Stock market rallies on liquidity dose RBI tweaks asset classification norms
The central bank’s booster shots lift rupee from record lows
nMUMBAI: Indian stock markets rallied 3% on Friday led by financials, as liquidity boosting measures announced by the Reserve Bank of India (RBI) and firm positive global cues lifted investor sentiment.
The BSE Sensex ended at 31,588.72, up 986.11 points or 3.22%, while the 50-share index Nifty closed at 9,266.75, up 273.95 points or 3.05%.
Analysts feel that the market’s focus is now on how far these measures will help contain the economic fallout of the nationwide lockdown following the outbreak of covid-19.
RBI governor Shaktikanta Das announced several measures to infuse liquidity in the system.
The central bank also slashed the reverse repo rate by 25 basis points to 3.75% even as it kept the repo rate unchanged at 4.4%, to prompt banks to increase lending.
The central bank’s package lifted rate-sensitive stocks such as banks, real estate, and auto on expectations that the push to lend will spur consumption once the lockdown is lifted.
BSE Bankex gained 6.83% and BSE Auto jumped 4.67%, while BSE Realty was up 3.70%. The India Volatility Index (VIX) fell 7.71% to end at 42.54 on Friday.
The RBI measures lifted the rupee from the record lows it has been touching this week. On Friday, the rupee closed at 76.40, up 0.46% from the previous close of 76.88.
The 10-year bond fell 9 basis points to 6.347%, one year bond yields fell 22 bps, three-year bond yield fell 21 bps and four year fell 24 bps on Friday.
RBI’S move has addressed some of the liquidity problems, particularly for non-banking financial companies (NBFCS), microfinance institutions and state governments, said analysts.
The measures were mainly targeted towards injecting adequate liquidity in the financial system, incentivising banks to lend, easing the financial stress in the system, and achieving as much as possible, normal functioning of the financial market, according to Navneet Munot, executive director and chief investment officer, SBI Mutual Fund.
“Stress in economic activity and hence growth suggests that rates will have a softening bias. While the fundamentals of macro-economics guides towards a lower rate, credit challenges remain,” Munot said.
“Given the continued uncertainty around the covid-19 pandemic and the resulting challenges it presents in the equity markets and on the overall economy, we continue to remain bottom-up in our stock picking,” he added.
The situation is still uncertain in terms of the extent of disruption in economy and businesses, said Gaurav Dua, head capital market strategy and investments, Sharekhan by BNP Paribas.
“In terms of Indian equities, our base case prognosis is that the benchmark indices could continue to consolidate in a broad range of 8,500-9,200 on Nifty for the next few weeks,” he said.
nMUMBAI: The Reserve Bank of India (RBI) on Friday made temporary changes to its asset classification norms, offering some reprieve to borrowers, while ensuring adequate risk buffers for banks.
Addressing the media over a videoconference, RBI governor Shaktikanta Das said the nonperforming asset (NPA) classification norm will exclude the three-month moratorium period for borrowers who have availed it. This effectively changes the NPA recognition period for such loans from the existing 90 days from due date to 180.
“There will be an asset classification standstill for all such accounts from March 1 to May 31, 2020,” Das said. On March 27, the RBI had permitted lenders to offer a three-month moratorium beginning March 1 to borrowers due to difficulties faced during the pandemic.
Banks classify accounts as standard, substandard and doubtful, based on the number of days the payments were delayed by. Borrower accounts are marked non-performing if the payment is delayed by 90 days or more. “It is recognised that the onset of covid has also exacerbated the challenges for such borrowers even to honour their commitments fallen due on or before February 29, in standard accounts,” said Das.
According to a senior State Bank of India (SBI) official, the mention of February 29 has created some confusion over whether the moratorium, or the standstill clause, could be applicable to borrowers stressed even before March 1. The central bank had earlier rejected bankers’ requests to allow some leeway to borrowers stressed before the cut-off date of March 1.
To ensure the banking system has sufficient buffers against future asset quality woes, the RBI has mandated additional provisions on all these moratorium accounts. “With the objectives that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain a higher provision of 10% on all such accounts under the standstill spread over two quarters, March and June 2020. These provisions can be adjusted later on, against the provisioning requirements for actual slippage in such accounts,” said Das.
Under RBI’S guidelines, banks have to set aside funds as provisions for each loan they disburse and the amount increases with a deteriorating asset quality.
The provision for standard loans ranges 0.25-1% of the amount and bad loan provisions start at 15% and can reach up to 100% as it progressively deteriorates.
The RBI governor said NBFCS will also have the flexibility to use this dispensation.
nBEIJING:CHINA’S economy shrank by 6.8% in the first quarter of 2020, government data showed on Friday, confirming the damage done to the second largest economy in the world by the coronavirus pandemic. China’s gross domestic product stood at 20.65 trillion yuan (about $ 2.91 trillion) in the first quarter of 2020, down 6.8% year on year, data from the national bureau of statistics (NBS) showed Friday.
Reports said it was the first time that the Chinese economy had contracted since the Cultural Revolution, which ended in 1976.
State media reports said the 6.8% contraction translated to an economic loss of about 1.44 trillion yuan ($203.4 billion), which is equivalent to the GDP of New Zealand. The coronavirus first emerged China late last year, forcing the government to opt for an extensive countrywide shutdown of factories and businesses to contain the spread of the pathogen. The Communist Party of China (Cpc)-ruled government has restarted manufacturing across provinces but the raging pandemic has severely disrupted the supply chain in the first three months, impacting demand globally.
The impact of the pandemic on China’s foreign trade is expected to show in the second quarter with demand for goods from China – the world’s manufacturing hub – expected to plummet across the world.
The pandemic has infected more than 2 million globally and killed more than 130,000; China has reported more than 4000 deaths although new infections have dropped significantly from their peak in February.
“A breakdown of the data showed output of the service sector, which accounted for nearly 60% of the total GDP, dropped by 5.2%, while primary industry and the secondary industry saw a decline of 3.2% and 9.6%, respectively,” official news agency, Xinhua, said in a report.