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Equity indices end in red for second straight session

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Mumbai, Sep 18: The key Indian equity indices provisionally closed in the negative territory for the second successive day on Tuesday, with the S&P BSE Sensex losing close to 300 points.

The NSE Nifty50 also dropped nearly 100 points to end below the 11,300 mark, after global markets fell on the announcement of fresh US tariffs on Chinese imports.

Sector-wise, heavy selling pressure was witnessed in banking, auto and capital goods counters.

At 3.30 p.m., the wider NSE Nifty50 provisionally closed at 11,278.90 points, lower by 98.85 points or 0.87 per cent from the previous close of 11,377.75 points.

The S&P BSE Sensex, which had opened at 38,027.81 points, provisionally closed at 37,290.67 points, lower by 294.84 points or 0.78 per cent from the previous close of 37,585.51 points.

It touched a high of 37,745.44 points and a low of 37,242.85 points during the day’s trade.

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RBI’s role in Dhanlaxmi Bank Board should be reviewed: AIBEA

Earlier the bank closed down many of its branches in north Indian States owing to inadequate controls which landed the bank into problems.

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Dhanlaxmi Bank

Chennai, Sep 27 : The role of Reserve Bank of India (RBI) in the Board of Directors of Dhanlaxmi Bank (originally Dhanalakshmi Bank) should be reviewed, said a top official of the largest union in the banking sector.

Stating that the small private sector bank Dhanlaxmi Bank which had turned around is back to old ways C.H. Venkatachalam, General Secretary, All India Bank Employees’ Association (AIBEA) said: “We strongly believe that RBI’s role in the Board of Directors of the Bank should be reviewed as otherwise RBI would become answerable if things go bad.”

In a letter to Shaktikanta Das, Governor, RBI on Saturday Venkatachalam said: “If Reserve Bank of India does not effectively intervene in the affairs of this Bank now, once again the Bank will run into problems. Slowly, the people and the customers of the Bank have regained their confidence about the Bank and any reversal of the same would be suicidal for the Bank.”

“We strongly believe that RBI’s role in the Board of Directors of the Bank should be reviewed as otherwise RBI would become answerable if things go bad,” Venkatachalam said and sought Das’ personal and urgent intervention.

Venkatachalam said the 93-year old small sized Kerala based Dhanlaxmi Bank around 2008-2012 was making losses.

The bank made a loss of over Rs 850 crore during that period as the top management brought it to serious problems and in the name of modernising it, Venkatachalam recalled.

“With the intervention of RBI, change in top management, and strengthening its capital base, etc. and inducting some reputed people on the Board of Directors of the Bank, the Bank has been making a turnaround and now the Bank has come into profit,” the letter notes.

Venkatachalam said for the past two years, Dhanlaxmi Bank is making profits with the profit for last fiscal being Rs 65 crore-the highest since the bank’s inception.

“In the beginning of this year, the top management has changed and in the recent months we are concerned to observe that perhaps the Bank once again is heading in the wrong direction,” Venkatachalam said.

Earlier the bank closed down many of its branches in north Indian States owing to inadequate controls which landed the bank into problems.

“But we learn that attempts are again being made to open more Branches in northern States while the Bank has inadequate infrastructure to manage the business in those areas,” Venkatachalam sounded the warning bugle.

Expressing concern at the plans to appoint a large number of sales executives and senior executives on contractual and cost to company basis at much higher remuneration Venkatachalam said the move would land the bank in a catastrophe as the already the cost to income ratio is high.

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Column: Helping Indian SMEs to achieve scale – Behind Infra Lines

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As the Indian economy deals with the economic impact of the Corona induced slowdown, an opportunity to make constructive changes to the economic policies has arisen.

India needs a long hard look at ways to deregulate the economy and businesses. Deregulation pertains to not just the legal frameworks at play but the overarching tax, law and business frameworks that drive business decisions and policies. Changes that can help reduce the regulatory burdens and hindrances to business will help businesses in India achieve the elixir of “creating scale” to help them take advantage of economies of scale.

In a recent article, Paula Mariwala refers to the fact that if Adam Smith or Napoleon who referred to England as “a nation of shopkeepers” were to stereotype India, they would arguably refer to us as “a nation of entrepreneurs”. The article further goes on to state that 80 per cent of Indians find livelihoods in the informal sector. The two biggest takeaways from the article are both the importance of small businesses to the Indian economy and the need to help support small businesses.

While a lot is written and said about helping SMEs and MSMEs, the critical point that needs attention is how to assist businesses in India to scale to a larger size. Taking advantage of the concept of ‘economies of scale’ is probably the most significant need for companies across the spectrum in India. While lack of access to credit has been a large contributing factor to the hindrances faced by small businesses in India, a more effective and less complicated regulatory regime is equally important, if not more.

A closer look at the issue will show that a lack of access to credit and complex regulatory ecosystem that hampers the growth of small businesses are closely interlinked. As has been oft-repeated, Indian businesses suffer from the vicious cycle of not being able to formalise due to the complexity of the regulatory regime and, therefore, lacking access to credit and thereby remaining small are unable to achieve economies of scale.

Essentially, the inability to achieve scale today inhibits the ability to achieve scale in the future. Therefore, the critical question is how does the government turn this vicious cycle to a virtuous one in which small businesses are incentivised to formalise, access credit more easily, achieve scale and generate returns and get the ever-important tax revenue that is needed? Essentially, when making policy changes, one question that policymakers must keep in mind is whether the policy change will assist small businesses to achieve scale. While achieving ‘economies of scale’ cannot be the only determinant of policy decisions, it must surely be a major one.

For instance, for smaller businesses the concept of ‘job work’ whereby a larger business outsources some of its work to a smaller unit or a small unit outsources parts of the product creation to another small unit sounds routine but is of prime importance. Job work allows for economies of scale through specialisation. As India moves ahead, especially intending to boost manufacturing, the ability of small businesses to achieve scale will be driven through their ability to specialise that will allow them to scale and add technology. In this case, compliances around concepts such as ‘job work’ must get more attention in terms of ease and compliance burdens on businesses.

While the concept of jobwork and related regulation at the surface seems standard, a searching look on how Indian small businesses will grow will reveal the importance of rules around concepts such as jobwork. As mentioned earlier, scale is needed for businesses to thrive as the classic economic theory dictates. It is only after a threshold of scale is achieved that businesses can start enjoying the fruits of lower costs, greater profits, formalisation and access to credit, thereby further boosting growth. Indian SMEs have historically struggled for scale and the concomitant advantages that scale brings.

Therefore, as India emerges from the economic slowdown, significant attention must be paid towards the need of businesses to achieve scale. Capital flows, job creation and demand creation are all factors that revolve around the success and scalability of millions of businesses in India. Policy creation and changes that keep a close eye on assisting Indian businesses to scale amongst other factors will have a significant contribution to putting the wheels back on India’s growth story.

(The author heads Development Tracks, an advisory firm. You can contact him at [email protected] The views expressed in this article are personal and that of the author)

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‘Economic disruption to deter RBI from quantifying FY21 growth forecast’

The RBI’s MPC (Monetary Policy Committee) is expected to release its resolution on the monetary policy after their meet on September 29 to October 1, 2020.

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New Delhi, Sep 27 : The dynamic economic upheaval unleashed by Covid-19 pandemic might hinder the Reserve Bank of India (RBI) from giving a pin-pointed growth as well as inflation forecast in the upcoming monetary policy report, experts opined.

The existing legislations mandate the RBI to come out with a growth and inflation forecast twice in an interval of six-months in the monetary policy report.

Expectedly, the report is slated to be issued with the upcoming policy review on October 1. The report was last issued in February.

“Given the continuing uncertainty on the economic revival, it is difficult to say whether RBI will come out with clear forecasts on the GDP print for FY21,” said Suman Chowdhury Chief Analytical Officer at Acuite Ratings and Research.

“It has, however already highlighted the risks of a material contraction in economic output in the previous MPC report. As regards inflation, it is likely to reiterate its expectation of a moderation in the CPI inflation over the next few months due to lesser supply constraints, higher crop output in kharif season and also the favourable base effect kicking in.”

According to Brickwork Ratings said: “With uncertainty regarding the pandemic looming large, the RBI may not provide a GDP forecast for FY21 in the upcoming MPC meeting. As in the previous statements, the RBI may continue to talk about economic contraction without quantifying the magnitude.”

“Given the continued surge in Covid-19 cases in the country’s major hubs, which is hindering the recovery process, we expect the Q2FY21 GDP to shrink by 13.5 per cent.”

In April, the RBI’s Monetary Policy Report said that the global economy may slump into recession in 2020.

The report noted that the the coronavirus pandemic, lockdown and the expected contraction in global output will weigh heavily on the growth outlook. The actual outturn would depend upon the speed with which the outbreak is contained and economic activity returns to normalcy, said the Monetary Policy Report for April 2020.

As per the report, due to the highly fluid circumstances in which incoming data produce shifts in the outlook for growth on a daily basis, forecasts for real GDP growth in India are not provided in the Monetary Policy Report, awaiting a clear fix on the intensity, spread and duration of Covid-19.

It is widely expected that persistently high inflation fanned in part due to supply side disruptions along with seasonal factors will deter the Reserve Bank to administer a dose of lending rate cut during the upcoming monetary policy review.

Notably, the expected move will come at a time when industrial output is at historic low due to the Covid-19 pandemic.

The RBI’s MPC (Monetary Policy Committee) is expected to release its resolution on the monetary policy after their meet on September 29 to October 1, 2020.

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