#ETBFSIDigest - Two big events and unexpected but bold decisions
Dear Readers,
Many a times I have seen financial analysts, economists, and researchers predicting something but exactly the opposite thing happening. It's not that their calculations or methods were wrong. Sometimes, events just happen. The two major events that took place this week actually demonstrated this.
Event One
The bi-monthly monetary policy of the Reserve Bank of India, which was announced on Friday, actually took a very different perspective than most of the experts and industry watchers had projected. Governor Shaktikanta Das projected real GDP at 7.2% for fiscal 2023, which was lower than expected, and a jump in inflation to 5.7%. RBI's decision means that it is heading towards normalisation swiftly. While the monetary policy committee kept the repo rate unchanged?at 4%, it also indicated that it was moving forward to withdraw its accommodative stance.
Interestingly, the logic behind not changing the rates this time is not the Covid-Omicron impact, which was the case till the last policy. In fact, the economy has improved significantly. GST collections, electricity demand, fuel consumption, import of capital goods, railway freight and many other factors have shaped up really well.
But the major reason is the impact of war between Russia and Ukraine may have on India. Will the war disrupt the supply chain? Will it inflate commodity prices as oil is flaring up day by day? The geopolitical issues can't be ignored.
On the inflation front, the RBI took crude oil price of $100 per barrel into consideration, but the prices are dramatically fluctuating, while on the other hand, Russia is trying its best to promote the rouble over the dollar. Hence, no central bank can take a risk of ignoring inflation at this juncture, and RBI has always taken inflation very seriously.
A few years ago when D. Subbarao was the RBI Governor, he continued to hike policy rates when inflation was rising and the situation was not favourable. India Inc leaders criticised the Governor. Veteran industrialist Rahul Bajaj then said, “In order to protect inflation, RBI is killing growth.”
In the last 2.5 years, the RBI focused on growth over inflation since the situation was unprecedented, but now it has chosen to put inflation before growth. This was an unexpected move. Along with this, the Standing Deposit Facility SDF along with LAF is also something new that RBI initiated. I would recommend you to read our monetary policy coverage, as we filed five dedicated copies on various topics such as RBI’s GDP and inflation forecasts, NBFCs should decide their own fate, cardless cash will be available via UPI, a deluge of complaints over digital lending, etc.?Click here to read all.
Event 2
While the RBI event took place on Friday, at the very beginning of this week HDFC, the top housing finance company, announced the merger with HDFC Bank. The idea of an amalgamation was there for decades, but nobody expected it to happen this week. In fact on a lighter note, Deepak Parekh, HDFC chairman, said that he is surprised that the media and finance world didn’t know about it.
While regulatory approvals are yet to be received, I must say this is the news of the decade. It will make HDFC Bank the behemoth in banking but also it will become the third-largest company in the country.
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It's a $40 billion deal and the bank has already decided to raise Rs 50,000 crore to ensure a higher reserve requirement for the deal.
Post-merger the bank will become a public company. “After 45 years of providing home loans to over nine million customers, it is the right time for HDFC to find its home and our new home is with our family. With our own people which are bigger and more promising,” Parekh said.
Well, while RBI’s decisions and the HDFC merger certainly surprised India Inc and the finance world, there are many meaningful articles that we wrote apart from these two events. I am adding here the top five stories of the week that you shouldn't miss.
If you have any thoughts or feedback, please feel free to share them with me at?[email protected]?I would love to hear from you.
Happy Reading, Happy Weekend
- Amol Dethe, Editor,?ETBFSI.