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The central bank recorded a huge jump in gains from foreign exchange transactions while its interest income leapfrogged

Ever since the Reserve Bank of India (RBI) announced a jaw-dropping surplus of ₹1,23,414 crore for 2018-19 (July-June accounting year), the question that has been uppermost on everyone’s mind is: how did the central bank post such a massive surplus?

In the immediate two preceding years, 2017-18 and 2016-17, the surpluses were only ₹50,004 crore and ₹30,663 crore respectively.

The RBI Annual Report for 2018-19, released on Thursday, provides the answers. There are two basic reasons for the impressive surge.

Dollar value

First, a huge ₹28,998 crore gain from foreign exchange transactions thanks mainly to a change in accounting policy. Until last year, when the RBI sold dollars in the market (to support the rupee), the gain or loss was calculated based on the previous Friday’s market value of the dollar. This policy was changed this year to reflect the historical acquisition cost of the dollar. A rough, back-of-the-envelope calculation puts this historical cost at around ₹53. This means that, if the RBI were to sell the dollar in the market today at around ₹72, it stands to gain ₹19 for every unit it sells.

In the previous year, the RBI posted a loss of ₹4,067 crore from similar transactions. Former top RBI officials say that the change in policy is not inappropriate as the earlier method resulted in understatement of gains. The RBI has been buying dollars regularly since the 1991 crisis to build up its reserves at rates much lower than the prevailing one.

When it sells those dollars, the actual gains have to be computed in reference to the weighted average acquisition cost and not that of the previous Friday.

The second reason for the higher surplus is a leap in interest income which was higher by ₹32,966 crore compared to 2017-18. The RBI conducted several rounds of open market operations (OMO) last year to infuse liquidity leading to a 57% jump in its holding of government bonds.

As per estimates by SBI Research, the RBI purchased a whopping ₹3,31,100 crore net of government bonds in 2018-19 through OMOs.

Interest from bond holdings alone was higher by ₹10,375 crore while Liquidity Adjustment Facility (LAF) operations yielded another ₹1,046 crore as interest earnings.

Last year, the central bank had paid interest of ₹9,541 crore to banks as it absorbed excess liquidity from the market. The liquidity infusion operations resulted in a rise in currency in circulation by a good 13.43% to ₹21,68,797 crore as of June 30 this year.

The RBI’s balance sheet size grew by 13.41% to ₹41,02,905 crore in 2018-19.

₹500 notes comprised more than 50% in value terms as at end March 2019: RBI

The ₹2,000 currency notes introduced during the demonetisation exercise of 2016 have dropped in circulation in the last one year ended in March 2019.

According to data in the Reserve Bank of India’s annual report, there were 3,363 million pieces of such notes in circulation as at end March 2018, which was 3.3% of the total currency in circulation, in terms of volume. In value terms, the ₹2,000 notes’ share in total currency circulation was 37.3%.

The number of pieces dropped to 3,291 million in the year ended March 2019, which was 3% in terms of volume and 31.2% in value of total circulation. At the same time, the number of ₹500 notes significantly increased to 21,518 million pieces from 15,469 million pieces during the period under review.

The ₹500 notes, as at end March 2019, was 19.8% of the total circulation in volume (as compared to 15.1%) and 51% in terms of value (as compared to 42.9% in end March 2018).

So, in value terms, the ₹500 notes are more than half of the currency in circulation.

“In value terms, the share of ₹500 and ₹2,000 banknotes, which had together accounted for 80.2% of the total value of banknotes in circulation at end-March 2018, increased to 82.2% at end-March 2019.

There was a sharp increase in the value of ₹500 banknotes in circulation — from 42.9% to 51.0% over the year,” the report said.

‘Govt. has realised the need for its complete exit’

The government will embark on ‘total’, or 100%, privatisation of Air India, Minister of State for Civil Aviation Hardeep Singh Puri said on Thursday.

“The government’s determination to privatise AI is a given, it’s undiluted. It should be total privatisation. We have to get the best possible deal in the shortest time possible,” Mr. Puri said at a press conference. In its earlier attempt at disinvestment of Air India, the government had sought to sell 76% of its stake and retain the remainder.

The government’s refusal to exit completely from Air India was among the main reasons why no private player came forward to participate in the privatisation process.

The Minister explained that the Group of Ministers headed by Amit Shah was likely to meet ‘in the next few days’, to look at the proposal prepared by the Ministry of Civil Aviation and reviewed by the Committee of Secretaries in a recent meeting. The Minister said there were players interested in Air India.

The government has learnt from its past mistakes and, therefore, has realised the need for a complete exit from Air India. Another major obstacle it has sought to circumvent is the huge debt size of ₹58,000 crore until March 2019.

It has hived off ₹29,000 crore of this and transferred it to a special purpose vehicle to provide relief to the airline in terms of interest it has to pay on the debt as well as to attract private players.

The Minister refused to comment if the government would retire more debt when it offers the national carrier for privatisation again.

Action after probe finds governance, financial lapses; no misappropriation of funds, asserts Thapar

On the defensive: No promoter or promoter entity derived any undue benefit, says Gautam Thapar. Getty ImagesGETTY IMAGES

Gautam Thapar, chairman of CG Power and Industrial Solutions, was removed from the post with immediate effect by the company’s board after an investigation by a legal firm found governance and financial lapses at the company.

Citing the current situation and recent developments, the CG Power Board of Directors, through a circular resolution passed by majority consent on Thursday, resolved to remove Mr. Thapar with immediate effect.

“This decision has been taken in the interests of the company and its stakeholders in discharge of the fiduciary responsibilities of the board,” CG Power said in a filing with the exchanges.

On August 20, CG Power and Industrial Solutions disclosed to the exchanges that some unauthorised transactions had been carried out by certain employees of the company, resulting in understating of liabilities, advances and net worth. Reacting to his removal, Mr. Thapar said in a statement that the reports following the board meeting of August 19, 2019, were disheartening and did not reflect facts.

“In the interests of all stakeholders, including banks and financial institutions, I must say that no funds lent by banks nor any funds of CG have been misappropriated. The money has been applied with due board approval. All inter-corporate transactions have been fully authorised by the board,” he said.

According to Mr. Thapar, no promoter or promoter entity had derived any undue benefit and there was ‘simply no fraud’.

‘₹4,000 cr. paid back’

“Promoters who have paid back ₹4,000 crore to lenders since 2015 did not cheat. I had no opportunity to participate in the ‘investigation’ nor the resulting ‘report’. I leave it to the stakeholders to draw their own conclusions from this fact. I will reaffirm this at the board meeting [on] August 30, 2019,” he said.

In May, the company had sent its MD & CEO K.N. Neelkant on leave pending an investigation on “suspect, unauthorised and undisclosed transactions.”

Shares hit upper circuit

CG Power shares on the BSE hit the upper circuit limit, rising 4.74% to close at ₹9.95 in a weak Mumbai market on Thursday.

This, after the company clarified that it was evaluating divestments of non-core assets and considering other fund-raising avenues, including a potential equity raise for bridging the cash flow gaps as well as working capital requirement, to avoid any business disruption.

Acquisition to be made at enterprise value of ₹1,300 crore

Adani Green Energy Limited (AGEL) has signed an agreement with Essel Group firms, Essel Green Energy Private Ltd. and Essel Infraprojects Ltd., to buy 205 MW of operating solar assets at an enterprise value of ₹1,300 crore.

The deal includes 10 operating solar PV companies with a combined capacity of 205 MW spread across Punjab, Karnataka and Uttar Pradesh. The companies have long-term power purchase agreements (PPAs) with various State electricity distribution companies.

Jayant Parimal, CEO, AGEL, said: “This is our first brownfield acquisition of operating assets. It expands our footprint in States where we already have presence, and with our strong operational expertise, will deliver significant value to our shareholders.”

In a statement, an Essel Group spokesperson said, “Our asset divestment process is well within the purview of the agreed timelines with our esteemed lenders. The sale of the group’s solar assets to AGEL is yet another positive step taken in this direction.”

The transaction in cash is expected to be completed by October 15, 2019, said AGEL in a filing with the exchanges. Post completion of the acquisition, AGEL’s portfolio of renewable generation capacity in India will stand at 5,500 MW, with 2,403 MW operational projects and balance 3,007 MW in the development stage.

Shares of AGEL fell 2.25% to ₹43.35 on the BSE on Thursday.

More steps needed, says ex-CIL chief

Mining opportunities: Increased mining will cut avoidable imports of coal, says Partha S. Bhattacharyya. G.N Rao.

The Centre’s announcement allowing 100% foreign direct investment (FDI) in the coal sector should enhance Coal India Limited’s (CIL) competitiveness and efficiency, said Partha S Bhattacharyya, former CIL chairman.

Ease-of-doing business

However, he felt that while this would kindle the interest of global miners, they would need increased ease-of-doing business and time-bound approvals before they invest here.

“The government has taken a slew of measures, but more needs to be done — they look for large mines and a simplified single-window for mining leases and environmental and forest clearances,” he said.

In India, it takes at least six years from getting a mine allocation to actually starting mining operations.

This has now been fixed at 66 months. The Coal Ministry is taking steps such as doing away with the need for prior approval before a State government hands over the mining lease, which typically takes 6-12 months.

“Overseas investors usually do not view such long timelines favourably,” Mr. Bhattacharyya said, adding India was among the few countries that still offer opportunities in the sector as most western countries had shut down coal mines.

He added that increased mining will also lower “avoidable imports of coal that India has to make due to the prevalent demand-supply gap. CIL’s production is growing at a fast clip, but in 2018-19 India spent about $8 billion on importing 125 million tonnes of coal for non-coastal thermal plants.”

Vedanta chairman Anil Agarwal said, “100% FDI in mining... will send a positive signal to global investors and give a significant push to the economy.”

A senior Essar official told The Hindu, “India is one of the largest importers of thermal coal. Government allowing 100% FDI in coal mining will attract global miners of the likes of BHP and Anglo American. This will result in FDI inflow along with updated technology, and increase India’s coal production.” The Coal India chairman could not be reached for his comments.

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