by admin | May 25, 2021 | Economy, Markets, News
By Rohit Vaid,
Mumbai : Second-quarter earnings result season, combined with the direction of foreign fund flows and the liquidity situation of the NBFC (non-banking financial companies) sector are expected to determine the trajectory of Indian stock market indices during the upcoming week.
In addition, the price of global crude oil and the rupee-US dollar matrix will also be other major market themes during the period.
“Markets next week would again focus on the developments in the liquidity situation of the NBFCs, HFCs (housing finance companies),” Devendra Nevgi, Founder and Principal Partner, Delta Global Partners, told IANS.
The liquidity availability to the sector has become a concern after the default by some of the IL&FS Group companies.
Last Friday, the Reserve Bank of India (RBI) came out with new measures to increase the liquidity flow to NBFCs and HFCs.
“The ongoing turmoil led by a financial crunch in the domestic economy, global risk-off and worries over upcoming elections are likely to maintain their burden in the equity market,” said Vinod Nair, Head of Research at Geojit Financial Services.
“At the same time, it is possible that a good portion of these risk factors have been digested by the market and the upcoming impacts will depend on developments like stability in global bond yield and the trade war.”
In terms of quarterly results, companies like Adani Ports, Ambuja Cements, TVS Motor, Bajaj Auto, Wipro, Bharti Airtel, Biocon, Maruti Suzuki, Yes Bank, Dr Reddys Labs, ICICI Bank and ITC are expected to announce their Q2 earnings next week.
“The sentiment would be driven by the moves in the NBFC and HFC stocks and earnings of Asian Paints, Bajaj Group of companies, Bharti Airtel, etc., which are due next week,” Nevgi said.
Apart from the Q2 results, the direction of flow of foreign funds assumes significance as outflows from the beginning of October have crossed the highest level in the last 12 months.
As per data complied from the stock exchanges, in just 13 trading sessions from October 1 onwards, foreign investors have sold stocks worth around Rs 19,500 crore.
The weekly provisional figures showed that foreign institutional investors (FIIs) sold scrips worth Rs 1,576.01 crore.
Besides, the rupee’s strength against the US dollar and global crude oil prices will be closely followed by investors.
In the previous week, a decline in crude oil prices to below $80 per barrel and a stable rupee in a range of 73 to a US dollar helped buoy investor sentiments.
The Indian rupee last week closed at Rs 73.32 to a dollar, strengthening by 24 paise from its previous week’s close of 73.56.
“Lower oil prices and weakness in the US Dollar Index can offset the weakness in local stocks and keep the rupee in a range for the next week,” Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
“… We can expect range-bound trading in the pair for the next week — between 73 and 74 levels on spot.”
On the technical charts, the National Stock Exchange (NSE) Nifty50 remains in an intermediate downtrend.
“Technically, with the Nifty again displaying weakness after the pullback rally seen in the previous week, the intermediate trend of the index remains down,” HDFC Securities’ Retail Research Head Deepak Jasani told IANS.
“The downtrend is likely to continue early next week once the immediate support of 10,250 points is broken. Crucial resistances to watch on the upside are at 10,436-10,526 points.”
Last week, mixed corporate earnings and fears of a slowdown in global economic growth, pulled the two main indices of the Indian stock market lower.
Consequently, on a weekly basis, the S&P Bombay Stock Exchange (BSE) Sensex closed at 34,315.63 points, down by 417.95 points or 1.20 per cent from its previous close.
Similarly, the wider Nifty50 of the NSE edged-lower. It closed at 10,303.55 points, down 168.95 points or 1.61 per cent from the previous week’s close.
(Rohit Vaid can be contacted at rohit.v@ians.in )
—IANS
by admin | May 25, 2021 | Banking, Business, Economy, Emerging Businesses, Finance, Investing, Markets, Medium Enterprise, News, SMEs
New Delhi : Though Indian non-banking financial companies (NBFCs) are growing in market share at a time when the banking system is grappling with the bad loans issue, they will have to keep pace with new technologies to attract investment, industry chamber Assocham said on Sunday.
Citing its joint study “Fuelling NBFCs through Private Capital”, conducted in association with British advisory multinational PricewaterhouseCoopers (PwC), Assocham said in a release that NBFCs need to consider “tweaking their current business models to grow in a hybrid world – digital plus physical”.
“With banks tightening their purse strings owing to increasing bad loans, Indian NBFCs are growing their market share, however, they will have to keep pace with new technologies and changing customer aspirations to attract timely private equity (PE) investments,” it said.
The report suggested that NBFCs must find funds to invest into operating models with the potential to disrupt the industry and challenge the status quo in their business.
The report also said that in order to ride the wave of increasing formal credit penetration in a growing economy, NBFCs will need to invest in new technologies to lower the cost of acquiring new segments, “including thin files, servicing existing customers and de-risking the portfolio”.
“Besides, in order to fulfil demands of the new-age customer in terms of credit facilities, NBFCs will have to invest in analytics and artificial intelligence (AI) capabilities to be able to connect to the customer in a hyper-personalised manner,” it said.
“New tech-based business models have the potential to crunch the learning period substantially and re-balance the strategic advantage of information access by inserting themselves into the value chain with technology,” it added.
State-run banks grappling with the non-performing assets (NPAs), or bad loans, for the last many years, has generated a tremendous opportunity for NBFCs to ramp up its scale, according to Assocham.
“In fact, in the last two years, they have doubled their market share in small and medium enterprises and wholesale loans and have made substantial inroads in other consumer loan categories,” it said.
“Coupled with lower cost, a focused approach on limited credit products and strong underlying risk management capabilities help NBFCs to not only underwrite credit to a targeted set of customers but also to control bad debts, making them one of the attractive sectors for PE funding,” it added.
“… can provide the necessary capital and financial muscle to undertake strategic decisions, right from expanding existing markets, building newer capabilities, improving efficiency or even to refinancing existing high cost debt,” it said.
The report, however, said that private equity (PE) firms firms look to invest in NBFCs which can build scale that provides cost reduction opportunities, market access and operational efficiencies which then give PE firms higher returns when they monetise their stakes.
Also, consolidation of smaller NBFCs will therefore become an attractive target for PE firms in the future as they will have the opportunity to demonstrate a successful exit with substantial multiples, the statement added.
—IANS
by admin | May 25, 2021 | Islamic Banking, News, Opinions
Dr Shariq Nisar
By Dr Shariq Nisar
Shariah banking, PLS banking, Ethical banking, Interest-free banking are different names used to identify Islamic banking which primarily works without relying on interest mechanism. Interest is strictly prohibited in Islam and therefore many countries especially those where Muslims live in majority have developed an alternate way of banking where profit is earned by banks through trade and investments rather than pure lending. Since early nineties, many developed countries took great interest in this new form of banking to attract investments from energy rich Arab world and also to improve financial inclusion of the domestic population which was hitherto shying of making full use of banking facilities due to religious concerns.
In India, while interest-free institutions can be traced prior to the country’s independence the real effort by Indian Muslims began during first non-congress government in 1970s. Nothing happened as the idea of Islamic banking itself was under formative stage then. Unrestrained proliferation of NBFCs in early 1990s saw the emergence of many community led institutions that claimed to work on Islamic principles of shunning interest and sharing of the risk and rewards with shareholders and depositors. In late nineties, RBI introduced large scale changes in NBFC regulations which eventually led to closure and collapse of hundreds of NBFCs in the country including some prominent Islamic NBFCs. After the new NBFC regulations the only Islamic Finance Company that survived was Kerala based Alternative Investments and Credits Ltd. (AICL). In 2009, Kerala Government tried to copy this model by promoting an Islamic NBFC (Al-Baraka Financial Services Ltd.) that would work without indulging in interest. The idea was to seek investments from public and some rich NRIs and use the funds to develop infrastructure in the state. All those contributing funds would be paid dividend instead of interest. Very soon a PIL was filed against Al-Baraka on the following counts:
- Forming an Islamic finance company was a clear instance of state favoring a particular religion;
- Taking advice from scholars of a particular community (Shariah Scholar) shows the identification of state with a particular religion to the exclusion of other faiths;
- Shariah prohibition of interest, alcohol and others are against the constitutions of India
The lower court ordered immediate stay of the company’s operation but Kerala High Court after hearing the views of Central Government, Reserve Bank of India and several others finally dismissed the petition filed against the company and paved the way for India’s first company promoted by government to do business on Islamic principles.
However, it’s worth noting that RBI stood in support of the petitioner arguing in the court that Islamic banking cannot function under Indian financial regulations. Prior to this RBI in its Working Group Report in 2005 (more popularly known as Anand Sinha Committee Report) had concluded that Islamic banking is not possible within existing Indian finance regulations. The same position was reiterated by the RBI Governor at a public function in 2012.
“The banking act doesn’t conform to Islamic banking because it allows banks to borrow from and deposit money with RBI on Interest” (D Subbarao, Governor RBI, Times of India October 4, 2012).
To prove its position RBI canceled the NBFC license of AICL on the allegation that AICL violated RBI’s prescription of fair interest practice code. This was very surprising as RBI had given license to the company based on the proposal that company would work on the basis of profit and loss sharing instead of interest. The company since has gone to the court where the matter is still pending.
The change in RBI’s leadership in 2013 brought some fresh thinking which probably led RBI to develop a positive impression of the concept. First it was Deepak Mohanty Committee that in December 2015 recommended that;
“commercial banks in India may be enabled to open specialized interest-free windows with simple products like demand deposits, agency and participation securities on their liability side and to offer products based on cost-plus financing and deferred payment, deferred delivery contracts on the asset side”.
And thereafter an RTI query has revealed that RBI has written to the government regarding gradual introduction of Islamic banking in the country. Media went gung-ho in praising this move of RBI as sign of new government’s commitment to “Sabka Saath Sabka Vikas” but soon all euphoria died when the Union Finance Ministry declared that Islamic banking was not relevant any more. The Minister of State for Finance Mr. Santosh Kumar Gangwar replied in the Loksabha that various legal changes would become necessary if even limited products were to be introduced under Islamic banking.
One fails to understand the logic behind not allowing a banking model that is practiced in nearly 75 countries of the world including some of the most secular, democratic and advanced.
| Time Line (Islamic Banking and Finance in India) |
Year |
| RBI appoints Anand Sinha Committee for studying Islamic Financial Products |
2005 |
| Raghuram Rajan Committee recommends Interest-free banking for financial inclusion |
2008 |
| Ministry of Minority Affairs invites bids for reconstruction of National Minority Development Finance Corporation (NMDFC) on shariah Lines |
2008 |
| SEBI permits India’s first shariah compliant Mutual Fund Scheme |
2009 |
| SEBI permits India’s first shariah compliant Venture Capital Fund |
2009 |
| GICRe enters Retakaful (Islamic reinsurance) in the foreign reinsurance market. |
2009 |
| Government of Kerala announces starting of an Islamic NBFC |
2009 |
| BSE and TASIS launch BSE-TASIS Shariah 50 Index |
2010 |
| Kerala High Court dismisses petition filed against Kerala-based Islamic finance company |
2011 |
| RBI cancels license of Islamic NBFC |
2012 |
| RBI Constituted an Inter-Departmental Group (IDG) on Islamic Banking to understand the feasibility of introducing Islamic banking in India |
2013 |
| SBI defers the launch of Shariah Equity Fund |
2014 |
| RBI Recommends Introduction of Interest-free Banking by Indian Commercial Banks |
2015 |
| RBI’s Inter-Departmental Group (IDG) on Islamic Banking submits its Report to the Government of India |
2016 |
