BQuick On June 12: Top 10 Stories In Under 10 Minutes

Here is a roundup of the day’s top stories in brief.

1. CPI, IIP Growth Highest Since October 2018

India’s retail inflation accelerated in May as food prices continued to rise from unusually low levels. However, core inflation remained subdued due to weak demand conditions in the Indian economy.

• CPI inflation stood at 3.05 percent in May compared with 2.99 percent in April.
• Inflation was at its highest since October last year when it had hit 3.3 percent.
• Despite the pick-up, CPI inflation remains below RBI’s target of 4 (+/-2) percent, leaving room for further rate cuts.

A notable change in trend over the last few months has been the sequential rise in food prices.

India’s factory output rebounded from a 21-month low in April on the back of growth in manufacturing, mining and electricity generation.

• IIP rose 3.4 percent in April 2019, compared with 3.6 percent increase in the same month a year ago.
• In March year, IIP had contracted 0.1 percent—the first decline in 21 months.
• Growth was highest since October 2018, when it stood at 8.4 percent.

The rebound in factory output in April came as a surprise.

2. How PSU Banks Reported Better Profits Last Fiscal

Still to recover from bad-loan stress, Indian public sector lenders would have reported much worse numbers in the previous fiscal if not for an accounting practice that helped them lower their losses: deferred tax.

• Sixteen state-owned banks disclosed a deferred tax asset adjustment in their financial statements that either helped cut losses or turn a loss into profit in 2018-19, according to balance sheets or financial disclosures analysed by BloombergQuint.
• The accounting gain reduced their cumulative losses by Rs 36,948 crore to Rs 71,349 crore.
• This is not the first year when banks have recognised such high deferred tax assets. In 2017-18, the same banks had recorded a tax adjustment of Rs 40,873 crore and reported a loss of Rs 75,473 crore.

The quantum of this benefit that masks the actual operating performance.

3. Another Day, Another Auditor Run-In

Price Waterhouse & Co Chartered Accountants LLP resigned as one of the statutory auditors of Reliance Capital Ltd. and Reliance Home Finance Ltd. citing certain “observations or transactions” in its assessment.

• If the observations aren’t resolved satisfactorily, according to PwC, it might be significant or material to the companies’ financial results.
• The audit firm—which currently isn’t a statutory auditor to any other Anil Ambani-led group company—also said the firms failed to convene audit committee meetings within the expected time, preventing it from performing its duties and exercising independent judgement in preparing reports to members of the companies.
• It has threatened to initiate appropriate legal proceedings against the firms.

But both Reliance Capital and Reliance Home Finance disagreed.

4. Sensex, Nifty Snap Winning Streak

Indian equity benchmarks halted their three-day gaining streak, their longest in over three weeks. The benchmark indices were weighed by the private banks—HDFC Bank Ltd., Kotak Mahindra Bank Ltd. and ICICI Bank Ltd.

• The S&P BSE Sensex closed 194 points or 0.48 percent lower at 39,756.81.
• The NSE Nifty 50 closed 0.5 percent lower but managed to end above 11,900.
• The broader market index represented by the NSE Nifty 500 Index ended 0.56 percent lower.
• Nine out of 11 sectoral gauges compiled by NSE declined.

Follow the day's trading action here.

5. Morgan Stanley Wants Banking Reforms To Spur Growth

India’s finance ministry must infuse funds in non-bank lenders battling a credit crunch and ensure transmission of lower policy rates to drive growth led by corporate earnings, according to Jonathan Garner of Morgan Stanley.

• The key issue to get the banking system fixed and fund growth hasn’t been pursued aggressively enough, which needs to be done at the start of the new Modi administration, said Garner, chief Asia and emerging markets strategist at Morgan Stanley, at the brokerage’s annual India summit in Mumbai.
• Garner said around 15-20 percent earnings growth can be expected if the financial sector clean-up is undertaken.

Here’s what Garner suggests for getting public sector banks in shape.

6. Company Directors Will Now Have To Clear Exams

Narendra Modi, who recently won a second term as India’s prime minister, is looking to overhaul the nation’s corporate governance system that allowed a string of frauds to mar his first stint in office.

• Independent directors on company boards will soon have to clear an exam before they can be appointed, said Injeti Srinivas, the top bureaucrat in charge of corporate affairs.
• The exam will be an online assessment covering the basics of Indian company law, ethics, and capital market norms among other areas, Srinivas said.
• While aspiring directors will have a fixed time frame within which they have to clear the exam, they will be allowed an unlimited number of attempts, he said.

But what prompted the move?

7. Jaypee Lenders Look To Courts For Cues

The process to finalise a resolution plan for Jaypee Infratech Ltd., which was referred for insolvency nearly two years ago, may stretch out further.

• Lenders to the company have rejected the only serious bid for the company and are now awaiting directions from the courts before they move forward, said people familiar with the matter.
• On Monday, a majority of the Committee of Creditors voted against accepting a resolution plan submitted by government-owned NBCC Ltd., according to two people familiar with the developments, who spoke on conditions of anonymity since the voting tally is confidential.
• However, a final outcome of the vote cannot be decided immediately.

Nearly 20,000 homebuyers who are yet to recieve flats are part of the lenders committee. That complicates things.

9. Raghuram Rajan’s New Job?

Raghuram Rajan has delivered some uncomfortable economic truths in a career spanning the International Monetary Fund and powerful positions in his native India. The question is whether Brexit Britain is ready to hear them from another foreign Bank of England governor.

• Rajan is the only outsider among the top contenders in the running to replace Mark Carney, according to bookmakers and economists who follow the 325-year-old institution.
• Rajan has made sympathetic noises toward the U.K.’s dilemma, particularly the disillusionment in parts of the country that fueled the Brexit vote.
• The other top candidates for the job, including front-runner Andrew Bailey, already work at the bank or financial regulator.

Is Rajan fit for the role? Here’s what economists and policymakers think.