2017

Volume 9

THIS MONTH

In this issue, Mr. Anand Natarajan, Head of Strategy and Business Execution, Fullerton India

Credit Company Ltd. has presented his views on Key Consideration for NBFCs. We thank Mr.

Natarajan for his contribution to the APAS Monthly publication.

This month, the APAS column presents its views on consolidation in banking.

The economic indicators showed mixed performance. Manufacturing PMI increased from 47.9 in

July to 51.2 in August 2017. The growth of core sectors increased to 4.9% in August. India's Index

of Industrial Production (IIP) increased by 1.2% in July 2017 over July 2016. PMI services and

composite PMI increased from 45.9 and 46 in July to 47.5 and 49 in August, respectively. Inflation

increased to 3.36% in August from 2.36% in July. Wholesale Price Index (WPI), increased to

3.24% in August from 1.88% in July.

The Reserve Bank of India (RBI) has given its stance on Monetary policy. The RBI has released

amendments to Master Directions – Reserve Bank of India (Financial services provided by Banks)

Directions, 2016. Also, the limits for investments by Foreign Portfolio Investors (FPIs) in

Government Securities Medium Term Framework for the next quarter Oct-Dec 2017, have been

revised.

The Insurance Regulatory and Development Authority of India (IRDAI) issued a notification for

clarifications on Guidelines on insurance e-commerce and electronic issuance of insurance

policies.

APAS

MONTHLY

The Union Cabinet approved rationalization/merger of the Government of India Press (GIPs) and

their modernization.

Securities and Exchange Board of India (SEBI) amended SEBI (Infrastructure Investment Trusts)

Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014.

We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts, and

encourage you to share them with us.

Ashvin parekh

On the cover

GUEST COLUMN

Mr. Anand Natarajan

Head of Strategy and Business Execution - Fullerton India Credit

Company Ltd.

Key Considerations for NBFC’s

APAS COLUMN

Consolidation in Banking

ECONOMY

➢ Index of Industrial Production – July

➢ Inflation update – August

➢ PMI update – August

➢ Core Sector update – August

BANKING

➢ RBI’s Fourth Bi-Monthly Monetary Policy, 2017-18

➢ Amendments to Master Direction- Reserve Bank of India

(Financial Services provided by Banks) Directions, 2016

➢ Investment by Foreign Portfolio Investors (FPI) in

Government Securities Medium Term Framework

INSURANCE

➢ Clarifications on Guidelines on insurance e-commerce and

electronic issuance of insurance policies

INFRASTRUCTURE

➢ Cabinet approves Rationalization/Merger of the Government

of India Press (GIPs) and their modernization

CAPITAL MARKETS

➢ Amendments to the SEBI (Infrastructure Investment Trusts)

Regulations, 2014 and SEBI (Real Estate Investment Trusts)

Regulations, 2014

CAPITAL MARKET SNAPSHOT

ECONOMIC DATA SNAPSHOT

Non-bank finance companies have historically played a pivotal role in providing formal financing solutions

to sectors of the Indian industry that have typically been under-attended to. A deep local connect, an

understanding of the sector being serviced and an ability to underwrite assets not normally within banking

remit allowed these institutions to become an important source of MSME and rural financing. Important

though they were, the absence of a comprehensive regulatory oversight in the manner of banks, and the

largely family/privately owned nature of these entities meant that these institutions were usually

regarded as non-mainstream financial service corporates.

This perception, however, has seen a major shift over the last decade. Strengthened regulatory oversight

and capitalisation standards, and expansion of shareholder base to include professional investors have

led to improved transparency and a resultant increasing recognition of these entities as mainstream

financial institutions. Most institutions are now run professionally, to strong and improving governance

standards – with some of the larger institutions even operating in the nature of broad-spectrum financial

services conglomerates.

At about 15% of credit being supplied by NBFCs, they now represent a major pillar of the Indian economy,

and provide much needed financial support to the hitherto excluded ‘bottom of the pyramid’ and MSME

segments. These are also segment that have to grow at a rate much faster than has been observed, for

the country to deliver a ~ 8% GDP growth and to generate employment – and this is a developmental

responsibility that NBFCs will have to continue to shoulder.

The constraints to fully unleashing the energy of the NBFC sector – to deliver to these goals are relevant

to understand, but these are also relatively easy to address:

Access to funding

Unlike banks, most NBFCs need to rely on wholesale financing to fund their asset book. The nature of

funding, reliance on a generally limited source of financing (and often competing with alternate

deployment options that the lenders need to balance) expose the institutions to potential vulnerability,

especially under volatile monetary and/or economic conditions (with the flow-through convulsive effect

on borrowers), and present a potential cap to the size that these institutions can grow to.

Key Considerations for

NBFCs

Mr. Anand Natarajan, Head of Strategy and Business

Execution - Fullerton India Credit Company Ltd.

A pressing need is to enable these institutions diversify their funding pools and obtain access to more

durable funds. Systemically important NBFCs – today – are better capitalized, governed and more

rigorously regulated than earlier. Under these circumstances, the regulator should consider allowing

systemically important institutions – access to two specific pools of liquidity: (a) retail liabilities and (b)

refinance windows from RBI.

Retail liabilities offer mutually valuable incentives to the borrower and to the depositor: borrowing NBFCs

benefit from a more sticky liability base that affords more stability and - especially given the under-banked

segments that NBFCs operate in – an opportunity for depositors to enter the banking system.

Refinance windows – especially under volatile market conditions – offer a degree of stability and

assurance to the NBFCS – and – with the liquidity support so available – provide a degree of assurance to

wholesale lenders as well, that extreme shocks will not derail such systemically important NBFCs.

Risk Weighting and Capitalisation

Capitalisation requirements of NBFCs have been enhanced over time, and now present a strong buffer

against asset quality and underperformance. There is empirical evidence that these capital buffers have

enabled larger NBFCs manage through portfolio turbulence of varying severity without experiencing

existential challenges.

Tighter NPA provisioning norms, more stringent capital adequacy standards and the convergence in

accounting standards obtained through Ind AS are reducing the degrees of separation between Banks and

NBFCs. In this context, it is important that the manner in which capital adequacy is computed and the risk

weights that should apply over asset classes also converge.

Unlike NBFCs, which attract a uniform risk weight across asset classes, banks benefit from differentiated

risk weights being applied over various asset classes, and reliance on credit ratings to moderate weights

over lending portfolios. Applying reasonably similar weight over various asset classes – reflecting the

underlying risk – will benefit the NBFC sector in two ways:

a. This will reflect the true underlying risk of the relevant asset class and allocate the right level of

capital to the appropriate underlying risk and

b. This will incentivize the NBFC to shape the book in a more balanced manner, and importantly,

price appropriately for risk.

Differentiated Treatment

It is recognized that NBFCs cannot entirely be compared with banks and regulatory flexibility will vary.

There are however areas of operational differentiation that are at times imposed – that impact the ability

of NBFCs to operate effectively, at times even enhancing risk. Examples include

a. the inability of NBFCs (notwithstanding the fact that they are regulated entities and also have a

reporting obligation to FIO) to accept demonetized currency notes from customers as loan

installment obligations (although banks were permitted to accept such notes) – a measure that

impacted ability of NBFCs to collect their dues, with the consequent goodwill decline across

borrowers and delinquency increases and

b. inability to collect cash above INR 200,000 per day as loan installment obligations, which is at

variance with banks who – for the same customer segment – can collect cash

c. differential tax treatment of interest on NPAs between banks and NBFCs

Ironing out such asynchroncities – if just for the better rated and systemically important NBFCs – will serve

the enhance the effectiveness of these entities to operate better and fulfil the obligation that they hold –

viz. improving financial inclusion and fueling the growth of the MSME segment.

The Union Cabinet has given in-principle approval for Public Sector Banks (PSBs) to amalgamate through

an Alternative Mechanism (AM). In 1991, it was suggested that India should have fewer but stronger PSBs.

However, it was only in May 2016 that effective action to consolidate PSBs began to be taken by

announcing amalgamation of 6 banks into State Bank of India (SBI). Bharatiya Mahila Bank and 5

subsidiaries of SBI were absorbed into SBI. The merger was completed in record time, unlike earlier

mergers of State Bank of Indore and Saurashtra. SBI is now a single bank with about 24,000 branches, over

59,000 ATMs, 6 lakh POS machines and over 50,000 BCs.

There are now 20 PSBs other than SBI. The banking scenario has changed since 1970-80 when banks were

nationalized, with an increased banking presence from private sector banks, non-banking finance

companies (NBFCs), RRBs, payment banks and SFBs.

Historically, most bank mergers have been offshoots of the central bank’s efforts to protect the financial

system and depositors’ money and very few of them have been driven by the need for consolidation and

growth, right from 1969, when Bank of Behar was merged with SBI, to 2015, when Kotak Mahindra Bank

took over ING Vysya Bank. The only instance of a state-owned bank being merged with another was in

1993, when New Bank of India was merged with Punjab National Bank, which was not a voluntary merger.

The Cabinet decision is expected to facilitate consolidation among the nationalized banks to create strong

and competitive banks in public sector space to meet the credit needs of a growing economy, absorb

shocks and have the capacity to raise resources without depending unduly on the state exchequer. Hence,

it would be interesting to see how the mergers are done and whether they would help in the consolidation

of PSBs.

Based on the description provided in the approval framework, the process of PSB consolidation could be

envisaged in four phases and PSBs could follow the below approach for consolidation. The first phase in

the process is shortlisting a possible partner suiting the requirements. Based on detailed diligence, cost-

benefit analysis, cultural fit, synergies and various other parameters, the process can move forward. The

required communication and agreement between parties can then be achieved with mutual consent. The

Consolidation in

Banking

second phase involves preparation of a merger scheme. Once the partner is selected, the merger scheme

needs to be prepared and presented to the Cabinet. Upon its approval, the third phase of implementation

of merger scheme shall start. After preparation and approval, the merger scheme needs to be

implemented. The banks may choose to appoint independent advisors or consultants to complete the

transaction. Once the transaction is completed, the final step of post-merger implementation has to be

effectively managed to see that all the synergies identified, in terms of technology, products and services,

branches, culture, etc. are realized.

There are different views regarding the impact that consolidation will have on the PSBs. One view is that

consolidation would be beneficial as it would help in reducing costs and achieving greater efficiency. It

would make the PSBs healthier and help them stand up to competition from global banks. The banks may

be able to avert a loss of market share to private banks and NBFCs to some extent.

However, there is another view that there would also be some challenges associated with it. Firstly, it may

be difficult to arrive at the swap ratio as the rights of minority shareholders need to be protected.

Another critical point to ponder upon is whether the relatively large banks have the ability to absorb

weaker peers. Punjab National Bank, which is the largest among them, with assets worth INR 7.21 trillion,

has gross NPAs of 12.53%, which is 92% of its capital and reserves, or net worth, as of March 2017.

Similarly, Bank of Baroda has gross NPAs of 10.46%, Bank of India has 13.22%, Canara Bank has 10.56%

and Union Bank has 11.17% gross NPAs.

Even though the merger of SBI with its associates catapulted it in the league of top 50 global banks in

terms of assets, it has not been able to escape the pain associated with it. Following the merger, its gross

NPAs jumped from INR 1.08 trillion to INR 1.79 trillion, which was a rise from 7.23% of advances to 9.04%.

While its own net profit was INR 2815 crore in the March quarter, the merged entity reported a loss of

INR 3300 crore. If this could happen to India’s largest lender following the merger of its own entities run

by the same management, the other banks could face a worse situation.

While PSBs are evaluating their options, private sector banks are also examining innovative methods of

value creation by way of acquisition of NBFCs, be it MFIs or consumer lending NBFCs. The mergers in the

past, between ICICI Bank and ITC Classic Finance, or between HDFC Bank and Times Bank, have provided

the banks good value.

In the last couple of years, IDFC Bank acquired a 9.99% stake in ASA International India Microfinance and

also acquired Grama Vidiyal Microfinance.

Recently, IDFC and the Shriram Group have agreed to finalise a merger of their financial services

businesses. All operating businesses of the two groups will come together under IDFC Ltd. The retail

consumer centric business of Shriram Capital – Shriram City Union Finance (SCUF) – will be merged into

IDFC Bank. The transport finance business will remain a standalone NBFC that would become a subsidiary

of IDFC Ltd. The proposed merger would create a financial giant that will have businesses like mutual

funds and insurance as well.

In another transaction, IndusInd Bank and Bharat Financial Inclusion Ltd. have entered into an exclusivity

agreement to evaluate the possibility of a strategic merger between them. The deal is expected to help

IndusInd Bank to scale up its microfinance book and gain deeper penetration in rural areas.

While bank consolidation is the flavor of the season, we must not forget that there is also a need for more

banks to reach the last mile. As per the Narasimham committee, a large number of regional and local

banks are needed at the lowest tier of banking structure. Additionally, the Indian banking sector is

currently facing a bad loan crisis. Consolidation is likely to help private banks, if the regulatory approvals

are in place. However, whether PSBs will truly strengthen from the government’s consolidation plans

remains to be seen. The focus should be on cleaning up the balance sheets of the banks before going

ahead with consolidation.

-APAS

IIP (Index of Industrial Production) – July

The Index of Industrial Production (IIP) witnessed a growth of 1.2% in July, rebounding from a contraction

of 0.1% in June. Improvements in performance at the mining and electricity sectors buoyed the index, with

expansion in the mining sector at 4.8%, up from 0.4% in June.

The electricity sector grew 6.5% in July, accelerating from 2.1% in the previous month.

Manufacturing, however, grew only 0.1%. Still, this was an improvement from June’s 0.4% contraction.

While the overall primary goods category of IIP grew 2.3% in July, rebounding from a contraction of 0.2% in

June, the capital goods sector continued to contract, shrinking by 1% in July following June’s 6.8%

contraction. Consumer durables, too, contracted in July, by 1.3%, compared with a contraction of 2.1% in

June.

Source: APAS BRT, www.eaindustry.nic.in

2.7

3.1

1.7

-0.1

1.2

Mar-17 Apr-17 May-17 Jun-17 Jul-17

IIP (% YoY)

ECONOMY

CPI (Consumer Price Index) – August

India's retail inflation or Consumer Price Index (CPI) grew 3.36% in August 2017 as against 2.36% in July 2017

and 5.05% in the corresponding month of the previous year, as per Ministry of Statistics and Program

Implementation (MOSPI).

This rise was due to soaring food and petrol prices, higher housing expenses and a “transient” impact of the

recently-introduced indirect levy goods and services tax (GST). Inflation in petrol jumped to 24.55% in

August, from 9.6% in the previous month, showed the official data. Similarly, diesel moved up to 20.30%

from 5.49% in this period.

For the month of August 2017 inflation rate of food indicators were: food & beverages at 1.96%, while pan,

tobacco and intoxicants were at 6.85%, clothing and footwear at 4.58% and miscellaneous (health,

transport, education, personal care, etc.) stood at 3.85%.

The fuel and light segment witnessed a marginal increase standing at 4.94% from 4.86% in July. The housing

segment saw an acceleration in inflation to 5.58% from 4.98%.

Source: APAS BRT, www.mospi.gov.in

2.99

2.18

1.54

2.36

3.36

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Apr-17 May-17 Jun-17 Jul-17 Aug-17

CPI

WPI (Wholesale Price Index) – August

Double-digit inflation in petrol and diesel, along with skyrocketing tomato prices, pushed the Wholesale

Price Index (WPI)-based inflation up to a four-month high of 3.24% in August, from 1.88% in the previous

month.

Inflation based on the wholesale price index (WPI) was 1.09 % in August 2016. The government data showed

that the prices of food articles went up by 5.75 % in August on a yearly basis, as against 2.15 % in July while

fuel inflation shot up to 9.99% in August against 4.37% in the previous month.

Vegetable prices shot up by 44.91 % in August, as against 21.95 % in July. Onion prices witnessed a sharp

surge at 88.46 % in August, as against a contraction of 9.50 % in the previous month.

Inflation in manufactured products witnessed a slight increase at 2.45 % in August, against 2.18 % in July.

Apart from vegetables, prices of pulses, fruits (7.35 %), egg, meat and fish (3.93 %), cereals (0.21 %) and

paddy (2.70 %) also was on the increase. However, potato continued to see deflation at 43.82 % and pulses

at 30.16 %.

Primary articles inflation rose 2.66% last month from 0.46% in July.

Source: APAS BRT, www.mospi.gov.in

3.85

2.17

0.9

1.88

3.24

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Apr-17 May-17 Jun-17 Jul-17 Aug-17

WPI

Manufacturing PMI – August

August saw a rebound in manufacturing new orders and output across India. The expansions were modest,

but represented a substantial turnaround from July’s GST-related contraction.

Companies responded to the improvement in operating conditions by creating jobs and purchasing

additional raw materials and semi-finished items. Meanwhile, input cost inflation was reined in as the new

tax system meant that some raw materials became cheaper. In fact, the overall increase in input prices was

the weakest in a year. Up from July’s 101-month low of 47.9 to 51.2 in August, the Nikkei India

Manufacturing Purchasing Managers’ Index reported a renewed improvement in the health of the sector.

The upturn reflected resumed growth of new orders, production and employment. Order book volumes

increased in August, after having posted the worst performance since early- 2009 during July.

According to the reports, the rise in new work stemmed from a better understanding of the new taxation

system, alongside greater promotional activities and a pick-up in demand. Despite being moderate, the

upturn in factory orders was the quickest since May. New export business also rose, although at the slowest

pace in the current three-month period of growth. Companies, in turn, increased production. The expansion

was moderate, but contrasted with the sharp decline recorded in July. As was the case for new orders,

output grew in the consumer, intermediate and investment goods categories.

To cope with higher workloads, manufacturers hired extra staff at the fastest pace since March 2013. At the

same time, greater quantities of raw materials and semi-finished products were purchased. Buying levels

expanded at a moderate rate that was the quickest since May. The rate of charge inflation was, however,

negligible by historical standards. Indian manufacturers remained cheerful around growth prospects, with

marketing efforts, the launch of new products and favourable economic conditions expected to lead to

output growth in the year ahead.

Source: www.tradingeconomics.com

Service PMI – August

The Indian service sector was impacted by the goods and services tax (GST) during August as a second

consecutive drop in new business resulted in another monthly decline in activity. The downturn was less

severe than in July, however, with rates of contraction softening in both cases. Jobs were shed, due to fewer

workloads, and backlogs were accumulated. A slightly quicker rise in cost burdens was registered, whereas

output charge inflation softened from July’s recent peak. Companies remained optimistic towards growth

prospects, though overall sentiment fell.

Registering 47.5 in August, the seasonally adjusted Nikkei India Services PMI Business Activity Index pointed

to a second successive decline in output. Rising from 45.9 in July, however, the latest figure was indicative

of a softer rate of reduction that was moderate overall. The downturn was often associated with the

implementation of the GST, though there were also mentions of shortages of inputs. Although

manufacturing production rebounded from July’s downturn, growth was insufficient to offset the

contraction in services activity. Private sector output subsequently declined again. However, rising from

July’s 100-month low of 46.0 to 49.0 in August, the seasonally adjusted Nikkei India Composite PMI Output

Index was consistent with a weaker pace of reduction that was only slight. The trend for services activity

mirrored that for new business, which decreased for the second month in a row but at a slower rate.

Analyst Reports indicated that the new taxation system and advertising campaigns are anticipated to

support growth, but there were worries about competitive pressures. Similarly, goods producers were less

upbeat than in July. Price indicators continued to point to relatively muted inflationary pressures in the

service sector. Input costs rose at a quicker rate in August, though one that was well below its long-run

average. At the same time, output charge inflation softened from July’s 53-month peak. Companies

reported having paid more for beverages, food, fuel and paper and passing on to consumers only part of

the additional cost burden. In the manufacturing industry, purchase prices increased at the slowest pace in

one year. Whereas charges were raised, the rate of inflation was only marginal. Meanwhile, service

providers indicated that outstanding business volumes rose due to delayed payments from clients. Despite

being modest, the rise in backlogs was the most pronounced since February. Across the private sector as a

whole, work-in-hand increased to the greatest extent since February.

Finally, payroll numbers in the service economy decreased in August amid evidence of the non-replacement

of voluntary leavers. The decline in employment was the second in successive months.

Source: www.tradingeconomics.com

Core Sector Data – August

The index of eight core industries grew by 4.9% in August this year as compared to the index of August 2016.

It grew by just 2.6% in July.

As per data released by commerce and industry ministry, coal and natural gas production increased by

15.3% and 4.2% respectively in the month. Crude oil and fertilizers production declined by 1.6% and 0.7%

respectively whereas refinery products production increased by 2.4% in August. Cement production also

declined by 1.3% in August 2017 over August 2016.

Production of steel and electricity registered a growth of 3% and 10.3% respectively in August as against a

year ago in the month.

Source: APAS BRT, www.eaindustry.nic.in

3.2

5.0

6.6

4.95.6

3.4

1.0

5.0

2.5

3.6

0.4

2.4

4.9

Co

re s

ect

or

dat

a %

Month

Core sector Trend - Monthwise

RBI’s Fourth Bi-Monthly Monetary Policy

In its Fourth Bi-Monthly Monetary Policy Statement, 2017-18, The Reserve Bank of India (RBI) has

decided to maintain status quo and keep its key interest rate, the repo rate, unchanged at 6%. RBI had

cut rates by 25 bps two months earlier in its August review.

The committee projected that inflation will move in the 4.2% to 4.6% range over the next half year.

The RBI also noted that, the factors that would continue to impart upside risks to this baseline inflation

trajectory were

a) implementation of farm loan waivers by States – this may result in possible fiscal slippages and

undermine the quality of public spending, thereby exerting pressure on prices;

b) States’ implementation of the salary and allowances award – this is not yet considered in the

baseline projection; an increase by States similar to that by the Centre could push up headline

inflation by about 100 basis points above the baseline over 18-24 months, a statistical effect

that could have potential second round effects

The monetary policy committee (MPC) of the RBI has cut its GDP forecast, revising it down to 6.7% this

year as against 7.3% projected earlier in August. GDP growth had fallen to 5.7% in the first quarter and

has been coming down continuously over the past five quarters. The RBI noted that the loss of

momentum in Q1 of 2017-18 and the first advance estimates of kharif food grains production are early

setbacks that impart a downside to the outlook.

According to RBI, the implementation of the GST so far also appears to have had an adverse impact,

rendering prospects for the manufacturing sector uncertain in the short term, which may further delay

the revival of investment activity, which is already hampered by stressed balance sheets of banks and

corporates

BANKING

Also, consumer confidence and overall business assessment of the manufacturing and services sectors

surveyed by the Reserve Bank weakened in Q2 of 2017-18; on the positive side, firms expect a

significant improvement in business sentiment in Q3.

The MPC was of the view that various structural reforms introduced in the recent period will likely be

growth augmenting over the medium - to long-term by improving the business environment, enhancing

transparency and increasing formalization of the economy. The Reserve Bank would continue to work

towards the resolution of stressed corporate exposures in bank balance sheets which should start

yielding dividends for the economy over the medium term.

The MPC also called for recapitalizing public-sector banks adequately to ensure that credit flows to the

productive sectors are not impeded and growth impulses not restrained.

MPC suggested various steps to boost the growth. It suggested the following measures could be

undertaken to support growth and achieve a faster closure of the output gap, a concerted drive to close

the severe infrastructure gap, restarting stalled investment projects, particularly in the public sector,

enhancing ease of doing business, including by further simplification of the GST and ensuring

faster rollout of the affordable housing program with time-bound single-window clearances and

rationalization of excessively high stamp duties by States.

Amendments to Master Direction- Reserve Bank of India (Financial Services provided by

Banks) Directions, 2016

RBI amended the statutes making it possible for lenders to invest in real estate investment trust (Reits)

and infrastructure investment trust (InvIts) capping such exposures to 10% of the unit capital of such

instruments, and also to regulate their commodity derivatives play.

In amendments to the master direction—Reserve Bank of India (Financial Services provided by banks)

Directions, 2016, the central bank said banks should not invest more than 10% of the unit capital of a Reit

or an InvIt subject to overall ceiling of 20% of its net worth.

The master directions first issued in May last year did not provide for investments in the Reits and Invits,

both newly introduced instruments. The RBI also prohibited banks from becoming a professional clearing

member of commodity derivatives segment of SEBI-recognized exchanges unless it satisfies certain

prudential criteria.

These include bank satisfying membership criteria of the exchanges and complying with the regulatory

norms laid down by SEBI and the respective stock exchanges and putting in place board-approved risk

control measures, among others.

The RBI also prohibited banks from offering broking services for commodity derivatives segment of SEBI

recognized stock exchanges except through a separate subsidiary set-up for the purpose or one of its

existing subsidiaries.

Laying down the conditions for allowing broking services, it said there should be an effective risk control

measures, including prudential norms on risk exposure, in respect of each of its clients, taking into account

their net worth and business turnover.

The central bank also barred the subsidiary from undertaking proprietary positions in commodity

derivatives. The amendments also removed references to corporate debt restructuring and strategic debt

restructuring in the earlier master directions.

Investment by Foreign Portfolio Investors (FPI) in Government Securities Medium Term

Framework

The limits for investments by Foreign Portfolio Investors (FPIs) for the next quarter Oct-Dec 2017, have

been revised.

They have been increased by INR 80 billion in Central Government Securities and INR 62 billion in State

Development Loans. The revised limits notified, are allocated as per the modified framework prescribed

in the RBI/2017-18/12 A.P.(Dir Series) Circular No.1 dated July 3, 2017, and given as under –

Limits for FPI investment in Government Securities

₹ Billion

Quarter

Ending

Central Government securities State Development Loans Aggregate

General Long-

term

Total General Long-

term

Total

Existing

Limits

1877 543 2420 285 46 331 2751

December

31st, 2017

1897 603 2500 300 93 393 2893

These revised limits will be effective from October 3, 2017. The operational guidelines relating to

allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (SEBI).

Also, the AD Category – I banks may bring the contents of this circular to the notice of their constituents

and customers concerned. The directions contained in this circular have been issued under sections 10(4)

and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to

permissions/approval, if any, required under any other law.

Clarifications on Guidelines on insurance e-commerce and electronic issuance of insurance

policies

The Insurance Regulatory and Development Authority of India has issued a circular providing clarifications

on -

a) Revised guidelines on Insurance Repositories and electronic issuance of insurance policies dated

29.05.2015

b) Guidelines on insurance e-commerce dated 9th March, 2017

According to the guidelines, an e-signature of the e-Insurance Account (eIA) holder on the

application form for opening an eIA is considered as a valid authentication. However, the IRDAI

(issuance of e-Insurance policies) (First Amendment) Regulations, 2016 dated 2nd December, 2016

provided an option of validation by ‘One Time Password’ for electronic signature on e-proposal

form. Therefore, in order to facilitate opening of e-insurance account through online/ electronic

means, the Authority has permitted validation by ‘One Time Password’ for eIA opening as an

alternative to e-signature under clause 60(b) and Annexure 11 of the revised guidelines on

Insurance Repositories and electronic issuance of insurance policies.

Also, an eIA has given an option to the customer to provide either an email id or mobile number.

Email id and mobile number both have been made mandatory to open eIA, as the Insurance

Repository is required to send OTP1 on the registered email id and OTP2 on the registered mobile

number of the eIA holder.

In order to bring consistency between the two guidelines, the Authority allowed opening of eIA

on the basis of email id or mobile number with only one OTP being sent to email id/ mobile

number.

It further said that insurers can perform the verification of the client through e-KYC authentication

facility provided by UIDAI. UIDAI provides biometric authentication of a person based on Aadhaar.

INSURANCE

The insurance regulator further said that e-PAN facility offered by NSDL for compliance to the

Know Your Customer (KYC) / Anti-Money Laundering (AML) has been done away with.

An e-insurance account shall be created within 15 days post selling of insurance policies on the

applicant’s ISNP (Insurance Self-Network Platform). It has been clarified that opening of e-

insurance account for all policies that are sold on the ISNP Platform has to be necessarily and

compulsorily followed up with opening of an e-insurance account within 15 days post selling of

insurance policies. Any non-compliance will be seen as a violation of the aforesaid guidelines.

Cabinet approves Rationalization/Merger of the Government of India Press (GIPs) and their

modernization

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi gave its approval for

rationalization/merger and modernization of 17 Government of India Presses (GIPs)/Units into 5

Government of India Presses (GIPs) at Rashtrapati Bhavan, Minto Road and Mayapuri, New Delhi; Nashik,

Maharashtra and Temple Street, Kolkata, West Bengal.

These 5 Presses will be redeveloped and modernized by monetization of their surplus land. Land

measuring 468.08 acres of the other merged Presses will be given to Land & Development Office, Ministry

of Urban Development. Land measuring 56.67 acres of the Government of India Text Books Presses

(GITBPs) at Chandigarh, Bhubaneswar and Mysuru will be returned to the respective State Governments.

Modernization of the Presses will enable them to undertake important confidential, urgent and multi-

colour printing work of the Central Government Offices all over the country. This will be carried out at

zero cost to the exchequer and without any retrenchment.

INFRASTRUCTURE

Amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real

Estate Investment Trusts) Regulations, 2014

The SEBI Board meeting took place on 18th September 2017 and decided to amend Infrastructure

Investment Trust Regulations, 2014 and Real Estate Investment Trusts Regulations, 2014.

In order to facilitate growth of Infrastructure Investment Trusts (InvITs) and Real Estate investment Trust

(REITs), SEBI Board, has approved certain changes in the captioned regulations, which, inter alia, include

the following:

• Allowing REITs and InvITs to raise debt capital by issuing debt securities

• Introducing the concept of Strategic Investor for REITs on similar lines of InvITs

• Allowing single asset REIT on similar lines of InvIT

• Allowing REITs to lend to underlying Holdco/SPV

• Amending the definition of valuer for both REITs and InvITs

Further, the Board, after deliberations, decided to have further consultation with the stakeholders on a

proposal of allowing REITs to invest at least 50% of the equity share capital or interest in the underlying

Holdco/SPVs, and similarly allowing Holdco to invest with at least 50% of the equity share capital or

interest in the underlying SPVs.

CAPITAL MARKETS

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange Source: Bombay Stock Exchange

Sources: APAS Business Research Team Sources: APAS Business Research Team

Sources: APAS Business Research Team

Indian equity market witnessed record selling

by foreign institutional investors and record

purchases by domestic institutions, in a single

day, on 28th September, 2017.

Domestic institutions net bought shares worth

INR 5,197 crore while their foreign

counterparts sold shares worth INR 5,328

crore.

The Sensex and Nifty continued to trade higher

by nearly 0.5% as the RBI's decision to keep

repo rate unchanged at 6.0% was in line with

market expectations.

1-S

ep

-17

3-S

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-17

5-S

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7-S

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9-S

ep

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11

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7

13

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p-1

7

15

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7

17

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p-1

7

19

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21

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23

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p-1

7

25

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p-1

7

27

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p-1

7

29

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p-1

7

CNX Nifty (Sept - 2017)

1-S

ep

-17

3-S

ep

-17

5-S

ep

-17

7-S

ep

-17

9-S

ep

-17

11

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7

13

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7

15

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17

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7

19

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21

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7

23

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7

25

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p-1

7

27

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p-1

7

29

-Se

p-1

7

BSE Sensex (Sept-2017)

10.00

10.80

11.60

12.40

13.20

14.00

14.80

Indian VIX (Sept-2017)

62.5063.0063.5064.0064.5065.0065.5066.00

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ep

-17

3-S

ep

-17

5-S

ep

-17

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7

13

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15

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17

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19

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7

21

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7

23

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7

25

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7

27

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p-1

7

29

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p-1

7

$/₹ (Sept-2017)

6.35

6.40

6.45

6.50

6.55

6.60

6.65

6.701

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p-1

7

3-S

ep

-17

5-S

ep

-17

7-S

ep

-17

9-S

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-17

11

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7

13

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7

15

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7

17

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7

19

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21

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23

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7

25

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7

27

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7

29

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7

GIND10Y (Sept - 2017)

ECONOMIC DATA SNAPSHOT

* The Economist poll or Economist Intelligence Unit estimate/forecast;

^ 5-year yield

Quarter represents a three-month period of a financial year beginning 1st April

Countries GDP CPI

Current

Account

Balance

Budget

Balance

Interest

Rates

Latest 2017* 2018* Latest 2017*

% of GDP,

2017*

% of GDP,

2017*

(10YGov),

Latest

Brazil 0.3 Q2 0.6 2.1 2.5 Aug 3.7 -0.8 -8.1 9.24

Russia 2.5 Q2 1.7 1.9 3.3 Aug 4.2 2.7 -2.2 8.13

India 5.7 Q2 7.0 7.5 3.4 Aug 3.6 -1.2 -3.2 6.67

China 6.9 Q2 6.8 6.5 1.8 Aug 1.8 1.5 -3.9 3.62*

S Africa 1.1 Q2 0.6 1.3 4.8 Aug 5.3 -3.2 -3.2 8.65

USA 2.2 Q2 2.1 2.3 1.9 Aug 1.9 -2.4 -3.4 2.23

Canada 3.7 Q2 2.6 2.0 1.4 Aug 1.7 -2.6 -2.4 2.13

Mexico 1.8 Q2 2.1 2.2 6.7 Aug 5.8 -1.9 -1.9 6.81

Euro Area 2.3 Q2 2.0 1.8 1.5 Aug 1.5 3.2 -1.3 0.47

Germany 2.1 Q2 2.1 1.9 1.8 Aug 1.6 8.0 0.7 0.47

Britain 1.7 Q2 1.5 1.3 2.9 Aug 2.7 -3.4 -3.6 1.36

Australia 1.8 Q2 2.3 2.7 1.9 Q2 2.1 -1.4 -1.8 2.79

Indonesia 5.0 Q2 5.2 5.4 3.8 Aug 4.2 -1.7 -2.4 6.64

Malaysia 5.8 Q2 5.4 5.0 3.7 Aug 3.9 2.3 -3.0 3.89

Singapore 2.9 Q2 2.9 2.1 0.4 Aug 0.7 19.7 -1.0 2.18

S Korea 2.7 Q2 2.9 2.7 2.1 Sept 1.9 5.6 0.9 2.36

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