Center has released Rs 1.42 trillion in tax devolution to states, boosting their liquidity for spending in the final month of the financial year and potentially reducing their market borrowings.

 This release comes after the state government securities’ cut-off yield eased by 2 bps to 7.44% on February 27, with issuance falling below the expected amount for the fifth consecutive week.

 The Centre’s increased tax devolution is expected to help states finance social welfare and infrastructure projects. 

Additionally, interest-free loans from the Centre have helped states increase their capital expenditure by 40% compared to the previous year.

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The market regulator is concerned about the rising valuations and plans to provide investors with full risk profiles of schemes.

Sebi has urged Amfi to advise mutual fund houses to be cautious with mid and small-cap schemes due to the current steady rise in stock prices and significant valuation increases. 

The P/E ratios of both mid and small-cap indices have surged recently, raising concerns for the market regulator. Fund managers have been in discussions with fund houses regarding the high valuations and heightened investor excitement in these sectors for several months now.

Insiders revealed that the market regulator has instructed fund companies to offer investors a thorough analysis of different crucial risk factors when they invest in these schemes.

The fund manager, who preferred to remain anonymous, mentioned that various factors such as portfolio concentration (top 10 and top 5 stocks), single investor exposure to the scheme, liquidity issues in case of sudden redemptions, and portfolio composition across large, mid, and small caps including ratios like Sharpe ratio, will now be provided to investors in a single document at the time of investment to ensure they are fully informed about the risks involved.

 The decision to enforce additional guidelines such as a temporary increase in exit load has been delegated to fund houses. Both fund managers and analysts have expressed concerns about the high valuations in the mid and small-cap segments for some time now.

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In addition to the previously released tax devolution of Rs 72,961 crore on February 12, 2024, states have now received another devolution. This brings the total number of tax devolution instalments received by the states in February 2024 to three.

The Centre has released two additional instalments of tax devolution of Rs 1,42,122 crore to state governments, the Finance Ministry said Thursday. The additional instalments have been released to support states for “financing various social welfare measures and infrastructure development schemes,” it said.

This devolution is in addition to the tax devolution of Rs 72,961 crore already released on February 12, 2024. With Thursday’s release, states have received three instalments of tax devolution in February 2024.

As per state-wise breakup, Uttar Pradesh received Rs 25,495 crore, followed by Bihar (Rs 14,295 crore), Madhya Pradesh with Rs 11,157 crore and West Bengal with Rs 10,692 crore in tax devolution in the third tranche.

As per the norm, tax devolution is made through 14 instalments to states in a year, with at least one instalment in each month and two extra instalments released in the last two months of the year. Since 2022-23, the Centre has been frontloading the two extra instalments in the first nine months to boost states’ funds for expenditure, especially capex.

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Paytm, a leading fintech company, has decided to end several agreements with its payments bank unit, Paytm Payments Bank (PPBL), in order to reduce dependencies. 

The parent company, One97 Communications, did not specify the exact agreements being terminated. PPBL has agreed to simplify its shareholder agreement to improve governance and independence. 

The Reserve Bank of India (RBI) intervened due to PPBL’s non-compliance with banking norms and KYC requirements, raising concerns about potential money laundering and irregular transactions. The RBI flagged issues such as accounts being created without proper identification and transactions exceeding regulatory limits. Enforcement agencies were alerted to investigate the irregularities in PPBL accounts.

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The government has decided to increase the grain procurement target for the 2024-25 season amid expectations of record wheat output. The target is set to be around 30-32 million tonnes, up from the 26.2 million tonnes purchased under the minimum support price (MSP) operations.

 This move is aimed at replenishing the Food Corporation of India’s (FCI) stock, which is currently at an eight-year low. The main wheat-producing states, Punjab and Madhya Pradesh, are estimated to contribute 13 million tonnes and 80 million tonnes to the central pool wheat stock for the upcoming marketing season.

 The government has also announced an MSP of Rs 2275/quintal for the next season, an increase of Rs 150/quintal from the previous season. The procurement target may be revised depending on market arrivals and purchases. Additionally, the government is focusing on states where wheat procurement is not meeting production levels. Uttar Pradesh, Rajasthan, Bihar, Madhya Pradesh, Punjab, and Haryana will start MSP operations at different dates to support farmers.

 Furthermore, the government has halted open market sale of wheat, which had been ongoing through weekly e-auctions, in efforts to maintain sufficient stock for future sales. Wheat inflation has decreased due to improved supplies from FCI’s aggressive selling in the open market. The wheat output for the 2023-24 crop year is expected to reach a record 114-115 million tonnes, with 85% of the area under climate-resilient seed varieties.

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Many non-banking financial companies are diversifying their revenue sources by focusing on distributing insurance products to increase fee income. Lenders like Capri Global Capital, Grihum Housing Finance, and HomeFirst Finance have obtained approval from the Insurance Regulatory and Development Authority of India for a corporate agency license to distribute insurance products.

 Similarly, Mahindra and Mahindra Financial Services plan to apply for a corporate agency license for life, general, and health insurance. The expected net fee income from these new segments is estimated to be around 0.1-0.2% of the company’s average assets over the next three years.

Capri Global Capital’s managing director, Rajesh Sharma, believes that collaborating with insurance partners and recent changes in insurance guidelines have motivated NBFCs to pursue corporate agency licenses. Capri Global plans to leverage its branch network to cross-sell insurance products and expects to generate considerable insurance income. Many lenders are focusing on providing tailored insurance products to customers to diversify their income sources and mitigate credit risks.

Experts anticipate more entities will seek corporate agency licenses to provide a wider range of products. Smaller NBFCs may need to reconsider their income sources as competition and rising fund costs pose challenges.

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