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With expanded TReDS, insurance facility for invoice financing will help MSMEs: Experts

With expanded TReDS, insurance facility for invoice financing will help MSMEs: ExpertsThe repo rate hike and other monetary policy decisions announced by RBI Governor Shaktikanta Das have evoked mixed responses from BFSI stakeholders and economists.

Rajiv Sabharwal, MD & CEO, Tata Capital: The hike in repo rate is a well-calibrated move by the RBI that supports its two-pronged approach of controlling inflation and maintaining financial stability. This move will provide some cushion against the impact of the US Fed rates and will help in maintaining the stability of the financial sector. Downward momentum in inflation and an increase in RBI’s foreign exchange reserves over the last few months have provided the necessary comfort to RBI.

Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank: RBI’s confidence in the Indian economy came through as it revised its H1 2023/24 growth estimate upwards to 7%. RBI will closely monitor the impact of future rate hikes on lending rates, some of which are already above the pre-pandemic levels. Clarity around penal charges by banks, extending UPI for inbound travellers to India, introducing a framework for green deposits and enhancing MSME’s access to liquidity, are all welcome measures.

Shivaji Thapliyal, Head, Research and Lead Analyst, Yes Securities: Since the RBI has noted that penal interest is sometimes found to be excessive, it is likely that the draft guidelines would serve to moderate such penal interest in cases where it is excessive. Ceteris paribus, this would serve to reduce the income for banks but it needs to be understood what could be the share of such income in the total interest income for banks. At this stage, we do not think this share would be materially large at the overall banking system level. It remains to be seen if there are any individual banks that are indulging in this malpractice to a greater degree. Issuance of guidelines in this regard by the RBI indicates that the subject and the business of climate risk and sustainable finance is no longer a peripheral topic but has become mainstream. Expansion of the scope of TReDs platform serves to enhance the formalization of the lending ecosystem for MSMEs. Specifically, the insurance facility will encourage financing activity for MSMEs, further deepening the market. Secondary market operations will allow financiers to offload their portfolios to other financiers, which would further enhance liquidity on the TReDs platform and, ultimately, for MSMEs. Travellers from G20 nations from select international airports will be allowed to use UPI facility. This step serves to further inter-nationalise the UPI payments form factor, which has attracted global interest in terms of high levels of adoption in India and expanding the scope to international transactions, opening up a potentially large new market for the UPI platform.

Radhavi Deshpande, President & Chief Investment Officer, Kotak Mahindra Life Insurance Company: RBI stays with consensus and increases policy rate by 25 bps. Having front-loaded most of the rate increases, incremental policy rate decisions will largely be data and global central bank stance related. Markets would settle for a longish pause from here on than expect additional tightening and reversals in a short period. We expect 10-year G-Sec to hover around 7.25-40% in the short term.

Anil Gupta, Senior Vice President, Co Group Head, Financial Sector Ratings, ICRA: Given the large sovereign borrowing programme, the proposal of securities lending and borrowing in government securities will further improve the price discovery in government securities and also reduce instances of ‘short-squeeze’. The replacement of the penal interest with penal charges, which will not be added to the principal outstanding, is a welcome move and will benefit the customers. RBI has also proposed that such penal charges be reasonable. The income from these charges will typically be higher for lenders such as non-banks or banks with a higher share of self-employed segments. Climate and sustainable financing is still an evolving area for all stakeholders. Expanding the scope of TReDS through wider participation by more entities can keep the receivable discounting pricing under check as the volume on these platforms increases. Further flexibility to allow re-discounting by existing holders of such discounted receivables will aid the liquidity of participants. Insurance coverage for discounted receivables can also enhance the volumes and further reduce the pricing of such insured receivables, however the appetite of insurance companies to issue such coverage remains to be seen.

Dr Rashmi Saluja, Executive Chairperson, Religare Enterprises:

Firstly we must congratulate RBI to bring back real rates back into positive territory after years and winning its battle against inflation, though we believe war is not over yet. With a positive outlook on domestic growth backed by government spending and signs of addition in private capacity, India remains the fastest growing country among large economies. GDP growth projection and inflation projection for FY 2023-24 indicates that India will continue its sustainable growth with price stability.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company: This policy is as per the expectations where the RBI has erred on the side of caution by raising repo rate by 25 bps to ensure inflation remains contained. The introduction of lending and borrowing in Gilts will even out volatility in liquidity which is becoming tighter. The RBI is playing like Indian cricket team in third one day against New Zealand. Don’t take foot of the pedal. After hitting every bowler out of stadium, they dismissed all the batsmen cheaply. The RBI could have said victory over inflation is in sight but instead they are going for absolute containment. No wonder if noble laureate Joseph Stieglitz admiration for Dr Y V Reddy (If the US Fed had a governor like Dr Reddy, sub-prime crisis would not have occurred) gets repeated for Shaktikanta Das.

George Alexander Muthoot, MD, Muthoot Finance: The resilience of the Indian economy, firming up of urban consumption demand and improving rural demand reinforce our optimism on the growth front and we expect steady demand for gold loans. Further, given the various measures announced in the Union Budget recently, including the rise in capex by 33 percent, demand is further expected to increase. RBI measures to expand the scope of TReDS will improve the cash flows to MSMEs, this coupled with recent announcement in the budget towards the MSMEs will surely give support to MSME sector which were most impacted during the pandemic. Our borrowing cost may rise slightly going ahead but we are confident of maintaining our margins at the current levels.

Deepak Sood, Secretary General, ASSOCHAM: A Stimulus is expected going forward to the growth trajectory as projected by the central bank, by reverting to an accommodative policy stance with regard to benchmark interest rates. We want to believe this is the last rate hike by the RBI. Uniform penal interest regime would be a significant customer-centric move. Expanding scope of Trade Receivables Discounting System (TReDS) would immensely help MSMEs, while permitting inbound foreign travellers to use UPI would deepen India’s digital drive, leaving global footprints.

Deepak Agrawal, CIO, Debt, Kotak Mahindra Asset Management Company: RBI hiked rates by 25 bps in line with expectation by 4:2 vote in favour of hike. Core Inflation and Financial Stability concerns led to the withdrawal of the accommodation stance being maintained as against market consensus. Based on RBI forward-looking FY 24 inflation forecast of 5.30%, at a 6.5% repo rate, the real rate is 1.25%. We believe this is the last rate hike in this cycle.

Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund: Some sections of the markets expected a change in RBI’s stance to neutral. The hike in repo rates would lead to higher savings in the economy and reduce discretionary spending including demand for loans as repo rates hike get transmitted into the domestic economy. This should support investment activity and lower the current account deficit in the coming months. The chance of rate cuts looks remote. The ten-year G sec is expected to trade in the band of 7.25 % -7.50 % in the coming months as the borrowing programme is expected to exert pressure on the long end of the yield curve.

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers: We felt the possibility of a rate pause this time around was at least 50%. RBI seems to have been more bothered about the high and sticky core inflation for more than a year. Unless there is an unexpected flare in inflation, we would expect the Reserve Bank of India to maintain an unchanged policy rate for the remainder of 2023. This would be positive both for the debt and equity markets.

Vikas Garg, Head, Fixed Income, Invesco Mutual Fund: RBI walked the talk with a continuation of withdrawal of accommodation stance. Overall, it was a slightly hawkish commentary compared to market expectations. Future rate actions will be calibrated and more data-dependent as we approach the end stage of the current rate hike cycle. Higher policy rates may stay with us for a bit longer.

Churchil Bhatt, Executive Vice President & Debt Fund Manager, Kotak Mahindra Life Insurance Company: RBI estimates FY24 GDP growth at 6.4%, significantly higher than street expectations of around 6%. The subtext of the governor’s communication suggests a more data-dependent approach going forward. The market narrative will now focus on ‘how long can the Central Bank persist with existing monetary tightening’ as it juggles between a global growth slowdown and above-target inflation. We expect the benchmark 10-year G-Sec to trade in the 7.25%-7.40% range in the near term.

Sonal Badhan, Economist, RBI, Bank of Baroda: We still expect RBI to go on a prolonged pause now and also expect no rate cuts this year. The 10-year rates will range between 7.20-7.40% this year. Rates of fresh deposits may increase by 20-25 bps and WALR on fresh loans by around 15 bps. Pressure on liquidity cannot be ruled out. So, in the near term as well, a gap of around 5-6% cannot be ruled out. The inflation forecast of 5.3% is in the range we have projected at 5-5.5%. Regarding the inflation forecast, the upside risk is monsoon prospects and the China factor.

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