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The large transfer to the Union government is likely to be a one-time event

Larger OMOs contributed an additional ₹26,000 crore income to the RBI during the accounting year. V.V.Krishnan

Large scale open market operations (OMO) conducted by the Reserve Bank of India (RBI) and higher earnings from foreign exchange operations helped boost the central bank’s surplus to record levels in 2018-19.

The RBI posted a surplus of ₹1.23 lakh crore in 2018-19 compared to ₹50,004 crore in 2017-18 and ₹30,663 crore in 2016-17. On Monday, the central bank said that its board had approved the transfer of ₹1.76 lakh crore to the government, which includes the surplus of ₹1.23 lakh crore and excess provisions of ₹52,637 crore identified as per the revised Economic Capital Framework.

Massive liquidity

The RBI infused massive liquidity by buying back government securities. Holding cash does not yield any return but when invested in securities, interest income is earned. Market estimates suggest that the additional income during the accounting year was to the tune of ₹26,000 crore on larger OMOs.

“Interestingly, the regular dividend is much higher than the excess dividend, and almost double of the regular dividend transferred over the last five years. The reason for this is the record OMO purchases in FY19 (₹3 lakh crore, over 70% of g-sec issuances). It led to a high interest income,” economists at HSBC said.

In addition, there was a gain of ₹21,000 crore due to change in methodology to calculate foreign exchange gains, which was reflected in net income.

Observing the large transfer is likely to be one-time event, India Ratings said, “As the net liquidity injection under the liquidity adjustment facility continued in FY19 and the credit offtake remains weak, the banking system continues to see surplus liquidity. Therefore, while the RBI is likely to have sustained its earning from seiniorage income in FY19, the growth will come down incrementally.”

India Ratings said with the contingency fund reserve at about 5.5% of the total assets of the RBI, the central bank could be expected to appropriate its net income towards the fund in order to maintain the fund’s corpus at least at the current levels.

Auto giants plan to collaborate in new fields, including autonomous driving

In this file photo, Toyota Motor Corp. President Akio Toyoda, left, is with Suzuki Motor Corp. Chairman Osamu Suzuki. AP

Japanese auto giants Toyota and Suzuki on Wednesday announced entering into an agreement under which the firms will buy stakes in each other to promote a long-term partnership for collaboration in new fields, including autonomous driving.

Under the pact, Toyota will acquire 2.4 crore shares, or a 4.96% stake, in Suzuki valued at ¥96 billion, while Suzuki will buy shares worth ¥48 billion in Toyota.

Business partnership

The automakers had first announced a business partnership in October 2016. In March, this year, they agreed to jointly develop products, collaborate in production and promote mutual supply of products by bringing together Toyota’s strength in electrification technologies and Suzuki’s strength in technologies for compact vehicles.

Explaining the purpose of the alliance, the two firms said in a statement, “... the automobile sector is currently experiencing a turning point unprecedented in both scope and scale, not only because of enhanced environmental regulations, but also from new entries from distinct industries and diversified mobility businesses.”

Sustainable growth

The companies “intend to achieve sustainable growth, by overcoming new challenges surrounding the automobile sector by building and deepening cooperative relationships in new fields while continuing to be competitors, in addition to strengthening the technologies and products in which each company specialises and their existing business foundations,” the statement added.

“Specifically, to take up challenges together in this transitional era, the two companies plan to establish and promote a long-term partnership between the two companies for promoting collaboration in new fields, including the field of autonomous driving,” the statement said.

The communique added that the execution of the capital alliance agreement was a confirmation and expression of the outcome of ‘sincere and careful discussions’ between the two automobile companies, and will serve to build and promot their future partnership in new fields.

The large transfer to the Union government is likely to be a one-time event

Larger OMOs contributed an additional ₹26,000 crore income to the RBI during the accounting year. V.V.Krishnan

Large scale open market operations (OMO) conducted by the Reserve Bank of India (RBI) and higher earnings from foreign exchange operations helped boost the central bank’s surplus to record levels in 2018-19.

The RBI posted a surplus of ₹1.23 lakh crore in 2018-19 compared to ₹50,004 crore in 2017-18 and ₹30,663 crore in 2016-17. On Monday, the central bank said that its board had approved the transfer of ₹1.76 lakh crore to the government, which includes the surplus of ₹1.23 lakh crore and excess provisions of ₹52,637 crore identified as per the revised Economic Capital Framework.

Massive liquidity

The RBI infused massive liquidity by buying back government securities. Holding cash does not yield any return but when invested in securities, interest income is earned. Market estimates suggest that the additional income during the accounting year was to the tune of ₹26,000 crore on larger OMOs.

“Interestingly, the regular dividend is much higher than the excess dividend, and almost double of the regular dividend transferred over the last five years. The reason for this is the record OMO purchases in FY19 (₹3 lakh crore, over 70% of g-sec issuances). It led to a high interest income,” economists at HSBC said.

In addition, there was a gain of ₹21,000 crore due to change in methodology to calculate foreign exchange gains, which was reflected in net income.

Observing the large transfer is likely to be one-time event, India Ratings said, “As the net liquidity injection under the liquidity adjustment facility continued in FY19 and the credit offtake remains weak, the banking system continues to see surplus liquidity. Therefore, while the RBI is likely to have sustained its earning from seiniorage income in FY19, the growth will come down incrementally.”

India Ratings said with the contingency fund reserve at about 5.5% of the total assets of the RBI, the central bank could be expected to appropriate its net income towards the fund in order to maintain the fund’s corpus at least at the current levels.

Cites decline in share price, lower-than-expected funds raised as reasons

Moody’s Investors Service on Wednesday downgraded Yes Bank’s long-term foreign-currency issuer rating to Ba3 from Ba1.

“The outlook on the bank’s ratings, where applicable, is negative,” the rating agency said. With this, Moody’s has concluded the rating review process of the private sector bank that was initiated in June.

The rating downgrade is due to the lower-than-expected amount of capital raised by the bank recently and the risk that substantial decline in the bank’s share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level, Moody’s said. In the last one year, Yes Bank’s shares have tanked around 84%. Earlier this month, the bank had raised ₹1,930 crore through the qualified institutions placement (QIP) route. Moody’s said the QIP would moderately improve the bank’s reported common equity tier-1 ratio of 8% as of June 30, 2019, to 8.6%.

“Moody’s expects the bulk of Yes Bank’s operating profits will get consumed by loan loss provisions over the next 12-18 months, and thus not support internal capital generation.” This would leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which is becoming more challenging given the substantial decline in its share price, it added.

Yes Bank’s asset quality deteriorated in the quarter ended June 2019, with its gross non-performing loan ratio rising to 5%, from 3.2% at the end of March.

“The negative outlook reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through the asset quality issues and rebuilds its loss absorbing buffers,” the agency added.

Shares of the bank fell 7.5% to ₹59.50 on the BSE on Wednseday.

‘Exact reason for the move is not clear’

Parthasarathi Mukherjee

Parathasarathi Mukherjee, the MD and CEO of Lakshmi Vilas Bank Ltd. (LVB), tendered his resignation, the private sector lender said in a regulatory filing.

Talking to The Hindu, Mr. Mukherjee merely confirmed that he had resigned. He did not elaborate.

“The board met today and approved an increase in the authorised capital from ₹500 crore to ₹650 crore and a further raising of working capital i.e. ₹500 crore by way of debt and ₹1,000 crore by way of equity,” he added.

“The board meeting, which started at noon, lasted for nearly five hours,” said a person in the know of the development. “We don’t know why Mr. Mukherjee resigned,” the person added.

“He was taking steps to lead the bank on a recovery path. It is indeed shocking.”

In April, the boards of LVB and Indiabulls Housing Finance Ltd. (IHFL) had approved the merger of the two entities.

In June, the Competition Commission of India had given its nod for the proposed scheme of amalgamation of IHFL and Indiabulls Commercial Credit Ltd. with LVB. Approval for the merger is pending with the RBI.

IBHF’s shareholders will own 90.5% of the proposed amalgamated entity, while LVB shareholders will hold the remaining 9.5%. Shares of the bank lost 4.9% on Wednesday to close at ₹40.75 on the BSE.

For FY19, the lender had posted a loss of ₹894 crore against a loss of ₹585 crore for FY18 due to a large slippage in NPAs, according to a BSE filing.

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