2019

Volume 7

THIS MONTH

Season’s greetings!

In this issue, Mr. Ashish Kumar Srivastava, MD & CEO, PNB MetLife India Insurance, has presented

his thoughts on ‘Life Insurance Industry: Shape of Things to Come’. We thank Mr. Ashish Kumar

Srivastava for his contribution to the APAS Monthly.

This month, the APAS column presents its views on ‘Savings: Growth and trends; Savings Avenues

in India.’

The economic indicators showed mixed performance. Manufacturing PMI fell to 52.1 in June from

52.7 in May. India’s annual infrastructure output in June grew at 0.2%. India's Index of Industrial

Production (IIP) slowed to 3.1% in May. PMI services fell to 49.6 in June from 50.2 in May, while

composite PMI fell to 50.8 in June from 51.7 in May. CPI inflation rose to an 8-month high of 3.18%

in June from 3.05% in May. WPI inflation slipped to a 23-month low of 2.02% in June from 2.45% in

May.

The Reserve Bank of India (RBI) announced the Third Bi-monthly Monetary Policy Statement, 2019-

20 Resolution of the Monetary Policy Committee (MPC). The RBI launched Utkarsh 2022 – RBI’s

Medium-term Strategy Framework. The RBI released Financial Benchmark Administrators (Reserve

Bank) Directions, 2019. The RBI also released regulations on Rupee Interest Rate Derivatives

(Reserve Bank) Directions, 2019. The RBI announced Additional Liquidity Facility to Banks for

Purchase of Assets from and/or on lending to NBFCs/HFCs.

APAS

MONTHLY

The Insurance Regulatory and Development Authority of India (IRDAI) released guidelines on

Insurance Regulatory and Development Authority of India (Non-Linked Insurance Products)

Regulations, 2019.

Ministry of Finance announced norms on FDI in Multi - Brand Retail.

Securities Exchange Board of India (SEBI) released norms on Guidelines for Liquidity Enhancement

Scheme (LES) in Commodity Derivatives Contracts. The SEBI also released Guidelines on Disclosure

of divergence in the asset classification and provisioning by banks.

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. Ashish Kumar Srivastava MD & CEO PNB MetLife India Insurance Life Insurance Industry: Shape of things to come

ECONOMY

➢ Index of Industrial Production – May

➢ Inflation update – June

➢ PMI update – June

➢ Core Sector – June

APAS COLUMN

Savings: Growth and trends; Savings Avenues in India

INSURANCE ➢ Insurance Regulatory and Development Authority of

India (Non-Linked Insurance Products) Regulations,

2019

INFRASTRUCTURE & OTHER

GOVT. INITIATIVES

➢ FDI in Multi - Brand Retail

BANKING

➢ RBI Third Bi-monthly Monetary Policy Statement, 2019-20

➢ Launch of Utkarsh 2022 – RBI’s Medium-term Strategy

Framework

➢ Financial Benchmark Administrators (Reserve Bank)

Directions, 2019

➢ Rupee Interest Rate Derivatives (Reserve Bank)

Directions, 2019

➢ RBI Announces Additional Liquidity Facility to Banks for

Purchase of Assets from and/or onlending to NBFCs/HFCs

CAPITAL MARKETS SNAPSHOT

➢ CNX Nifty, BSE Sensex, India VIX, $/₹, GIND 10Y

CAPITAL MARKETS

➢ Guidelines for Liquidity Enhancement Scheme (LES)

in Commodity Derivatives Contracts

➢ Disclosure of divergence in the asset classification

and provisioning by banks

ECONOMIC DATA SNAPSHOT

➢ Global GDP, CPI, Current account balance, budget

balance, Interest rates

The Indian Life Insurance industry has demonstrated an impressive growth over the years with 15.7% CAGR growth in total new business premium between FY 2016 and FY 20191. This momentum is further expected to accelerate and as per a recent report by IBEF, life insurance industry in the country is estimated to grow by 12%-15% annually for the next three to five years2.

In spite of the protection gap of the country being one of the highest globally and the life insurance penetration during 2017 being reported low at 2.8% as compared to the global average of 3.3%3, Indian life Insurance industry has huge promises to hold.

Among the various factors that have contributed to the growth of life insurance industry, demographic conditions such as rise in middle class and the young insurable population have been major driving forces. India is one of the Nations with the highest youth population and the median age of the Country’s population is 28 years. Also, 90% of Indians estimated to be under 60 years by 20204. This large segment of young insurable population coupled with rapid urbanization and rising affluence, is further expected to propel Indian life insurance sector.

With the growth of young population, it becomes imperative for life insurers to find ways to effectively tap

this segment. The easiest way to reach out to this generation (also referred to as millennials) is through

technology. Hence, along with the other industries and sectors, life insurance companies are also now

welcoming new-age technology in form of Data Analytics, Artificial Intelligence, Chatbots among others.

Alongside, life insurers are also experimenting in studying big data to understand predictive behaviour among

the next generation of customers, so they can use the right vehicle to reach out to this segment. At PNB

MetLife our focus has been on 3Ds – Data, Digitize and Disrupt. We leverage ‘data’ to improve our ability to

generate meaningful and actionable insights, invest in ‘digitization’ to improve operational efficiencies,

productivity and the scalability of our operations and develop ‘disruptive’ technology to differentiate our

business from our competitors. We were in fact the first life insurance company in India to introduce khushi,

a virtual assistant based on an artificial intelligence framework that can chat with an existing or prospective

customer and help respond to queries related to their policies.

The adoption of technology, along with delivering superior customer experience, is also beneficial to the life insurance companies. As per the recent report published by PwC, digitisation can reduce around 15–20% of the cost of life insurance product offerings.5 At PNB MetLife, we have been driving our digitization efforts

Life insurance industry:

Shape of things to come

Mr. Ashish Kumar Srivastava MD & CEO PNB MetLife India Insurance

through innovating platforms, as well as by utilizing artificial intelligence, machine learning, blockchain technology, robotic process automation, chatbot platforms and natural language processing. Our recently implemented Robotic Process Automation (RPA) for Auto Debit Mandate Process, which along with reduction of errors has resulted 80% reduction in TAT from 15 man-hours to 3 man-hours – all leading to cost reduction and operating efficiency.

While technology does aid in driving operational efficiencies, much needs to be done to move away from the

traditional ‘product-driven approach’ to ‘customer-driven strategies’. In this context, it is of prime importance

for the life insurers to assess the needs of their customers and thereby offer solutions. At PNB MetLife, we

partner with our customers for their ‘Circle of Life’ or at their 4 different stages of life – Child Education, Family

Protection, Long Term Savings and Retirement. Customers also value such a gesture and we have seen that

this type of proposition not only results in longer association with customers but also triggers them with a

thought to take up additional protection cover for their family. Such initiatives will help in altering perception

towards life insurance as a mere tax saving product to a financial solution providing security to the family.

Along with focus on increasing the scalability of life insurance products to the customers, it is also important for life insurers to concentrate on claims management process. It is important to understand that the ultimate goal of life insurance is to offer protection to the family and hence as life insurers it becomes important for us to ease the processes for our customers when they actually need it. At PNB MetLife we made a conscious effort towards this objective of offering hassle free claims management process to our customers which, resulted in reduction of average claims TAT from 2 calendar days to 1 calendar day. Globally our promoter Company ‘MetLife Inc.’ is bringing in innovative concepts around this aspect. Recently LumenLab, MetLife’s Asia innovation centre at Singapore, launched ‘Life Chain’, in collaboration with NTUC Income, the Singapore based Insurance cooperative, and Singapore Press Holdings. This Ethereum based blockchain platform has capability to retrieve the deceased’s National Registration Identity card and send a trigger to NTUC, looking for a match with life insurance policy. If the match is found, then Singapore Press Holdings will release an obituary and NTUC will initiate the claims process. In India, also we would need such technologies, which can enable hassle-free claims process.

Given the huge opportunity that lies within the Indian life insurance sector, it is imperative for the organizations to leverage technology, which can help in addressing the needs of the customers. The world is moving at a fast pace and like other industries, life insurance industry is also adapting its touchpoints and processes basis the behaviour pattern of the customers.

1 Source – CRISIL 2 https://www.ibef.org/industry/insurance-sector-india.aspx 3 As per CRISIL report, 2017 4 CRISIL

5 https://www.pwc.in/assets/pdfs/consulting/financial-services/competing-in-a-new-age-of-insurance.pdf

*Views are personal. Neither APAS nor any of its employees endorse any view, product or services mentioned in the article

Income security during retirement is primary social achievement in 20th century. In light of withdrawal of

Government sponsored savings and pension plans and increasing private jobs, savings have assumed all the

more importance in the past decade.

The world economy stands on the brink of a sizable, long-term decline in household savings, driven by a global

aging process that is set to become faster and more synchronous in the coming decades. The trend in savings

across the world varies from developed to developing countries. The savings portfolio scenario in developed

countries appears grim due to several factors including aging population, increase in life spans and

dependence on Government sponsored schemes (which is further aggravated due to Global financial crisis,

rising oil prices and low yields).

The savings space is in India is spread across different avenues including bank deposits, life insurance products

like ULIPs - which offer market-linked returns embedded with insurance, mutual funds, stock markets, NPS,

postal savings scheme and physical savings such as real estate, gold, etc.

The Gross Financial Savings during 2014-15, 2015-16 and 2016-17 were INR 12,572 billion, INR 15,207 billion

and INR 14,048 billion. As per the data for 2017-18, around INR 18,800 billion were invested in Financial assets.

As of March 2018, India’s Gross National Savings (GNS), as a percentage of GDP, stood at 30.5 per cent.

Traditionally, banks have been an important avenue where the investors preferred to park their household

savings. However, during the recent years, there has been a dramatic shift within the savings space. Bank

deposits in India have been trending down since FY10, falling off to sub-10% over the past one year from an

average of 17% over FY09–13 and 12% over FY13–16.

The important avenues which have been actively replacing Bank deposits as an investment destination have

been mutual funds. The AUM of the Indian MF Industry has grown from INR 5.83 trillion as on 30th June 2009

to INR 24.25 trillion as on 30th June 2019, more than 4-fold increase in a span of 10 years. There has been

around 22% increase in AUM of Mutual Funds in India during 2017-18.

This tremendous shift can be attributed to the continuous yet massive demographic shift. The simultaneous

development of the capital markets has also been responsible for continuous development of the mutual fund

as savings environment. Furthermore, tax-saving of certain mutual funds has further lured investors into it,

along-with very good returns. Increase in mutual funds have led to a surge in capital markets also. The annual

average of share price index of BSE Sensex was 27,338 and Nifty was 8,638 for FY 2016-17. The annual average

Savings: Growth and

trends; Savings Avenues in

India

of share price index of BSE Sensex was 32,396 and Nifty was 10,424 for FY 2017-18. The below given table

gives a year-wise breakup of quantum of financial savings apart from mutual funds from 2012-18.

Based on the above data, we can observe that there has been a steep decrease of savings in Bank deposits

and a steep increase of investments in Shares during 2017-18.

Apart from financial savings, the physical assets also accounted for sizeable portion of savings. The savings in

physical assets were around INR 14,164 billion, INR 15,000 & INR 12,700 billion during 2013-14, 2014-15 and

2015-16 respectively. For 2016-17 it was around INR 13,900 billion.

While understanding the savings scenario in India, we may consider certain facts:

There has been a demographic shift and transformation of Indian household from savings-focused loan-averse

investor to consumption-focused leveraged consumer. The shift from Government-jobs to IT-sector jobs have

led to huge amount of urbanization and a lifestyle change, along-with greater amount of investor awareness.

With greater risk-taking ability and ability to understand markets, the investors have turned towards avenues

such as mutual funds and capital markets. The Association of Mutual Fund Industry (AMFI)’s concentrated

efforts like ‘Mutual funds sahi hai’ campaign have also helped in big way in increasing mutual fund segment

in India.

Drilling down further, we find that banks are incrementally becoming more of a transaction avenue and less

of savings destination given the low differential between savings rates and term deposits. This explains the

outsized growth in savings deposits vis-a-vis retail term deposits.

With the increase in private jobs, the savings have to suffice for pension in old age too. National pension

scheme (NPS) has emerged as a preferred voluntary pension fund destination for both public and private

sector employees.

Within the insurance segment, we can see unit-linked savings schemes which link together the market returns

and protection scheme as becoming one of popular saving options.

Savings avenues in rural areas are still limited to bank deposits, postal savings schemes, LIC, etc. The huge

presence of public-sector banks like SBI has encouraged the rural population to opt for bank deposits as

preferred avenue for savings. In progressive rural areas, local banks usually fund the business activities which

eventually results in deposit-accounts for such population.

Among the high-net worth individuals, wealth management services would include tax planning and financial

planning. High net worth households have grown at a fast rate, from 2011-19 growing at a CAGR of about 21.5

per cent.

A young, risk-taking population prefers greater returns with greater risk. However, the savings scenario in

India remains as diverse as its population. The investors should also understand the cyclical nature of the

markets and benefits of portfolio diversification. Also, when the population shifts from income generating

phase to savings utilization-focused phase (when the aged-population wants to consume its savings), a further

shift can be expected towards traditional savings product which are less risk-prone.

There has been a positive growth in each savings avenue. Certain sections like mutual funds have become

quite popular among investors. The trend of market-linked savings might continue for a while and may benefit

from the growing capital markets. However, as can be seen from the trend in last year, mutual funds have to

an extent replaced certain traditional avenues of savings like bank deposits.

-APAS

IIP (Index of Industrial Production) – May

Index of Industrial Production (IIP) or factory output for the month of May 2019 slowed to 3.1%, compared to

4.3% in April 2019, and 3.8% in May 2018.

The General Index for the month of May 2019 stands at 133.6, which is 3.1% higher as compared to that in

May 2018.

The growth was weighed down by muted growth in mining and manufacturing sectors.

The cumulative growth for the period April-May 2019-20 over the corresponding period of last year stood at

3.7%.

As per Use-based classification, the growth rates in May 2019 over May 2018 are 2.5% in primary goods, 0.8%

in capital goods, 0.6% in intermediate goods and 5.5% in infrastructure/construction goods.

Consumer durables and non-durables have recorded growth rates of -0.1% and 7.7% respectively.

The manufacturing sector, which constitutes 77.63% of the index, slowed to 2.5% in May, compared to 3.6%

growth last year.

Electricity generation rose sharply to 7.4% in May, compared to 4.2% last year.

Mining sector output slipped to 3.2% in May, compared to 5.8% last year.

In terms of industries, 12 out of 23 industry groups in the manufacturing sector have shown growth in May

2019 from May 2018.

The industry group ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of

articles of straw and plaiting materials’ has shown the highest growth of 24.8%, followed by 15.9% in

‘Manufacture of food products’ and 9.4% in ‘Manufacture of computer, electronic and optical products’.

On the other hand, the industry group ‘Manufacture of paper and paper products’ has declined most by

12.2%, followed by 9.9% in ‘Manufacture of furniture’ and 8.7% in ‘Manufacture of fabricated metal products,

except machinery and equipment’.

ECONOMY

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

CPI (Consumer Price Index) – June

India's consumer price index (CPI) or retail inflation rose to an 8-month high of 3.18% in June 2019, compared

to 3.05% in May 2019 and 4.92% in June 2018.

The corresponding provisional inflation rates for rural and urban areas are 2.21% and 4.33% respectively.

The Consumer food price index (CFPI) rose to 2.17% in June from 1.83% in May.

Among the CPI components, inflation for food and beverages increased to 2.37% in June 2019 from 2.03% in

May 2019.

Within the food items, the inflation rose for pulses and products to 5.68%, meat and fish to 9.01%, fruits to -

4.18%, milk and products to 0.63%, prepared meals, snacks, sweets, etc. to 2.7%, spices to 1.59% and cereals

and products to 1.31%. On the other hand, the inflation eased for vegetables to 4.66%, sugar and

confectionery to -0.09%, oils and fats to 0.74% and non-alcoholic beverages to 3.07% in June 2019.

The inflation for housing was flat at 4.84%, while that for miscellaneous items fell to 4.45% in June.

Within the miscellaneous items, the inflation declined for transport and communication to 0.73%, household

goods and services to 4.28% and recreation and amusement to 5.2%, while it moved up for personal care and

effects to 3.23%, health to 8.22% and education to 6.79% in June 2019.

The inflation for clothing and footwear eased to 1.52%, while that for fuel and light also eased to 2.32% in

June.

2.4

1.7

0.1 0.1

3.4

3.1

Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19

IIP (% YoY)

Base rate 2011-12

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

WPI (Wholesale Price Index) – June

India's wholesale price index (WPI) inflation slipped to a 23-month low of 2.02% in June 2019, as compared to

2.45% in May 2019 and 5.68% in June 2018.

The rate of inflation based on WPI Food Index eased slightly to 5.04% in June 2019 from 5.1% in May 2019.

The index for primary articles rose by 1.4% from the previous month.

Under primary articles, ‘Food articles’ group rose by 1.1% due to higher prices were fish-marine (6%), pork,

arhar, barley, peas/chawali and moong (4% each), fruits & vegetables and urad (3% each), beef and buffalo

meat, masur and maize (2% each) and mutton, condiments & spices, rajma and paddy (1% each). However,

the prices declined for betel leaves (26%), tea (2%) and ragi and poultry chicken (1% each).

The ‘Non-Food Articles’ group rose by 0.7% due to higher prices of raw rubber (12%), fodder (5%), groundnut

seed (4%), safflower (kardi seed) (3%), mesta, hides (raw), rape & mustard seed and soyabean (2% each) and

raw silk and cotton seed (1% each). However, the prices declined for floriculture (8%), gingelly seed and copra

(coconut) (3% each), castor seed and guar seed (2% each) and niger seed, raw jute, linseed, industrial wood

and sunflower (1% each).

‘Minerals’ group rose by 14.5% due to higher prices of copper concentrate (41%), bauxite (6%) and manganese

ore (4%). and chromite (2% each). However, the prices declined for limestone (12%), lead concentrate (4%),

zinc concentrate (3%) and iron ore (1%).

‘Crude petroleum and natural gas’ group declined by 0.3% due to lower prices of crude petroleum (1%).

2.05

2.572.86 2.92

3.053.18

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0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19

CPI

Base rate 2011-12

The index for fuel and power declined by 1.3% from the previous month.

Under fuel and power, ‘Coal’ group rose by 0.3% due to higher prices of lignite (7%).

‘Mineral oils’ group declined by 2.2% due to lower prices of naphtha (10%), furnace oil (5%), bitumen (4%),

petrol (2%) and HSD (1%). However, the prices moved up for kerosene (2%) and lube oils and LPG (1% each).

The index for manufactured products remained unchanged from the previous month.

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

Manufacturing PMI – June The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) lost growth momentum in June, due to

slower order growth, leading to slower output and employment growth.

The Manufacturing PMI fell to 52.1 in June 2019 from 52.7 in May 2019. It stayed above the 50 level, that

separates expansion from contraction, for the 23rd consecutive month.

A softer increase in new work intakes translated into slower rises in output and employment.

Also, new export order growth eased to the second slowest in over a year.

Meanwhile, input buying strengthened to a 4-month high, with stocks rising the most in over 2 years, while

there was another decline in inventories of finished goods.

In terms of prices, June data continued to show only a moderate increase in input costs, which in turn,

supported another round of selling charges discounting.

Lastly, sentiment remained upbeat, though weakened slightly from that recorded in May.

2.762.93

3.18 3.07

2.45

2.02

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19

WPI

Base rate 2011-12

Source: www.tradingeconomics.com

Services PMI – June

The Indian services sector activity contracted for the first time since May 2018, as weak sales, competitive

pressures and unfavourable taxation hampered output.

The Nikkei India Services Purchasing Managers’ Index (PMI) Business Activity Index fell to 49.6 in June 2019

from 50.2 in May 2019. The index fell below the neutral mark of 50, which separates expansion from

contraction.

New orders were broadly stagnant amid competitive pressures and weak underlying demand.

Meanwhile, foreign sales rose for the fourth straight month, albeit at a slower pace and employment growth

slowed to a 22-month low.

Unfinished business continued to rise, which was linked to delayed client payments.

On the price front, despite accelerating from May’s 28-month low, overall rate of input cost inflation was

negligible and below the average.

Selling prices rose further, but the rate of charge inflation was marginal, holding close to May’s 3-month low

and remaining below its long-run trend.

Finally, confidence weakened to a 4-month low, though remained positive.

The seasonally adjusted Nikkei India Composite PMI Output Index fell to 50.8 in June from 51.7 in May, its

lowest mark in over a year.

Source: www.tradingeconomics.com

Core Sector Data – June

Eight infrastructure sectors grew at their slowest rate in over 4 years in June 2019, rising 0.2%, mainly due to

a contraction in oil-related sectors as well as in cement production.

The eight core sectors – coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity

– had grown by 4.3% in May 2019 and 7.8% in June 2018.

The combined index of eight core industries stood at 131.4 in June 2019.

Crude oil output contracted by 6.8%, while refinery segment de-grew by 9.3%.

Cement output declined by 1.5%, whereas natural gas output declined by 2.1%.

Coal production expanded by 3.2%, fertilisers by 1.5%, steel by 6.9% and electricity by 7.3%.

Cumulatively, the growth in the eight core sectors during April-June 2019-20 was 3.5%, as against 5.5% in the

same period last financial year.

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

6.7 6.6

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Core sector Trend - Monthwise

RBI Third Bi-monthly Monetary Policy Statement, 2019-20

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy

Committee (MPC) at its meeting decided to:

• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75

per cent to 5.40 per cent with immediate effect. Consequently, the reverse repo rate under the LAF stands

revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.

• The MPC also decided to maintain the accommodative stance of monetary policy.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price

index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main

considerations underlying the decision are set out in the statement below:

Assessment

Global Economy

Global economic activity has slowed down since the meeting of the MPC in June 2019, amidst elevated trade

tensions and geo-political uncertainty. Economic activity remained weak in major emerging market economies

(EMEs), pulled down mainly by slowing external demand.

Crude oil prices fell sharply in mid-May on excess supplies from an increase in non-OPEC production, combined

with a further weakening of demand. Consequently, extension of OPEC production cuts in early July did not

have much impact on prices. Gold prices have risen sharply since the last week of May, propelled by increased

safe haven demand amidst rising downside risks to growth and a worsening geo-political situation. Inflation

remained benign in major advanced and emerging market economies.

Financial markets were driven by the monetary policy stances of major central banks and intensifying geo-

political tensions.

BANKING

Domestic Economy

On the domestic front, the south-west monsoon gained intensity and spread with the cumulative rainfall 6

per cent below the long-period average (LPA) up to August 6, 2019. In terms of its spatial distribution, 25 of

the 36 sub-divisions received normal or excess rainfall as against 28 sub-divisions last year. The total area

sown under kharif crops was 6.6 per cent lower as on August 2 than a year ago. The live storage in major

reservoirs on August 1 was at 33 per cent of the full reservoir level as compared with 45 per cent a year ago.

The transmission of policy repo rate cuts to the weighted average lending rates (WALRs) on fresh rupee loans

of banks has improved marginally since the last meeting of the MPC. Overall, banks reduced their WALR on

fresh rupee loans by 29 bps during the current easing phase so far (February-June 2019).

Outlook

In the second bi-monthly monetary policy resolution of June 2019, CPI inflation was projected at 3.0-3.1 per

cent for H1:2019-20 and 3.4-3.7 per cent for H2:2019-20, with risks broadly balanced. The actual headline

inflation outcome for Q1:2019-20 at 3.1 per cent was in alignment with these projection

The MPC notes that inflation is currently projected to remain within the target over a 12-month ahead horizon.

Since the last policy, domestic economic activity continues to be weak, with the global slowdown and

escalating trade tensions posing downside risks. Private consumption, the mainstay of aggregate demand, and

investment activity remain sluggish. Even as past rate cuts are being gradually transmitted to the real

economy, the benign inflation outlook provides headroom for policy action to close the negative output gap.

Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the

highest priority at this juncture while remaining consistent with the inflation mandate.

Launch of Utkarsh 2022 – Reserve Bank of India’s Medium-term Strategy Framework

Shri Shaktikanta Das, Governor launched ‘Utkarsh 2022’, the Reserve Bank of India’s Medium-term Strategy

Framework, in line with the evolving macroeconomic environment, to achieve excellence in the performance

of RBI’s mandates and strengthening the trust of citizens and other institutions.

A formal strategic management framework was launched in April 2015 to rearticulate the core purpose, values

and vision statement of the Reserve Bank so as to delineate its strategic objectives in contemporary terms, to

provide a framework and backdrop within and against which its policies would be formulated. These core

purposes (reflecting the RBI’s commitments to the nation) and values (Public Interest, Integrity and

Independence, Responsiveness and Innovation, Diversity and Inclusiveness, and Introspection and Pursuit of

Excellence) still remain relevant and valid; however, a need has been felt to have a medium-term dynamic

Vision statement reflecting our responses to emerging challenges and dynamics of the economic, social and

technological environment in which we operate.

The strategic framework contains, inter alia, the Bank’s Mission, Core Purpose, Values and Vision Statements,

reiterating the Bank’s commitment to the Nation. The Medium-term Vision Statements set out the following:

• Excellence in performance of statutory and other functions;

• Strengthened trust of citizens and other Institutions in the RBI;

• Enhanced relevance and significance in national and global roles;

• Transparent, accountable and ethics-driven internal governance;

• Best-in-class and environment friendly digital as well as physical infrastructure; and

• Innovative, dynamic and skilled human resources

These vision statements are mutually reinforcing and will guide the RBI during the medium-term period (2019-

22) through various strategies. The strategies are essentially well thought-out actions to capitalize on the

emerging opportunities and meet challenges of the future. The desired outputs are proposed to be realized

in terms of achievement of strategic goals through one or more tangible and time-bound milestones.

The Management of the Reserve Bank attaches high importance to ‘Utkarsh 2022’ and will periodically

monitor its implementation and progress through a Sub-committee of the Central Board.

Financial Benchmark Administrators (Reserve Bank) Directions, 2019

The main content of these regulations pertaining to Financial Benchmark Administrators (FBA) are as follows:

1. Extent and applicability

2. Definitions

3. Authorization of FBA

4. Eligibility criteria for FBAs

5. Grant of authorization to administer a ‘significant benchmark’

6. Authorized FBAs shall adhere to the following directions for administering ‘significant benchmarks

a. Overall Responsibility of FBAs

b. ‘Significant Benchmarks’: Formulation, Determination and Review

c. Organizational and Process Controls (Role of Oversight Committee)

d. Internal Control

e. Outsourcing of ‘significant benchmark’ related work

f. Complaint Management

g. Data Preservation

7. Exemption from the provisions of these directions

8. Revocation of authorization

9. Transition or Termination of administration

10. Benchmark Publication

11. Reporting

Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019

The main content of these regulations pertaining to Rupee Interest Rate Derivatives are as follows:

1. Short title, scope and commencement of the directions

2. Definitions

3. Eligible Participants

4. Trading Venues

5. Interest Rate Derivatives on Recognized Stock Exchanges

6. Interest Rate Derivatives in the OTC Market

7. Transactions by non-residents for the purpose of hedging interest rate risk

8. Transactions by non-residents for purposes other than hedging interest rate risk

9. Remittance/Payments by non-residents

10. KYC for the non-resident

11. Conditions applicable to IRDs on both exchanges and in the OTC market

12. Regulatory reporting

RBI Announces Additional Liquidity Facility to Banks for Purchase of Assets from and/or onlending

to NBFCs/HFCs

As articulated during the post-MPC media conference on June 6, 2019, the RBI has been closely monitoring

top NBFCs/HFCs, identified on the basis of their size and credit behavior. Over the past six months or so, the

Reserve Bank has also infused adequate liquidity into the system through OMOs, currency swaps, phased

increase in Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR), etc. For more than a month now,

there is surplus liquidity in the system. In the meantime, an Internal Working Group in RBI is reviewing the

liquidity management framework and their recommendations are expected towards the middle of July 2019.

The Government has made the following announcement in the Union Budget 2019-20:

Non-Banking Financial Companies (NBFCs) are playing an extremely important role in sustaining consumption

demand as well as capital formation in small and medium industrial segment. NBFCs that are fundamentally

sound should continue to get funding from banks and mutual funds without being unduly risk averse. For

purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rupees one lakh crore

during the current financial year, Government will provide one time six months' partial credit guarantee to

Public Sector Banks for first loss of up to 10%.

In order to enable the banks to implement this announcement and deal with the NBFCs/HFCs issue effectively,

the Reserve Bank of India will provide required liquidity backstop to the banks against their excess G-sec

holdings. A circular in this regard will be issued separately. In addition to the above, the RBI has also decided

to frontload the FALLCR scheduled to increase by 0.5 percent each in August and December 2019 and permit

banks to reckon with immediate effect the increase in FALLCR of 1.0 per cent of the bank’s NDTL, to the extent

of incremental outstanding credit to NBFCs and Housing Finance Companies (HFCs) over and above the

amount of credit to NBFCs/HFCs outstanding on their books as on date, which will enable the banks to avail

additional liquidity of INR 1,34,000 crores

Insurance Regulatory and Development Authority of India (Non-Linked Insurance Products)

Regulations, 2019

These Regulations shall be applicable to all the products offered by the life insurers under the non-linked

platform.

The main chapters under these regulations are:

I. Product Structures

a. Product Structures: The product structure shall be classified as participating products and

non-participating products.

b. Par Products: Regulations for Par products c. Non-par products: Regulations for non-Par products

II. Minimum death benefit

III. Administration of non-linked insurance products

IV. Policy term, premium paying term, commission, remuneration and expenses a. Minimum Policy Term b. Premium Payment Term c. Commission, Remuneration and Expenses

V. Pension products a. Defined Assured Benefits b. Surrender Value and Options on Surrender or Vesting c. Group Savings Non-Linked Pension Products

VI. Annuity products VII. Group products

a. Group Non-Linked Products b. Non-Employer-Employee Group Products c. Declaration of Interest Rates under Group Savings Insurance Products

INSURANCE

VIII. Surrender value a. Acquisition of Surrender Value b. Special Surrender Value

IX. Miscellaneous provisions X. With profit fund management

XI. Market value adjustment

FDI in Multi - Brand Retail

India has received FDI in multi-brand retail from one foreign company of United Kingdom. State/UT-wise data

of FDI inflow is not centrally maintained.

The retail market sector depends on a number of factors, including FDI. However, FDI is largely a matter of

private business decisions. FDI inflows depend on a host of factors such as availability of natural resource,

market size, infrastructure, general investment climate as well as macro-economic stability and investment

decision of foreign investors.

Under the Foreign Direct Investment (FDI) Policy, the details of norms for undertaking multi-brand retail

trading in the country is given below:

FDI Policy in Multi Brand Retail Trading

Sector/Activity % of Equity/

FDI Cap

Entry Route

Multi Brand Retail Trading 51% Government

FDI in multi brand retail trading, in all products, will be permitted, subject to the following conditions:

(i) Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and

meat products, may be unbranded.

(ii) Minimum amount to be brought in, as FDI, by the foreign investor, would be USD 100 million.

(iii) At least 50% of total FDI brought in the first tranche of USD 100 million, shall be invested in 'back-end

infrastructure' within three years, where ‘back-end infrastructure’ will include capital expenditure on all

activities, excluding that on front-end units; for instance, back-end infrastructure will include investment

made towards processing, manufacturing, distribution, design improvement, quality control, packaging,

logistics, storage, ware-house and agriculture market produce infrastructure. Expenditure on land cost and

INFRASTRUCTURE &

OTHER GOVT.

INITIATIVES

rentals, if any, will not be counted for purposes of backend infrastructure. Subsequent investment in backend

infrastructure would be made by the MBRT retailer as needed, depending upon its business requirements.

(iv) At least 30% of the value of procurement of manufactured/processed products purchased shall be

sourced from Indian micro, small and medium industries, which have a total investment in plant & machinery

not exceeding USD 2.00 million. This valuation refers to the value at the time of installation, without providing

for depreciation. The ‘small industry’ status would be reckoned only at the time of first engagement with the

retailer, and such industry shall continue to qualify as a ‘small industry’ for this purpose, even if it outgrows

the said investment of USD 2.00 million during the course of its relationship with the said retailer. Sourcing

from agricultural co-operatives and farmers’ co-operatives would also be considered in this category.

The procurement requirement would have to be met, in the first instance, as an average of five years’ total

value of the manufactured/processed products purchased, beginning 1st April of the year during which the

first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

(v) Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii), (iii) and (iv)

above, which could be cross-checked, as and when required. Accordingly, the investors shall maintain

accounts, duly certified by statutory auditors.

(vi) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census

or any other cities as per the decision of the respective State Governments, and may also cover an area of 10

kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to

conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for

requisite facilities such as transport connectivity and parking.

(vii) Government will have the first right to procurement of agricultural products.

The above policy is an enabling policy only and the State Governments/Union Territories would be free to take

their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in

those States/Union Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy.

The list of States/Union Territories which have conveyed their agreement is at (2) below. Such agreement, in

future, to permit establishment of retail outlets under this policy, would be conveyed to the Government of

India through the Department of Industrial Policy & Promotion and additions would be made to the list at (2)

below accordingly. The establishment of the retail sales outlets will be in compliance of applicable State/Union

Territory laws/ regulations, such as the Shops and Establishments Act etc.

Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI,

engaged in the activity of multi-brand retail trading.

Guidelines for Liquidity Enhancement Scheme (LES) in Commodity Derivatives Contracts

As per a previous circular, the manner in which exchanges can provide LES is as follows:

I. Discount in fees, adjustment in fees in other segments or cash payment - The incentives during a

financial year shall not exceed 25% of the net profits or 25% of the free reserves of the stock exchange,

whichever is higher, as per the audited financial statements of the preceding financial year.

II. Shares, including options and warrants, of the stock exchange - The shares that may accrue on exercise

of warrants or options, given as incentives under all liquidity enhancement scheme, during a financial

year, shall not exceed 25% of the issued and outstanding shares of the stock exchange as on the last

day of the preceding financial year. Further, the stock exchange shall ensure that this is in compliance

with the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations,

2012 at all times.'

Therefore, the regulator recognized that an exchange in early years of its formation/commencement of

business may not be able to generate profits or have free reserves from business operations. In this regard, it

has now been decided to exempt such exchanges, during their first five years of operation from the date of

SEBI’s approval for commencement / recommencement of their business, subject to adherence to the

following conditions:

i. The yearly incentives that such an exchange can earmark for LES shall not exceed 25% of the audited

net-worth of the said exchange as on the last day of the previous financial year.

ii. Such exchange shall create a reserve specifically to meet its LES incentives/expenses and transfer

funds to such reserve accordingly. However, such reserves shall not be included in the calculation of

Exchange net worth.

iii. Such exchange however shall continuously comply with the minimum net worth requirement as per

Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.

CAPITAL MARKETS

Disclosure of divergence in the asset classification and provisioning by banks

SEBI mandates that banks which have listed specified securities shall disclose to the stock exchanges,

divergences in the asset classification and provisioning wherever the additional provisioning requirements

assessed by RBI/ the additional Gross NPAs identified by RBI exceeded a certain threshold.

This was derived from an RBI circular, which required listed banks to make disclosures in the asset

classification and provisions in the “Notes to Accounts” to the Financial Statements.

It is noted that RBI has now modified the disclosure requirements. Therefore, SEBI now mandates the

execution of above-mentioned circular in following manner:

In line with the revised RBI requirements, all banks which have listed specified securities shall disclose to the

stock exchanges divergences in the asset classification and provisioning, if either or both of the following

conditions are satisfied:

a. The additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit

before provisions and contingencies for the reference period, and

b. The additional Gross NPAs identified by RBI exceed 15 per cent of the published incremental Gross

NPAs for the reference period.

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange

Sources: APAS Business Research Team

Source: National Stock Exchange

Source: Bombay Stock Exchange

Source: Bombay Stock Exchange

Sources: APAS Business Research Team

Indian equities reversed the two-week positive trend. S&P

BSE Sensex and Nifty 50 lost about 2% each. Sentiments were

affected earlier on disappointment over some proposals in

the budget. Weak global cues in the form of US-China trade

uncertainty weighed on the benchmarks. Investors’ mood

also dampened following weak auto sales numbers and rising

crude oil prices. However, some losses were reduced on

tracking intermittent gains in global equities after the US

Federal Reserve (Fed) hinted at a rate cut later this month. As

per AMFI data, the assets under management of mutual

funds fell 6% in June to INR 24.25 lakh crore compared with

INR 25.93 lakh crore in May owing to heavy outflow from

income- and debt-oriented schemes.

Sources: APAS Business Research Team

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CNX Nifty (July-2019)

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BSE Sensex (July - 2019)

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Indian VIX (July 2019)

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$/₹ (July - 2019)

6.006.106.206.306.406.506.606.706.806.907.00

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GIND10Y (July- 2019)

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 2019* 2020* Latest 2019*

% of GDP,

2019*

% of GDP,

2019* (10YGov), Latest

Brazil 0.5 Q1 0.8 2.2 3.4 Jun 3.8 -0.9 -5.8 5.52

Russia 0.5 Q1 1.3 1.5 4.6 Jul 4.8 7.2 2.1 7.42

India 5.8 Q1 6.7 6.6 3.2 Jun 3.6 -1.8 -3.5 6.85

China 6.2 Q2 6.2 6.1 2.7 Jun 2.9 0.2 -4.5 2.92^

S Africa Nil Q1 1.0 2.0 4.5 Jun 4.8 -3.4 -4.2 8.38

USA 2.3 Q2 2.2 1.7 1.6 Jun 2.0 -2.4 -4.7 1.7

Canada 1.3 Q1 1.6 1.6 2.0 Jun 2.0 -2.6 -0.9 1.24

Mexico -0.7 Q2 0.4 1.2 3.9 Jun 3.7 -1.6 -2.5 7.42

Euro Area 1.1 Q2 1.2 1.5 1.1 Jul 1.5 2.9 -1.1 0.0

Germany 0.7 Q1 0.8 1.4 1.7 Jul 1.6 6.5 0.7 0.0

Britain 1.8 Q1 1.3 1.3 2.0 Jun 1.8 -4.1 -1.6 0.61

Australia 1.8 Q1 2.2 2.3 1.6 Q2 1.7 -0.4 0.1 1.04

Indonesia 5.0 Q2 5.1 5.0 3.3 Jul 3.1 -2.6 -1.9 7.45

Malaysia 4.5 Q1 4.5 4.4 1.5 Jun 0.7 2.6 -3.5 3.56

Singapore 0.1 Q2 0.9 1.3 0.6 Jun 0.6 15.8 -0.6 1.76

S Korea 2.1 Q2 1.9 2.2 0.6 Jul 0.8 4.2 0.9 1.26

Sources: The Economist

ABOUT APAS

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to the management in coping with the ever changing internal and external dynamics. Leveraging deep

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prepared on the basis of publicly available information which has not been independently verified by APAS.

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