Global Banking:

US Senate passes historic USD2tn relief package as

coronavirus devastates economy In the biggest rescue deal of its kind in US history, the US senate

approves USD2tn relief package. This bill will, as a direct relief

measure, provide around USD1,200 for American adults.

Additionally, it aims to create USD500bn lending fund for states,

cities and businesses and furthermore an additional USD367bn fund

for small businesses. For hospitals, the plan is to set aside USD130bn

while the unemployment insurance is set to expand

Our Analysis: This was a much needed move, as unprecedented calamities call for

unprecedented actions. The goal was to inject liquidity into the

economy, as individuals and businesses are affected by various

restrictions and lockdowns. This bill also restricted the use of the

fund for the requirement of congress members stating that those

making the law shouldn’t benefit from the same. Staring at recession,

although not sufficient, this move is one of the many to prevent it or

minimize its impact

World has entered recession, may recover next year: IMF IMF chief stated that the world is facing a devastating impact due to

Covid-19 pandemic and has entered recession. The recession is

anticipated to be as bad as or worse than that of 2009. But it projects

that recovery will occur in 2021. The key to recovery as cited by the

chief is only if the international community succeeds in containing

the virus everywhere and prevent liquidity problems from becoming a

solvency issue.

Our Analysis: As the assessment of the impact of the pandemic is still in progress,

projections for 2020 are being worked on. Many developing and

emerging countries have approached the IMF for funds to fight the

crisis and stay afloat. The IMF is of the view that around USD2.5tn

will be required by these economies. It is an uphill battle for the

world right now, but if the virus is contained, recovery is likely in

2021.

China's manufacturing PMI rebounds in March China’s PMI for march, 2020 was 52.0 beating the estimate of 45.0

by various analysts. PMI reading above 50 indicate expansion. The

reading for February, 2020 was 35.2 and the current PMI numbers are

a big improvement, but the fact that the base was low needs to be

factored in. Data shows that sub-indices for production, new orders

and employment have also expanded

Our Analysis: PMI reading above 50 indicate expansion and below 50 indicate

contraction. China has attributed the increase to the fact that it was

able to contain further outbreak of the virus and that it quickly

bounce back from low production levels amid lockdowns. This is not

a sign that the economy is back on track but just an indication that

things are settling down.

Prevailing Rates

I. Policy Rates

II. Lending/Deposit Rates

III. Reserve Ratio

Repo Rate 4.40%

Reverse Repo Rate 4.00%

Marginal Standing

Facility Rate

4.65%

Bank Rate 4.65%

Base Rate 8.15% -9.40%

MCLR Rate

(Overnight)

7.40% -7.90%

Savings Deposit

Rate

3.00% -3.50%

Term Deposit Rate

> 1 Year

5.90% -6.40%

CRR 3.00%

SLR 18.25%

Exhibit 01: PMI of China for last 1 year

Source: Investing.com, Progressive Research

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Indian Banking Sector:

Steps to provide support for financial sector entities to deal

with slowdown and aftermath of COVID-19 A) All guns blazing: MPC Policy

B) Priority sector classification extended for bank loans to NBFCs

C) OMO Purchase

A) All guns blazing: MPC Policy: Repo Rate reduced by 75bps to 4.40%

Reverse Repo Rate reduced by 90bps to 4%

Bank Rate reduced by 75bps to 4.65 %

Liquidity Adjustment Facility reduced by 90bps to 4%

Marginal Standing Facility reduced by 75bps to 4.65%

GDP Projection: The implied growth of 4.4% in H2 is now at

Risk

Auctions of targeted long-term repo operation (TLTRO) to be

conducted of 3year tenure upto Rs1lakhcr at floating rate

linked to policy rate

Cash reserve ratio of all banks reduced by 100bps to 3% of net

demand and time liabilities

Under the marginal standing facility, banks can borrow

overnight at their discretion by dipping up to 2% into the

Statutory Liquidity Ratio. This limit has been increased to 3%

All commercial banks, co-operative banks, all-India financial

institutions, and NBFCs to allow a moratorium of 3 months on

payment of installments in respect of all term loans

outstanding as on March 1, 2020

Working capital facilities sanctioned in the form of CC/OD,

lending institutions are being permitted to allow a deferment

of 3 months on payment of interest in respect of all such

facilities outstanding as on March 1, 2020

A 3month moratorium is announced on payment of

installments of loans outstanding on March 1, 2020

Implementation of Net Stable Funding Ratio (NSFR) to be

deferred to October, 2020 from April 1, 2020

Incremental CCB (capital conservation buffer) implementation

deferred from March 30, 2020 to Sep 30, 2020

Permit banks in India which operate International Financial

Services Centre (IFSC) Banking Units (IBUs) to participate in

the NDF market with effect from June 1, 2020

Our Analysis: Majority of the actions taken by the RBI were to increase liquidity,

while others were to provide relief to businesses and retail customers

from the burden of immediate loan recovery amid various limitations

imposed nationwide. RBI has injected liquidity of Rs2.8lakhcr via

various instruments equal to 1.4% of GDP. Along with above

mentioned measures the central bank will inject liquidity equal to

3.2% of GDP injected. The reduction in the CRR would release

primary liquidity of about Rs1,37,000cr uniformly across the banking

system. While the reduction in MSF is intended to provide comfort to

the banking system by allowing it to avail an additional Rs1,37,000cr

of liquidity under the LAF window. The cumulative effect of the three

measures relating to TLTRO, CRR and MSF will inject a total

liquidity of Rs3.74lakhcr to the system. The 3 months moratorium is

in place to mitigate debt servicing burden to prevent transmission of

financial stress to real economy, provide relief to borrowers. RBI will

take continuous measures to ensure liquidity in the system.

Exhibit 02: 1 Year Yield vs 10 Year Yield

Source: RBI, Progressive Research

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Indian Banking Sector:

B) RBI extended the priority sector classification for bank

loans to NBFCs RBI has decided to extend the priority sector classification for bank

loans to NBFCs for on-lending for 2020-21. Priority sector loans will

include bank credit to registered NBFCs and HFCs towards

agriculture, MSEs and housing sector up to prescribed limit. Overall

limit for credit to NBFCs, excluding MFIs, and HFCs is 5% of

individual bank's total priority sector lending.

Our Analysis: This measure will help credit flow as a slowdown in the economy was

witnessed due to Covid-19 outbreak. Further it will boost credit

disbursement in specific sectors such as housing and agriculture

which were facing headwinds due to recent macroeconomic scenario.

This is one of the many measures taken by RBI.

C) RBI conducted OMO Purchases of GOI Dated Securities RBI conducted OMO Purchases of GOI Dated Securities of an

aggregate amount of Rs10,000cr on 20 March, 2020. It was expected

that this will bring the yield down to 6.23% from 6.34%. RBI bought

buy 8.2% 2022, 7.37% 2023, 7.32% 2024 and 7.72% 2025 bonds.

Our Analysis: The central bank's move helped increased liquidity in the market.

This is one of the multiple operations the RBI resorts to, when in

need.

NABARD extends financial support of Rs42,313cr towards

rural infrastructure NABARD has extended Rs42,313cr towards building rural

infrastructure in FY20. So far it has disbursed Rs20,869cr for projects

related to irrigation. Furthermore, it deployed Rs5,686cr for

connectivity. Additionally, the bank has lent support to causes such as

renewable energy, storage and drinking water supply etc.

Our Analysis: Rural infrastructure is the backbone of the Indian economy and these

efforts will boost rural consumption and in turn will result in increase

in demand.

RBI shifts its Accounting Year to July 2020-Mar 2021 RBI has planned to align its financial year with the centre. Fiscal

2019-20 will end on June 30, 2020 while fiscal year 2020-21 will

begin on July 1, 2020 but end on March 31, 2021. This decision was

recommended by the expert committee led by Bimal Jalan.

Our Analysis: This will align the fiscal year with the government. It will also result

in book-keeping changes and the central bank would not have to

announce interim dividend as well. Additionally it will lead to better

cohesiveness between the centre and the RBI, and the centre will be

at a better position to forecast for its budgeting purpose.

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Indian Banking Sector

More than dozen PSBs announce COVID-19 emergency

credit line Various PSBs have announced Covid-19 Emergency Credit Lines to

deal with the hardships faced by many industries. Front-runner, SBI

announced an emergency credit line to meet any liquidity mismatch

for its borrowers, while at least 15 out of the 18 PSBs have come out

with emergency credit lines. SBI’s credit line will provide funds of

about Rs200cr and be available till 30th June. Schemes announced

include schemes for MSMEs, agriculture, self-help groups etc.

Our Analysis: This PSBs have been the front runners here, as private banks are still

to come out with their version of credit line. Amid the Covid-19

pandemic situations, PSBs are preparing themselves for doing the

heavy lifting required to get the economy on track.

YES Bank raises Rs3,700cr via CDs After the bailout plan, Yes bank has raised Rs3700cr through

certificate of deposits. The CDs are likely offered at 8.25% on an

average. Three or four PSBs have likely subscribed to these

instruments. Most of the funds raised will be used as growth capital

Our Analysis: To raise capital and meet its liabilities, the bank could look at many

such moves. This fundraising could lead to a new innings under the

new management.

Coverage News: ICICI Bank Ltd:

1) ICICI bank enters into an agreement with Auxilo

Finserve Private Limited

ICICI Bank has entered into an agreement to acquire 9.9% equity

stake in Auxilo Finserve Private Limited for a cash consideration of

Rs511mn. The acquisition is expected to be completed by end of

April 2020.

2) ICICI Bank’s shareholding reduces in IFFCO Kisan

Finance Limited IFFCO Kisan Finance Limited (Kisan Finance) has allotted equity

shares to the new investor on March 19, 2020. Consequent to the said

allotment, ICICI Bank's shareholding in Kisan Finance has reduced

from 9.9% to 7.4%.

3) ICICI Bank launches banking services on WhatsApp ICICI Bank launched its services on WhatsApp. This is a part of its

digital banking and APIs, ICICIStack, which will ensure

uninterrupted customer service. Customers can check account

balance, last three transactions, credit card limit, get details of instant

loan offers and block/unblock credit & debit card. 'ICICIStack' offers

nearly 500 services that cover almost all banking requirements of

customers such as digital account opening, loan solutions, payment

solutions, investments and care solutions.

Our Analysis: As countrywide lockdown is in place, this will help customers stay

indoors and also cover their banking requirements, specially the

retail clients. ICICI bank endeavors to offer improved convenience to

its customers. Enabling WhatsApp services is a big step that can help

the bank achieve the envisioned technological advancement.

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Exhibit 04: ICICI Ltd vs Nifty

Source: Ace Equity, Progressive Research

Exhibit 03: Reduced volatility in Yes

Bank

Source: Ace Equity, Progressive Research

Exhibit 05: Trend of Aggregate Deposits of SCBs Exhibit 06: Trend of Bank Credit of SCBs

Exhibit 07: Deployment of Gross Bank Credit by

major sectors

Exhibit 08: Sectoral breakup of Gross Bank Credit

of the major sectors in February

Exhibit 09: Repo rate trend as changed by RBI in

last 3 years

Exhibit 10: MCLR trend in the last 4 years

Source: RBI, Progressive Research Source: RBI, Progressive Research

Source: RBI, Progressive Research Source: RBI, Progressive Research

Source: RBI, Progressive Research Source: RBI, Progressive Research

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Yield Trend Credit-Deposit Trend

Economic Indicators Trend

Banking Performance in Equity Market

Exhibit 11: Gap between short and long term bond

is widening

Exhibit 12: Credit-Deposit ratio of the SCBs have

decreased in the last one year

Exhibit 13: Retail Inflation falls for the first time in

seven months

Exhibit 14: Change in YoY IIP showed a marginal

rise

Exhibit 16: Major Banks’ Valuation as on 31st

March, 2020

Exhibit 15: Bank Index seen to outperform Nifty

Index in the last 1 year

Source: Investing.com, Progressive Research Source: RBI, Progressive Research

Source: RBI, Progressive Research Source: RBI, Progressive Research

Source: NSE, Progressive Research Source: Ace Equity , Progressive Research

Page No: 6

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