned down by the government, as the central bank was of view that banks would need another Rs 26,000 crore capital if the measure was implemented.

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Forex - Dollar Holds Steady on Trade Hopes, But Growth Fears Weigh

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The U.S. dollar remained broadly supported on Tuesday after U.S. Treasury Secretary Steven Mnuchin confirmed U.S.-China trade talks will resume next month, but concerns about slowing global growth continued to weigh on market sentiment.

Against a basket of currencies the dollar edged up to 98.28 by 2:37 AM ET (6:37GMT).

"The U.S. dollar is rising by default rather than anything U.S.-specific," said Michael McCarthy, chief market strategist at CMC Markets in Sydney, adding that volumes were low as traders mostly kept to the sidelines waiting for news.

"Trade is never far from the markets' radar, but I think currency markets are increasingly expecting (U.S-China tensions) to be protracted, I think optimism has dissipated."

Mnuchin said Monday that trade discussions were scheduled in two weeks and that he and U.S. Trade Representative Robert Lighthizer would meet Chinese Vice Premier Liu He.

The dollar was little changed against the yen at 107.53, while the euro was trading at 1.0992, not far from a 28-month low of 1.0926 touched earlier this month.

The single currency fell 0.2% on Monday after data showing that a German manufacturing recession deepened unexpectedly in September and growth in the service sector lost momentum, adding to worries over the outlook for the wider Eurozone.

The British pound was hovering near one-week lows at 1.2435 ahead of a U.K. Supreme Court ruling on whether Prime Minister Boris Johnson acted unlawfully when he suspended parliament just weeks before Brexit.

The outcome of the case could have implications for Johnson’s plans to pull the U.K. out of the European Union on Oct. 31.

The Australian and New Zealand dollars were steady ahead of a speech by Reserve Bank of Australia Governor Phil Lowe, with the market expecting a dovish tone after weak jobs data last week underlined expectations for a rate cut.

Both currencies sat near three-week lows, with the Aussie at 0.6774 and the kiwi at 0.6295.

"We think Lowe will provide a strong signal that the RBA is ready to cut rates again, endorsing our view for a 25bp cut in October," said Tapas Strickland, a director of economics and markets at National Australia Bank in Sydney.


Bypoll to Satara Lok Sabha seat on October 21: Election Commission

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The Election Commission of India (EC) on September 24 announced that bypoll to the Satara Lok Sabha seat will be held on October 21.

Voting will happen along with the Maharashtra Legislative Assembly election.

The decision to hold the bypoll was taken after the Bombay High Court decided on an election petition on Satara Lok Sabha elections. The order reached the Commission on September 23.

The bypoll was necessitated after Member of Parliament (MP) from the Nationalist Congress Party (NCP), Udayanraje Bhosale, recently joined the Bharatiya Janata Party (BJP) after resigning from Lok Sabha.

Counting of votes will happen on October 24 when the Assembly election votes are counted.

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Dollar finds support as trade talks stay on track, euro nurses losses

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The euro nursed losses on Tuesday after weak readings on German manufacturing rattled confidence, while the dollar found broad support as investors looked for signs of progress from Sino-U.S. trade negotiations.

The single currency (EUR=) shed 0.2% overnight after a survey showed European business activity stalling, and in fact going backwards in powerhouse Germany where a manufacturing recession deepened.

It held around $1.0990 in Asian hours, while the dollar edged higher against the Japanese yen to buy 107.58 yen and held its ground on the Australian and New Zealand dollars.

Against a basket of currencies (DXY), the dollar edged higher to 98.621.

"The U.S. dollar is rising by default rather than anything U.S.-specific," said Michael McCarthy, chief market strategist at CMC Markets in Sydney, adding that volumes were low as traders mostly kept to the sidelines waiting for news.

"Trade is never far from the markets' radar, but I think currency markets are increasingly expecting (U.S-China tensions) to be protracted, I think optimism has dissipated."

The British pound wallowed at $1.2431, near a one-week low, ahead of a UK Supreme Court ruling due around 0930 GMT.

The court will rule on whether Prime Minister Boris Johnson acted unlawfully when he suspended parliament just weeks before Brexit, with the case's outcome potentially complicating his plans to lead his country out of the European Union next month.

The Australian and New Zealand dollars were steady ahead of a speech by Reserve Bank of Australia Governor Phil Lowe at 1005 GMT, with the market expecting a dovish tone after weak jobs data last week lifted expectations of an imminent rate cut.

Both currencies sat near three-week lows, with the Aussie buying $0.6772 and the kiwi $0.6290.

"We think Lowe will provide a strong signal that the RBA is ready to cut rates again, endorsing our view for a 25bp cut in October," said Tapas Strickland, a director of economics and markets at National Australia Bank in Sydney.

"Any comments on the scope for unconventional policy will also be critical for the market."

The Bank of Japan's governor Haruhiko Kuroda is also due to speak today, around 0530 GMT.

Meanwhile a delicate upbeat mood broadly held, with Chinese importers' decision to buy 10 boatloads of U.S. soybeans seen as a positive sign leading in to trade negotiations next month.

China's yuan strengthened very slightly to 7.1056 in offshore trade.

U.S. Treasury Secretary Steven Mnuchin told Fox Business that discussions were scheduled in two weeks and that he and U.S. Trade Representative Robert Lighthizer would meet Chinese Vice Premier Liu He.

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Next big thing: A successful InvIT from NHAI is a hot idea

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Infrastructure investment trusts (InvITs) of late have been attracting a lot of attention in India. For the uninitiated, InvITs are trusts, similar to mutual funds listed on a stock exchange, which raise funds from investors, acquire income yielding infrastructure assets, manage such assets and distribute regular yields to investors under a SEBI-regulated framework.

InvITs can be privately placed or public – Both the formats have to be listed on an Indian stock exchange. While privately-placed InvITs can raise funds only from institutional investors and have relatively relaxed investment conditions, the public ones can do so from retail as well as institutional investors and have more diversified and low risk investment conditions. There is also a third format recently introduced by SEBI, which is a privately placed and unlisted InvIT. However, in this article, given the context, we have focussed more on public listed InvITs.

While InvIT regulations were introduced by SEBI in July 2014 and related tax regulations through Budget 2015, InvITs as a product did not really take off until 2017. However, since 2017, there has been consistent activity in this space.

NameAssetTiming
IRB InvIT FundRoads2017
IndigridTransmission towers2017
Ind InfravitRoads2018
Orient Infra TrustRoads2019
India Infrastructure TrustGas Pipeline2019

The Indian government is keenly exploring InvITs as a possible means to monetise its infrastructure assets, perhaps because of the myriad benefits it brings for all the stakeholders involved while contributing to infrastructure development. Government bodies such as NHAI and PGCIL (Power Grid Corporation of India) have been experimenting with the InvIT route to monetise their road and power transmission assets, respectively.

According to recent media reports, while the proposal to monetise roads and highways through the InvIT route has been approved by NHAI, it is awaiting Cabinet approval. This InvIT is most likely to be a public InvIT, having private participation as well, and is expected to be cleared for implementation in the latter half of 2019, according to the reports.

While action on the ground is more visible now, the idea of use of InvITs for monetisation of such assets has been under consideration for a couple of years. The late Arun Jaitley, the then finance minister, in his Budget Speech of 2018 had said: “The government and market regulators have taken necessary measures for development of monetising vehicles like InvIT and Real Investment Trust (ReIT) in India. The government would initiate monetising select CPSE assets using InvITs from next year.”

More specifically, in the context of roads and highways, he added: “To raise equity from the market for its mature road assets, NHAI will consider organising its road assets into special purpose vehicles and use innovative monetising structures like toll, operate and transfer (TOT) and infrastructure investment funds (InvITs).”

There have been media reports in the recent past, citing that NHAI is under financial stress and its toll revenues may not be sufficient to service interest payments on its financial obligations. The Prime Minister’s office (PMO) had also written a letter to NHAI in August 2019, suggesting discontinuing construction of roads by NHAI and encouraging the private sector to take over the running of completed projects.

The idea is perhaps to overcome the unplanned and excessive expansion of roads and high costs for land acquisition and construction being incurred by NHAI. One of the suggestions to NHAI was also to monetise its existing assets through InvIT.

Given the ambitious Bharatmala project for providing seamless connectivity of interior and backward areas and borders of the country, NHAI has a huge task ahead to achieve. The proposed InvIT will surely provide the much-needed capital for this programme and help the state-owned entity.

While NHAI has also been looking at other modes for financing such as ToT, collaborating with NIIF (National Investment and Infrastructure Fund), issuance of bonds to LIC and central budgetary allocations, given the ambitious target of expansion of roads and highways the government has set for itself, InvITs could still play a very significant role.

The proposed InvIT should help in attracting long-term and patient capital from foreign investors, who have shown a high degree of interest in other InvITs listed in India. In fact, InvITs have attracted foreign investors who had hitherto not invested in India. These foreign investors are typically pension funds, sovereign wealth funds and insurance companies which are hooked to the advantages InvITs offer in terms of corporate governance, stable long-term returns because of mandatory distribution rules, lower risks, high quality assets and tax benefits on income distributions.

The InvIT should also provide a breather to the Indian banking sector by providing an aid to refinance existing high cost debt of NHAI with long-term low-cost capital from investors and help banks free up or reduce loan exposure to the road builder. It’s seen to provide an efficient and optimum structure for financing and re-financing of road and highways projects and free up NHAI’s capital for reinvestment in other avenues.

A successful listing of such an InvIT by a marquee government body like NHAI could significantly boost investor confidence, which would help catalyse more InvITs in India, meaning more foreign capital.

Given the potential benefits, the proposed InvIT by NHAI is the next big thing in the Indian landscape and should play a pivotal role in propelling infrastructure growth, contributing towards realisation of the dream of a $5 trillion economy.

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In a bid to liberalise the coal sector, the government is planning to invite global players for the roll out of auction plan for commercial mining by December this year, Union Minister Pralhad Joshi said on Thursday.


The maiden move aimed at cutting coal exports is set to end the monopoly of domestic giant Coal India that accounts for over 80 per cent of the India's dry-fuel output.


"Hundred per cent commercial mining is approved. By December or so we are planning to roll it out," Coal, Mines and and Parliamentary Affairs Minister Joshi told reporters on the sidelines of the National Geoscience Award 2018.


He said that the government will invite global players for this, as 100 per cent FDI in coal will lead to more investors in coal mining operations with better technology.


"We are inviting global players. There is already 100 per cent FDI. More investors will come... We are hoping to get better technology. Whatever the shortcomings we have in this sector as far as mining coal is concerned that (commercial mining) will be a boost to address it. 100 per cent commercial mining is approved," Joshi said.


Coal is the most important and abundant fossil fuel in India. It accounts for 55 per cent of the country's energy needs and the government is trying to curb imports.


The country's coal imports increased by 28.7 per cent to 24.14 million tonnes in June as against 18.75 million tonnes in the corresponding month of the previous fiscal.


Total imports of thermal coal rose to 56.23 million tonnes during the quarter as compared with the year-ago period.


The country's coal imports swelled by about 13 per cent to 235.2 MT during the year-ended March 31, 2019.


Coal India along with the PSU Singareni Collieries Company Limited (SCCL) are the only companies that till now were allowed to mine and sell coal.


Coal India is the the single largest coal producer in the world, operating through 82 mining areas with seven wholly owned coal producing subsidiaries and a mine planning and consultancy company, it accounts for about 600 million tonnes (MT) annual production.


As per the Coal Ministry, commercial primary energy consumption in India has grown by about 700 per cent in the last four decades but the current per capita commercial primary energy consumption in India is about 350 kgoe/year which is well below that of developed countries.


On issues pertaining to iron ore mining, the Mines Minister Joshi said that the government is working on it and will see to it that there are no shortages of the mineral.

US Dollar Index Technical Analysis: The Greenback faces initial support at the 55-day SMA at 97.89

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  • DXY is extending the consolidative theme above the 98.00 handle following another interest rate cut at the FOMC meeting on Wednesday.
  • The immediate bullish view stays uncompromised for the time being, sustained by the 55-day SMA at 97.89 and Friday’s low at 97.86 .
  • If the recovery gathers traction, the index should then target last week’s peak at 99.10.

DXY daily chart

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DOLLAR INDEX SPOT


OVERVIEW
Today last price98.32
Today Daily Change34
Today Daily Change %-0.26
Today daily open98.58
 
TRENDS
Daily SMA2098.4
Daily SMA5097.99
Daily SMA10097.63
Daily SMA20097.16
 
LEVELS
Previous Daily High98.69
Previous Daily Low98.2
Previous Weekly High99.11
Previous Weekly Low97.99
Previous Monthly High99.02
Previous Monthly Low97.21
Daily Fibonacci 38.2%98.5
Daily Fibonacci 61.8%98.39
Daily Pivot Point S198.29
Daily Pivot Point S298
Daily Pivot Point S397.8
Daily Pivot Point R198.78
Daily Pivot Point R298.98
Daily Pivot Point R399.27

Coming soon: Steep hikes in motor insurance premium for traffic violations

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A country that faces nine crashes every 10 minutes has decided to act tough on drivers who cause accidents. Drivers who have so far been worried about shelling a large amount on traffic violations, would soon be dealing with another concern: ‘How would this traffic law violation impact the insurance premium on the vehicle?’

While the nine-member committee headed by Anurag Rastogi, Chief Actuary & Chief Underwriting Officer, HDFC Ergo General Insurance, charts the road-map for mapping traffic violations to the cost of insurance and tried to gauge the new parameters on which vehicle insurance are likely to be pegged.Such a linkage of insurance premium to traffic violations is expected to reduce accidents and bring about a change in driving behaviour as per the Insurance Regulatory Development Authority (IRDA), which has formed a working group to examine the system of linking premiums to traffic law violations.

Commenting on the move Sajja Praveen Chowdary, Head-Motor Insurance, Policybazaar.com, says, “The overall environment is being altered to make people more responsible when they are in public spaces. So, good drivers would be definitely paying a lower premium versus bad drivers and that is the ideal scenario any insurer would aim for.”Currently, motor insurance premiums are primarily decided by insurance companies based on the historical loss experienced for a particular category of vehicle, including the make in a specific region. But the insurance industry has been waiting for insured/driver-specific information for understanding the risk better to help in improved underwriting, according to Amitabh Jain, Head-Motor & Health underwriting and Claims at ICICI Lombard General Insurance Company (ILGIC).

Whatever changes and developments insurers have undertaken in terms of understanding the claims history of a particular vehicle category would be incomplete without gauging the circumstances under which the vehicle damage occurred. And, driving behaviour is a key parameter, giving them a peek into the probability of claim from a particular person, based on his/her driving behaviour.

“While insurance companies consistently try to improve the pricing for a vehicle by incorporating additional risk parameters such as previous claims history, vehicle safety features (such as an anti-theft device), vintage of the vehicle, and a customer’s association with an insurance company, the ideal way to price a risk would be the individual driving behaviour,” reveals Rakesh Jain, ED & CEO, Reliance General Insurance (RGIC).


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Advance tax mop-up posts dismal growth, rises by just 6% in H1FY20

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The tax authorities are faced with a steep revenue collectiontarget for 2019-20, with advance tax mop-up posting dismal growth in the first half of the financial year, indicating a deepening economic slowdown.

The overall advance tax collection, including corporate and personal income tax, grew by 6 per cent between April and mid-September as against 18 per cent in the year-ago period, according to sources in the know.

Direct tax collectionhas seen a growth rate of mere 5 per cent so far this year, which means that collections will need to expand by at least 27 per cent in the remaining half to achieve the Budget target of 17.3 per cent growth.

Advance tax collectionafter the second instalment stood at Rs 2.2 trillion. The gross direct tax collectionhas touched Rs 5.5 trillion as against the full-year target of Rs 13.35 trillion.

Within the advance tax collection, corporation tax mop-up grew by 6.5 per cent and personal income tax by 3.5 per cent.

“The revenue situation remains grim on account of the economy expanding slower than expected and key industries being impacted. If the situation does not improve, meeting the collection target will be impossible,” said a government official.

India’s gross domestic product (GDP) growth plummeted to a 25-quarter low of 5 per cent in the first quarter of FY20.

The tax buoyancy estimated this year at 1.44 is higher than 1.21 achieved last year. In simple terms, it means if nominal GDP expands by 10 per cent, direct tax collectionwill grow by 14.4 per cent, which appears near impossible in the current situation. Nominal GDP grew by just 8 per cent in the first quarter as against 12 per cent budgeted for FY20. Several institutions, including the International Monetary Fund (IMF) and the Reserve Bank of India (RBI), have cut India’s growth forecast.

Forex - Yen Rises against Dollar After BOJ Holds

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The yen rose from a seven week low against the U.S. dollar on Thursday after the Bank of Japan kept monetary policy on hold, in the wake of the Federal Reserve’s overnight decision to cut rates.

The dollar was down 0.44% to 107.95 yen by 2:32 AM ET (6:32 GMT) after the BoJ kept policy on hold, as expected, but signaled it could ease next month.

Central banks around the world have been loosening policy to counter the risks of low inflation and recession.

The Fed cut interest rates for a second time this year on Wednesday in a 7-3 vote. The rate cut was widely expected, but the split vote has raised some concern about predicting the future path of monetary policy.

Fed Chairman Jerome Powell described U.S. prospects as "favourable" and the rate move as "insurance." He did not rule out future cuts, but his remarks were not as dovish as markets had hoped for.

The euro rose 0.1% against the dollar to 1.1045, while the British pound was little changed at 1.2468.

Investors are awaiting a Bank of England policy meeting later Thursday. The BOE is expected to  keep rates unchanged, but uncertainty over Brexit has complicated the monetary policy outlook.

The Australian dollar was down 0.6% at 0.6786 after data overnight showing that the country’s unemployment rate unexpectedly rose in August, underlining the case for additional stimulus by the Reserve Bank of Australia.

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