The recovery of the Indian economy reeling from the impact of the Covid-19 pandemic will be gradual, RBI Governor Shaktikanta Das said on Wednesday.
Addressing the FICCI National Executive Committee Meeting, the central bank chief said that the country is still reeling under the impact of Covid-19 and will gradually come back on normal growth path.
He, however, said that things have considerably improved in the second quarter after adverse impact the pandemic had on economic activity in the first quarter.
“Nevertheless, high frequency indicators of agricultural activity, the purchasing managing index (PMI) for manufacturing and private estimates for unemployment point to some stabilisation of economic activity in Q2, while contractions in several sectors are also easing,” he said.
“The recovery is, however, not yet fully entrenched and moreover, in some sectors, upticks in June and July appear to be levelling off. By all indications, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with rising infections.”
According to Das, financial market conditions in India have eased significantly across segments in response to the frontloaded cuts in the policy repo rate and large system-wide as well as targeted infusion of liquidity by the RBI.
“Despite substantial increase in the borrowing programme of the government, persistently large surplus liquidity conditions have ensured non-disruptive mobilisation of resources at the lowest borrowing costs in a decade,” he elaborated.
In August 2020, the yield on 10-year G-sec benchmark surged by 35 basis points amidst concerns over inflation and further increase in supply of government papers.
Following the RBI’s announcement of special open market operations (OMOs) and other measures to restore orderly functioning of the G-sec market, bond yields have softened and traded in a narrow range in September.
“Although bank credit growth remains muted, scheduled commercial baks’ investments in commercial paper, bonds, debentures and shares of corporate bodies in this year so far (up to August 28) increased by Rs 5,615 crore as against a decline of Rs 32,245 crore during the same period of last year,” he said.
“Moreover, the benign financing conditions and the substantial narrowing of spreads have spurred a record issuance of corporate bonds of close to Rs 3.2 lakh crore during 2020-21 up to August.”
Besides, he pointed out that the immediate policy response to Covid in India has been to prioritise stabilisation of the economy and support a quick recovery.
Citing World Bank assessment, Das said that recovery globally would take a longer route as it is not fully entrenched.
Unheard of Rs 3.3 lakh Cr bank deposit bulge in Diwali week slumped in a fortnight
State Bank of India’s Economic Research Department has highlighted the curious case of Rs 3.3 lakh crore deposit bulge and the Rs 2.7 lakh crore deposit slump in alternate fortnights.
As per the provisional data released by RBI for the fortnight ended November 19, ASCB’s aggregate deposits have slumped by Rs 2.7 lakh crore during the fortnight. The slump in deposits follows an abrupt increase by Rs 3.3 lakh crore during the previous fortnight ended November 5. Interestingly, such growth in deposits was around 36 per cent of the incremental deposit growth at that point of time. This increase in deposits and subsequent slump is quite a contrarian trend, says Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
While it may be exactly difficult to decipher the increase and subsequent decline, it does pose questions on liquidity management/financial stability or a shift in behavioural trend in customer payment habits through digitisation and hence lower currency leakage and concomitant deposit bulge or both.
First, the fortnightly increase of Rs 3.3 lakh crore. This has never happened during a Diwali week as there is always a currency leakage and concomitant deposit decline. This is also the fifth largest increase in any fortnight in the last 24 years. Such huge incremental addition has happened only a few times, with higher deposits accretion (than the current year’s fortnight) occurring during the fortnight ended November 25, 2016 (Rs 4.16 lakh crore), September 30, 2016 (Rs 3.55 lakh crore), March 29, 2019 (Rs 3.46 lakh crore) and April 1, 2016 (Rs 3.41 lakh crore). However, the increase in November 2016 was because of demonetisation and the March and April fortnightly increases could be attributed to seasonal year-end bulge. In this respect, the current deposit bulge requires a detailed explanation, the report said.
Next, the fortnightly deposit slump in the subsequent fortnight. ‘We believe that it is possible that there was a large influx of deposits into the banking system for the fortnight ended November 5, 2021 in anticipation of a build up in rally in stock markets post primary issuances of new age companies and others. However, when such a rally did not materialise, the bulge in banking deposits slumped and almost 80 per cent of deposit bulge was withdrawn, the report said.
Interestingly, the amount of money parked in fixed reverse repo window jumped from Rs 0.45 lakh crore on October 19 to Rs 2.4 lakh crore on November 17, 2021 and has remained at such level till December 1. However, it must be noted that the significant jump in digital transactions has also resulted in lower usage of cash in the current fiscal and ideally could also have resulted in a surge in deposits for the Diwali week.
Meanwhile, if we look at the quarterly ASCB data, though the deposits growth remains same in Q2 (2.6 per cent) as compared to Q1 (2.5 per cent), sequentially at all-India level, apart from Metro regions, the deposits growth has decelerated in Q2 as compared to Q1, particularly in rural areas indicating that the current economic recovery is mostly urban led and rural economy is still recouping. Meanwhile, ASCB’s credit has increased by Rs 1.18 lakh crore (7.1 per cent YoY) during the fortnight ended November 5, which may be due to festive demands.
Oil marketing companies keep diesel, petrol prices unchanged
Oil marketing companies kept diesel and petrol prices unchanged across major Indian cities on Friday.
Accordingly, diesel and petrol prices in Delhi stood at Rs 86.67 per litre and Rs 95.41 per litre, respectively.
In the financial capital Mumbai, the prices remained unchanged at Rs 94.14 and Rs 109.98 respectively.
Prices also remained static in Kolkata at Rs 89.79 and Rs 104.67 respectively.
In Chennai too, it remained at Rs 91.43 and Rs 101.40 respectively.
Across the country as well, the price of the fuel largely remained unchanged on Friday, but the retail rates varied depending on the level of local taxes.
Equity indices rise for third consecutive day
The 30-scrip Sensitive Index (Sensex) rose in the early trade on Friday. Indices have been gaining for the past three consecutive sessions.
At 9.15 a.m., the S&P BSE Sensex traded at 58,671 points, up 0.37 per cent.
It opened at 58,555 points from the previous close of 58,461 points.
Till now it has touched a low of 58,512 points.
Besides, the broader 50-scrip Nifty at the National Stock Exchange (NSE) opened at 17,424 points after closing at 17,401 on Thursday.
It traded at 17,475 points, up 0.39 per cent during the early-morning trade session.
Hindustan Zinc, Infosys, NMDC, L&T and BPCL were some of the top gainers during the early trade, exchange data showed.
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