Newspaper Summary 090626

 

Asset reconstruction companies seek review of law governing them

HELP SOUGHT. Request FinMin to set up working group to review their existing position and expand role

K Ram Kumar Mumbai

Asset reconstruction companies (ARCs) have sought a review of the statute governing them as well as their functioning in the backdrop of financial entities such as private credit (alternative investment funds) and mutual funds emerging as meaningful players in the debt market in the last two decades.

The Association of ARCs in India has requested the Finance Ministry to set up a working group on ARCs to review their existing position and expand their role. Banks and financial institutions clean up their balance sheets through the sale of stressed assets to ARCs.

When the SARFAESI Act 2002 was enacted, the financial sector was dominated by banks and FIs. This statute empowers banks and FIs to recover dues from defaulting borrowers without court intervention.

But with private credit (AIFs) and mutual funds also becoming a force to reckon with in the debt market, ARCs want suitable amendments to the SARFAESI Act so that the former gets an exit route in case their investors seek payback. ARCs can provide the exit by buying debt from private credit and MFs. The court process that is currently available to the aforementioned entities can take years to conclude.

“By next year, the SARFAESI Act will complete 25 years. The market dynamics have changed considerably in these years. To remain relevant and appropriate, this Act, which defines the framework of functioning of ARCs, among others, needs a comprehensive review, to remain as an integral and effective enabling legal framework in resolutions,” said Hari Hara Mishra, CEO, Association of ARCs in India.

ADVISORY GROUP

He emphasised that debt aggregation is the first step towards a resolution, and a comprehensive resolution should cover stressed assets with entities such as private credit and mutual funds also. The last time a review of ARCs functioning was done was about 15 years ago. Then the Department of Financial Services formed a key advisory group representing all stakeholders such as banks, regulators, rating agencies, industry bodies and law firms.

ARCs now want a similar body to be formed and a comprehensive review to be done.

As of March-end 2026, the book value of assets acquired by 27 ARCs stood at ₹16,19,124 crore, with the security receipts (SRs) issued by them to entities such as banks, ARCs (own investment in SRs issued by them), financial institutional investors and qualified institutional buyers stood at ₹3,20,887 crore, per RBI data. Outstanding SRs stood at ₹1,53,323 crore.

FUNDS RETREAT (Physically-backed gold ETFs record outflows)

Exits from gold ETFs were the highest last week for this year

4TH WEEK IN A ROW. Net investments down 17% from May 23; US, Chinese investors lead the trend

Subramani Ra Mancombu Chennai

Investments in physically-based gold exchange-traded funds (ETFs) were negative last week, making net inflows negative for the fourth week in a row, according to data from the World Gold Council (WGC). This represented the highest exit by investors from ETFs so far this year.

The development follows gold losing most of its gains for the year. For the year-to-date period, net investments dropped by 17 per cent for the week ending June 5, falling to $15.28 billion from $18.46 billion in the week ending May 23.

INDIANS ENCASH $61 M

The US, Canada, and China led the outflows from ETFs last week, with gross investments at $1.05 billion and outflows reaching $2.71 billion. Investors in North America exited to the tune of $1.36 billion, while Asia saw exits of $0.53 billion and other countries $0.007 billion. The exit pace accelerated as gold prices dropped below $4,400 an ounce.

Rajkumar Subramanian, Head of Product & Family Office at PL Wealth, attributed the sharp drop in gold prices to a blowout US jobs report. He noted this signals that interest rates may remain higher for longer, which strengthens the dollar and pulls capital away from precious metals.

In the US, investors encashed $1.27 billion, while Canadian investors withdrew $102 million and Chinese stakeholders exited to the tune of $513 million. While specific weekly data for India was unavailable, the WGC data showed that Indian investors encashed $61 million in May.

KOREA, JAPAN POSITIVE

Despite the recent trend, Chinese and Indian investors have maintained positive net investments year-to-date. As of June 5, Chinese holdings stood at $7.29 billion and Indian holdings at $3.48 billion. In contrast, US investor exits for the year have totaled $3.81 billion.

Among other Asian nations, Korea ($851 million), Japan ($1.26 billion), and Hong Kong ($930.6 million) have all maintained positive inflows. Globally, SPDR Gold Shares saw an outflow of $7.09 billion, while iShares Gold Trust experienced exits of $2.28 billion.

TONNAGE HOLDINGS

Gold ETFs have faced consistent outflows since the Iran war began. After hitting a record high of $5,608 an ounce on January 29, gold has entered a downward trend, shedding more than 22 per cent of its value. On Monday, gold was quoted at $4,325.90 an ounce.

In terms of tonnage, ETFs currently hold 4,106.3 tonnes, down from 4,120.9 tonnes as of May 23, but still higher than the 3,559.2 tonnes held a year ago. The decline is driven by inflation fears, rising interest rates and bond yields, soaring crude oil prices, and overall pessimism regarding global economic growth. This follows a continuous rally from 2024 through early 2025 that was built on hopes of US Fed rate cuts and various geopolitical crises.

Divestment mop-up in 2 months of FY27 tops FY25 collection

Shishir Sinha New Delhi

The government’s mop-up under ‘Miscellaneous Capital Receipts’ (MCR) crossed more than 23 per cent of the Budget Estimate in just a little over two months of FY27, driven primarily by robust disinvestment earnings. Significantly, disinvestment earnings in just two months exceeded the mop up of full FY25 and nearly 72 per cent of full FY26.

The Budget pegged MCR at ₹80,000 crore. According to the Budget document, these include receipts on account of management of equity investments and public assets through various mechanisms. Put simply, MCR primarily includes disinvestment (sale of minority share holdings and strategic disinvestment) and asset monetisation.

Data from DIPAM show that the government off-loaded parts of its stake in three Central Public Sector Enterprises (CPSEs) — Central Bank of India, Coal India and NHPC — and mobilised ₹12,165 crore. At the same time, revenue from asset monetisation (InvIT) was over ₹6,300 crore. These two taken together gave over ₹18,000 crore to the central exchequer or 23.16 per cent of full-year estimates under the MCR. This is critical as receipts from taxes are expected to be lower, while the revenue expenditure (such as subsidy on food and fertilizer) is expected to shoot up mainly on account of the West Asia war.

The first sign of stress on central finances was when the fiscal deficit in value terms surged nearly 94 per cent in April compared to the corresponding month of the last fiscal. As a percentage of the Budget Estimate (BE), the fiscal deficit was over 21 per cent as compared to 11 per cent.

Asked about raising the MCR to ₹80,000 crore in FY27 BE from FY26 Revised Estimate (RE) of ₹33,817 crore and whether such a higher estimate means monetisation of equities or monetisation of assets, Economic Affairs Secretary Anuradha Thakur said: “It will be more of assets monetisation as a strong pipeline was announced”.

GOVT SHAREHOLDING

Budget documents do not use the word ‘disinvestment,’ but it is still an important part of the MCR. There are 68 CPSEs listed on stock exchanges. The value of government shareholding in these companies is over ₹23.66 lakh crore. Apart from these, 16 public financial institutions (banks and insurance companies) are also listed, and the value of government shareholding in these institutions is over ₹15 lakh crore.

This offers substantial scope for minority stake sales. With several CPSEs and public financial institutions yet to meet the 25 per cent minimum public shareholding requirement, more Offer for Sale (OFS) issues are likely in this fiscal and the next.

Miscellaneous capital receipts over the years

(in ₹ crore)

Year	Dividend	Disinvestment	Asset Monetisation	Total
2021-22	59,294	13,534	-	72,828
2022-23	59,533	35,294	-	94,827
2023-24	64,030	16,507	-	80,537
2024-25	74,129	10,163	-	84,292
2025-26	78,438	16,886	28,420	1,23,744
2026-27 (April-till date)	1,877	12,166	6,367	20,410

Source: DIPAM

bl interview

‘Our immediate endeavour is to increase CASA ratio from around 30% to 32%’

Canara Bank’s new MD and CEO Brajesh Kumar Singh is betting on a younger customer base, digital banking and low-cost deposits to improve profitability, saying the lender will focus on strengthening efficiency metrics rather than chasing balance-sheet growth alone.

Edited excerpts:

What will be your key focus areas? The bank is doing well in terms of business growth, but there is room to improve efficiency parameters. Our CASA ratio is around 30 per cent, while some peers are at 40 per cent. Similarly, our net interest margin can improve. My first priority is on the resources side, raising low-cost deposits and improving CASA, which will strengthen overall efficiency.

Do you have a CASA target in mind? Our immediate endeavour is to increase CASA from around 30 per cent to 32 per cent. Over the medium term, we would like to take it to about 35 per cent. The idea is to reduce dependence on bulk deposits and build a more stable retail deposit franchise.

How do you plan to attract younger customers? The younger generation wants banking services delivered differently. They are comfortable doing everything digitally and rarely visit branches. I want Canara Bank to become the preferred bank for this generation. We need to make banking seamless, convenient and relevant to their needs.

How much is Canara Bank investing in technology and digital capabilities? Technology is already one of our largest areas of expenditure. We spend around 10 per cent of our total annual expenditure on technology, making it the second-largest cost head after employee expenses. That investment will continue to increase. We have built more than a hundred digital journeys across mobile and internet banking.

Household savings are moving towards investments through platforms such as Zerodha and Groww, while fintechs and NBFCs are expanding aggressively in areas like MSME lending. Do you see this as a challenge for traditional banks? The bigger change is not fintechs entering the market; it is the changing preference of customers. Younger consumers are increasingly shifting from saving to investing, and their risk appetite is much higher than previous generations. Fintech platforms have made investing far easier and more accessible through seamless account opening, research tools and integrated banking and demat services.

I do not see fintechs as competitors. In many areas, they are collaborators. Several fintechs support banks in digital onboarding, land records verification, legal searches and customer acquisition. We also work with them in lending and other digital journeys.

Even in MSME lending, there is enough room for different players. Some fintechs focus on unsecured loans, while banks continue to play a significant role in secured lending and larger-ticket financing. We also lend to some of these institutions and, in certain cases, acquire loan portfolios from them. The opportunity is large enough for both banks and fintechs to grow together.

Rajesh Exports has been in the spotlight following SEBI’s interim order. Canara Bank has exposure to the company. How do you view the recovery prospects? The residual exposure of Canara Bank to Rajesh Exports is meagre compared to the total credit facilities extended. The exposure is fully provided for and is recoverable. The residual exposure is not expected to have any significant impact on the bank’s balance sheet or financial position.

Aishwarya Kumar Bengaluru

Rupee records biggest single day fall in a month, closes at 95.71/$

Our Bureau Mumbai

The rupee on Monday almost ceded all the gains it made in the last trading session, recording its biggest single day fall in a month in the process.

The Indian currency was weighed down by high crude oil prices amid the continuing West Asia conflict, the dollar gaining strength, and expectations of the US Fed tightening monetary policy in the coming months.

The rupee closed at 95.71 per US dollar, down 0.81 per cent, against the previous close of 94.94. It had received a "booster shot" last Friday when the RBI announced crucial measures to attract foreign capital through Foreign Currency Non-Resident (Bank) deposits, overseas borrowings, government securities, and equity investments.

These measures had initially buoyed the rupee, which posted its biggest single-day gain since April 2, perking up 84 paise to close at 94.94/dollar against the previous close of 95.89.

Amit Pabari, MD, CR Forex Advisors, observed that the RBI’s measures should not be viewed only through the lens of current market conditions. “By taking these measures now, the central bank has laid the groundwork for attracting foreign capital when global risk appetite improves,” he stated.

RBI exercises patience

Amidst global uncertainty, this is the right option

The Reserve Bank of India’s Monetary Policy Committee (MPC) has chosen caution over activism. In its June policy review, the MPC unanimously kept the repo rate unchanged at 5.25 per cent and retained its neutral stance with the SDF rate at 5 per cent, and the MSF and bank rate at 5.5 per cent. This decision came even as the committee lowered its FY27 GDP growth forecast to 6.6 per cent from 6.9 per cent and raised its inflation projection to 5.1 per cent from 4.6 per cent. Nonetheless, the move reflects a sober assessment of the extraordinary uncertainties currently confronting the economy.

The central bank is acutely aware that current inflationary pressures are largely imported and supply-driven. Crude oil prices remain approximately 30 per cent above pre-conflict levels as the West Asia crisis threatens energy supplies and key shipping routes. Simultaneously, global economic conditions are becoming less supportive, with rising uncertainty generating greater risk aversion among households and businesses. Investment decisions are being postponed, discretionary consumption is softening, and foreign portfolio investors continue to withdraw money from emerging markets. A slowing global economy could further weaken India’s exports and moderate remittance growth, while financial market spill-overs tighten domestic liquidity and increase volatility. The RBI thus finds itself in a situation where supply shocks threaten growth as much as inflation.

SENSIBLE APPROACH

Against this backdrop, the decision to preserve policy flexibility appears sensible. There are several reasons why the RBI is holding on to its monetary “dry powder”:

• Tolerance Band: Inflation, while rising, remains within the RBI’s tolerance band. While wholesale price inflation has surged, suggesting upstream cost pressures, the pass-through to consumer prices has remained limited so far, not indicating a generalized inflation spiral.
• Currency Management: The RBI has actively used the foreign exchange market to contain excessive currency volatility. While the rupee has depreciated due to higher oil prices and capital outflows, the adjustment has been relatively orderly. Judicious intervention and new measures to boost capital inflows have allowed the exchange rate to reflect economic fundamentals while limiting disorderly market conditions.
• Avoiding Premature Action: A premature rate hike could do more harm than good, as monetary tightening cannot produce more oil, reopen shipping routes, or lower global fertilizer prices. Instead, it would likely suppress domestic investment and consumption at a time when external demand is already weakening. Conversely, an immediate rate cut would risk sending the wrong signal amidst rising inflation expectations and pressure on the rupee.

The RBI is choosing patience, waiting for greater clarity on several crucial variables: the possible de-escalation of the West Asia conflict, the status of the south-west monsoon regarding food prices, the resilience of remittance inflows, and the stabilization of global commodity markets.

This approach is not one of complacency. The MPC’s revised forecasts show that policymakers recognize the inflationary risks ahead. If current pressures intensify and broader inflation begins to emerge, the RBI has made it clear that it stands ready to administer the "necessary bitter medicine". For now, however, prudence demands restraint.

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The writer is a Professor at Madras School of Economics Saumitra Bhaduri

Monetary implications of RBI’s surplus transfer

The ultimate impact of surplus transfer is expansion of primary money, which will become the base for further monetary growth

C Rangarajan & RK Pattnaik

During fiscal 2025-26, the RBI transferred to the Central government a surplus of ₹2,86,588.46 crore (0.83 per cent of GDP) on top of a surplus transfer of ₹2,68,590.07 crore (0.90 per cent of GDP) in 2024-25 and ₹2,10,873.99 crore (0.99 per cent of GDP) in 2023-24. Thus, during the past three years, there has been substantial surplus transfer to the Central government. While the issues relating to these transfers have been discussed in various fora, the monetary implications have not been fully addressed, and this article highlights them.

The surplus transfer from RBI to the Central government is mandated under Section 47 of the RBI Act 1934. As per the mandate, the net income (total income minus total expenditure) after adjusting for the transfer of funds is required to be transferred to the government. Total income comprises interest income and other income from both domestic and foreign sources, while expenditure consists mainly of employee costs, printing charges, agency charges, and risk provisions.

RBI’s gross income (₹4,27,684.15 crore) increased by 26.42 per cent over the previous year, while expenditure (₹1,41,091.69 crore) before risk provisions increased by 27.60 per cent. The net income, before risk provision and transfer to statutory funds, amounted to ₹3,95,972.10 crore in 2025-26. Consequently, the RBI’s balance sheet increased by 20.61 per cent to ₹91,97,121.08 crore as of March 31, 2026. Income from foreign sources was higher, accounting for 76.53 per cent, mainly due to gains from the sale or redemption of foreign securities.

The revised Economic Capital Framework (ECF) provides flexibility to maintain the Contingent Risk Buffer (CRB) between 4.5 per cent and 7.5 per cent of the balance sheet. In 2025-26, the RBI transferred ₹1,09,379.64 crore towards the CRB, bringing it to 6.5 per cent of the balance sheet, which is considered reasonable.

MONETARY IMPACT

It is important to understand the monetary implication of these transfers as they bear upon monetary policy. Monetary and liquidity management is inherently related to movement in reserve money (RM), the base money through which money creation takes place. RM represents the central bank's liabilities (primarily currency and bank reserves) and its sources (assets including credit to government, or net domestic assets [NDA], and net foreign currency assets or NFA).

When NDA increases due to net RBI credit to the government, or when the RBI purchases foreign currency, primary money is instilled into the system. As long as the RBI surplus has not been transferred, it is recorded as reserves in the non-monetary liability (NML) of the RBI. Once transferred, there is a movement from NML to government deposits. While this results in no net increase in the RBI balance sheet, the implications change once the government spends the money.

NON-TAX REVENUE

When the RBI’s surplus is transferred, it is recorded as non-tax revenue under dividend and profits. The ₹2,86,588.46 crore surplus from 2025-26 will be accounted for as revenue in 2026-27, constituting 43.01 per cent of total non-tax revenue. Budget estimates for dividend and profits have increased significantly, showing a high dependency of the government on RBI’s surplus transfer.

Once the government spends this surplus, cash flows in the system increase, resulting in higher rupee liquidity in the banking system. This leads to an increase in bank reserves with the RBI, an increase in RM, and subsequent monetary expansion. Effectively, this is an injection of durable liquidity. The ultimate impact is the expansion of primary money, which becomes the base for further monetary growth.

CONCLUSIONS

The emerging conclusions are twofold:

• (a) There are monetary implications in terms of increased reserve money, serving as a base for further expansion.
• (b) There are fiscal implications, as the increase in non-tax revenue allows space for government spending.

Technically, this is not the monetisation of a fiscal deficit, but implicitly, it tantamounts to it. Given the size of the transfers, their monetary and liquidity implications cannot be ignored. As the RBI Governor noted on June 6, 2026, the drawdown of government cash balances following the surplus transfer will aid banking system liquidity in the near term.

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C Rangarajan is former Governor of the RBI and former Chairman of the Prime Minister’s Economic Advisory Council. RK Pattnaik is a former central banker and currently teaches at the Gokhale Institute of Politics and Economics. Views are personal.

Bengaluru vs Hyderabad: A tale of two cities competing, collaborating

KV Kurmanath Hyderabad

Bengaluru vs Hyderabad has been a hot topic of discussion for over decades. We often see animated discussions on social media, with supporters taking sides to defend their city’s supremacy.

Though Bengaluru is far ahead in IT exports, start-up ecosystem, VC funding and social infrastructure, Hyderabad is emerging as an alternative with strong infrastructure and better traffic conditions.

NEW OPPORTUNITIES

Industry experts discussed this topic at T-Hub, the country’s biggest start-up incubator, and felt that the comparison and imaginary fight should be put to rest. They feel the cities should compete with global hubs and seize new opportunities rather than see each other as competitors.

“The rivalry between the two tech hubs plays out loudly online, often driven more by emotion than evidence,” said Prashanth Prakash, Chairman of UnboxingBLR. UnboxingBLR recently released A Tale of Two Cities, providing data on various IT hubs in the country and their standing across several indicators.

ONE UPMANSHIP

“What amazes me is the local entrepreneurship," Prakash added. "A lot of entrepreneurship in Bengaluru is from outside... But I see that in Hyderabad, there is a lot of local talent that is ready to build for India and the future”.

BVR Mohan Reddy, former Chairman of Nasscom and Founder-Executive Chairman of Cyient, felt that the ‘Hyderabad versus Bengaluru’ narrative was unnecessary. “This question of Hyderabad and Bengaluru is not of recent origin," he noted. "My question has been — why are you worried about Bengaluru? What this nation requires is 20 Bengalurus. And Hyderabad is in the making”.

Reddy emphasized that rather than competing with each other, they should compete with the world. He advocated for a collaborative approach to grow together. Pullela Gopichand, Chief National Coach for the Indian Badminton team, added that it was also time for tier-II and -III cities to grow.

Is AI riding a bubble?

CP CHANDRASHEKHAR, JAYATI GHOSH

US financial markets are agog with excitement. A few firms are breaking initial public offering (IPO) records, conveying the impression of a transformation of the role of stock markets in American capitalism. The trend began with SpaceX, the mega-corporation created by converting the social media platform Twitter, renamed X, into the artificial intelligence player xAI, and then merging it with the satellite operator and telecommunication giant.

The merged rocket, telecommunication and artificial intelligence entity, majority owned and controlled by Elon Musk, has gone public with an IPO aimed at mobilising as much as $75 billion of capital. The share sale at inflated prices is expected to value the company at around $1.75 trillion. This has been followed by similar announcements of large equity issues from other leaders in the AI stable — Anthropic, Open AI and Google — which too are now valued at levels marking highs that surprise, given the rather short life history of most of these firms.

PRINCIPAL DRIVERS

Two factors appear to be the principal drivers of this equity sale and valuation surge. The first is that, unlike the dotcom boom of the 1990s, ensuring a presence in the AI space requires large material investments, particularly in high-end chips and power-hungry data centres. Huge investments in such infrastructure, driven by competition for dominance, has led to an almost insatiable appetite for financial resources.

Secondly, the still unsubstantiated expectations of an AI-driven transformation of modern economies and ample liquidity in markets are triggering a demand for the instruments financing that investment. Firms have been able to mobilise unusually large sums of capital to finance the huge investments they are making in the competitive battle to win leadership in this new frontier area.

SPACEX IPO SCALE

The $75 billion that SpaceX is estimated to be mobilising through its IPO compares with a previous global maximum for capital mobilisation through IPOs of $25.6 billion notched up by Saudi Aramco. The maximum for capital mobilised through equity issued in an IPO in US markets alone is a lower $21.77 billion extracted by Chinese e-commerce venture Alibaba.

While the figure for the sums to be mobilised by the four AI-related firms choosing to go public this year is still uncertain, informed estimates place the total at around $200 billion. That exceeds by a wide margin the total sum mobilised by much larger numbers of firms in the US market in each year during the last decade.

The highest so far, counting only firms with market capitalisation exceeding $50 million, was in 2021, when 397 firms together mobilised capital totalling $142.4 billion. That makes for an average value of around $360 million, which pales when compared with the $75 billion sought to be mopped up by SpaceX. This appetite for capital encourages a conscious effort to hype up AI to attract those resources. The market capitalisation increases that follow from hype-led investments further intensify the valuation spike, in a self-fuelling spiral.

MARKET TRANSFORMATION

A corollary of the dramatic increase in capital mobilised through IPOs by each of these firms appears to be a sharp decline in the number of firms mobilising capital from the market. The number of firms resorting to IPOs during the first five months of 2026 was 63, which together mobilised just $28.8 million. Indications are that this number would shrink hugely in the months to follow as investors seem focused on getting a slice of AI equity at whatever cost, leading to the huge valuations of these firms.

In sum, accompanying the hype on the dramatic transformation of economic and social activity that AI is projected to bring about is a transformation of the role of financial markets in the functioning of US capitalism. For much of capitalist history in the US, while the stock market was a visible and important presence, its role was not one of helping mobilise the capital needed for large corporate investments.

CORPORATE CONTROL

In practice, retained profits and debt were the principal source of investment finance for US corporates. Equity markets served more as a market for corporate control and shareholder influence, as a fall in stock prices triggered by poor management could encourage hostile takeovers. That seems to be changing.

The recent boom in the IPO market signals that a few leading firms, having exhausted the potential for financing based on retained profits and debt, are turning to public equity. This does not signal a democratisation of corporate ownership. The manufactured hype surrounding AI tends to raise demand and push up share prices to levels where even large issue volumes are based on the sale of a relatively small proportion of share capital.

In SpaceX’s case, for example, the $75-billion mop up is to be realised through a stake sale of less than 5 per cent of equity. That allows promoters and early private market investors to benefit from both high stock values and significant stake ownership, even majority control. The boom is associated with extreme concentration of equity ownership and increased centralisation of corporate control.

SPECULATIVE BUBBLE?

Advocates justify these trends on the grounds that large-scale ‘real’ investments are expected to yield revenues and profits that warrant them. That ignores the possibility that the investments are driven by a competitive push to win market dominance, which generates excess capacity.

In fact, the evidence is that those valuations are based on impossible assumptions. If SpaceX does realise its targeted $1.75 trillion valuation, it would be priced at more than 90 times its annual revenue (as against 20 times in the case of an actually profitable Nvidia). Numbers quoted by Goldman Sachs, the lead investment banker for SpaceX, indicate that the valuation implicit in the price being set for its equity sale can be justified only by a 100 per cent increase in its revenues (from $3.2 billion to $322 billion) by 2030.

That and other numbers from the AI space suggest that the SpaceX-led financial investment fever is reflective of a speculative bubble rather than the promise of AI.