Financial Stability & More

Good morning, folks! As Google extends it’s work from home order to June-July 2021, it could well start a domino effect and you could stuck at home or free from office (depends on how you see it) for much longer. 


Alarm bells with RBI financial stability report

On Friday, RBI came out with it’s financial stability report which is done with a two pronged agenda. One, to check on the risks in the financial sector and the impact it could have on the industry, markets and infrastructure. Two, it also checks for the resilience of the sector with a stress test.

So, how bad is the diagnosis? The headline number really was that gross NPAs could rise to a range of 12.5% to 14.5% by March 2021. In April this year, as many as half of the customers of Scheduled Commercial Banks had opted for moratorium with the number being two-thirds for public sector banks and less than half for private sector banks. While those numbers have dropped with the steadily improving economic scenario, a clearer picture of asset quality will only emerge once the moratorium ends in August. Surprisingly, it is the retail loan book where the moratorium is more availed and also could be trickier to recover than corporate loan book.

Sign of times to come? Yesterday Kotak Mahindra Bank announced it’s results for first quarter of FY21. While the net profit saw a drop of 8.5% over last year, the number to watch out for remains a spike YoY from 2.25% to 2.70% in their Gross NPA. It’s total portfolio exposed to moratorium has also increased from 9.15% to 9.65% in Moratorium 2, of which 80% book is secured. But as they are saying till August, picture abhi baaki hai.

FICCI proposes roadmap for Unlock 3.0

The one thing coronavirus has done is made us ponder on the lives and livelihoods equation. While some would like to believe that in parts of the country we are beginning to get a handle on the lives, FICCI is now beginning to get pretty restless to get the livelihood engine started for the still-restricted activities.

Third time lucky: With Unlock 3.0 FICCI is basically proposing reopening almost everything August 1 onwards – international flights, tourist locations, restaurants, bars, gyms, schools and even banquets and conference halls. As for restrictions, in instances involving people getting together in closed indoor spaces like restaurants and banquets, they proposed a 50% capacity ceiling. While calling Covid testing as a mandate before getting to use these spaces as an impractical solution, they still stressed on the three golden rules – compulsory masks, temperature check at entry and social distancing.

Why so restless? While most of these industries are already reeling under massive losses, every day of forced closure costs them much more. As per estimates, Bollywood has incurred a loss of Rs. 1000 Crores in the first half of the year, ending June. The bleed is far worse for the restaurant industry (thanks to higher fixed costs) with an estimated Rs. 1 Lakh Crore in the 100 days of lockdown, leading to closure of 30% restaurants and 60%-70% drop in business for the survivors. As for hospitality, industry experts indicate that 50% hotels could shut doors permanently. Aviation has made enough news for us to know that it is probably the worst hit. FICCI’s proposed Unlock 3.0 is a clotting attempt for these bleeding industries. Healing is bound to take much more time.

Europe’s tourism hits speed bumps

Although Europe reopened itself to the main revenue generating business of tourism a few weeks back, there are some speed bumps enroute.

Spanish situation: 12% of the Spanish economy depends on tourism, an industry responsible for 2.6 million livelihoods. In fact, the country may have on an average incurred a loss of $5.8 Billion a week since March. However, considering that the viral infections are creeping up yet again, many other Europe countries like Britain and Norway have initiated a quarantine for tourists on return, while France is encouraging citizens not to visit the Catalonia region where corona numbers are spiking.

How are other European countries faring? Not too well. With only 13 countries beyond Europe making the cut for entry, bookings are down 80% in Italy despite government incentives. Although Greece has seen relatively lesser spread of coronavirus, in the first 1 days of July Athens airport still saw traffic at a 75% reduction from last year. And some like Amsterdam are opening up in theory but for all practical purposes telling tourists to stay away. What this period has done though is made countries introspect as to finding a balance between citizen convenience and tourism revenue. Don’t forget to check out the really cool scrolling mechanism in this Guardian article to see the crowded pre-corona photos and compare it with the post-corona barrenness. 


Ban game continues: On Monday, India banned another 47 Chinese apps on fears of data collection and data harvesting including Likee Lite, CamScanner HD, TikTok lite etc. Most apps are clones of already banned apps in the earlier round. 275 more Chinese apps are on the radar including PubG.

Provisional pension for central government employees retiring during pandemic:  Considering logistical challenges and lead time in getting the regular Pension Payment Order (PPO) in place, employees in question will get a provisional pension till then. This is especially useful for highly transferable jobs like CAPF or Central Armed Police Forces.

Dampener on exuberance around rural revival: In the backdrop of much higher tractor sales in June, the Q1 numbers for Escorts which primarily depends on tractor sales, were quite anti-climactic. With a 25% drop in YoY revenue and a marginal 5.3% increase in revenue, the optimism of rural cushioning some of the urban economic stress is now questionable.

Consulate closure ping pong between US & China: The Chinese were ordered to shut their consulate office in Houston on the allegation of using diplomatic facilities for espionage. The Chinese retaliated by asking for closure of the US consulate office in Chengdu.

Australia claims Google is snooping: Australia’s competition regulator brought search engine giant Google under the radar for not taking explicit consent to combine personal data of google users with their non-Google browsing activities. Although, how many of us even read before happily clicking on the I Agree button?


With a gloomy outlook to banks and their NPA in the short term future, financial stocks saw some sell-offs, especially ICICI Bank, HDFC Bank and Kotak Mahindra Bank. Although in the case of HDFC Bank, news of Aditya Puri selling more than 74 Lakh shares (for an eye popping Rs. 843 Crores!) also contributed to the pessimism.

US stocks also remained fairly status quo as investors looked to the rest of the week for cues from corporate earnings and possible future fed stimulus.


Boris Johnson recently did a 2-minute video to list down the achievements of his government in the last one year. However, most people couldn’t help compare it to the original and well, much better executed (video and the acts backing it) version by New Zealand Prime Minister Jacinda Ardern. Who knew the leader of a country could be young, efficient and still remember to have fun!

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