On Monday, share markets in India opened on a flat note and ended their session marginally higher.
The BSE Sensex closed higher by 21 points, while the broader NSE Nifty ended the day flat.
Losses were largely seen in the consumer durables sector and telecom sector, while banking stocks ended the day in the green.
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Lupin share price is likely to be in focus after the United States Food & Drug Administration (USFDA) completed its inspection of the company's Nagpur facility with no integrity or repeat observations for the unit.
Bharti Airtel share price will be in focus today after it was reported that the Department of Telecom (DoT) approved the merger of Telenor India with Bharti Airtel.
This comes after the Supreme Court last week rejected DoT's petition for security deposit of around Rs 17 billion from the companies and directed it to approve the merger.
Inflation on the Rise
According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Wholesale Price Index (WPI) shot up to 3.18% in April, as compared to 2.47% in March this year.
The index portrays new series of WPI data released by the government in the last fiscal, with 2011-12 as the base year, replacing existing the base year of 2004-05.
According to the data released on Monday, inflation in food articles was at 0.87% in April, as against a deflation of 0.29% in the preceding month. Fruits were the largest contributor, with prices rising by 19.5% in the month.
However, the key driver for inflation was fuel prices. April saw fuel and power prices shooting up by 7.9%, compared to a 4.7% rise in the previous month, as oil prices rose in conjunction with the global trend. The upward trend in oil prices globally, will be sure to impact May inflation numbers as well.
In its first monetary policy review for the fiscal, the Reserve Bank Of India (RBI) last month maintained status-quo on interest rate citing inflationary concerns.
Data on retail inflation is scheduled to be released later in the day. RBI mainly takes into account retail inflation data while formulating monetary policy.
The central bank revised downward forecast for retail inflation to 4.7-5.1% for April-September and 4.4% for October-March.
Strict RBI Norms Putting Pressure on PSBs
According to a leading financial daily, the Reserve Bank of India's (RBI) revised framework for resolution of stressed assets may lead to public sector banks calling for an earlier recapitalisation by the government. Banks are making huge provisions after asset downgrades in the January-March 2018 quarter, when the new framework was implemented.
On February 12, the RBI announced its revised framework for resolution of stressed assets, after the Government, on January 24, said it would infuse Rs 881 billion into PSBs. This is in addition to the budgetary outlay for FY19 of Rs 650 billion.
RBI tightened the bad debt resolution framework by scrapping numerous loan restructuring programs. This includes the likes of strategic debt restructuring scheme (SDR), Joint Lenders' Forum (JLF), Corporate Debt Restructuring Scheme, and Scheme for Sustainable Structuring of Stressed Assets (S4A) that's prevalent among banks to restructure defaulted loans. The RBI replaced all these schemes by the Insolvency & Bankruptcy Code (IBC).
With this, a loan worth over Rs 2.8 trillion, with payments outstanding for 60-90 days, carry the risk of slipping into the category of non-performing assets (NPA). This will result in a surge in NPAs and may put additional pressure on the banks to make provisions.
The new framework specifies that banks must report defaults on a weekly basis in the case of borrowers with more than Rs 50 million in bank debt. Further, for accounts with an exposure of Rs 20 billion or more, banks will have to put a resolution plan in place within 180 days after a default has been noted. If the resolution plan is not implemented within 180 days, the account must be referred to the IBC within 15 days.
The strict timelines could mean that a larger number of accounts will go into insolvency. Haircuts that banks may need to take and the probability of liquidation in some accounts may also rise. Similarly, under the new scenario, corporate lenders, which have already been under pressure due to rising bad loans and increased provisions, could take another hit.
The new framework is expected to help with early recognition and resolution of bad loans. While this may be positive for the banking sector in the long run, in the short run, banks may come under additional pressure.
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