CIL's Strategic Diversification into Critical Minerals

Coal India Ltd (CIL), a major state-owned mining company in India, is aiming to diversify its operations by venturing into the critical minerals sector, with a particular focus on lithium brine assets in Argentina. This move is part of a broader strategy to reduce dependence on coal and to align with global trends that emphasize the importance of these minerals in clean energy technologies.

Key Initiatives by CIL

• Target Countries:
  • Argentina
  • Australia
  • Chile
• Expressions of Interest (EoI): CIL has invited EoIs from experienced consultants to conduct technical due diligence on lithium brine assets in Argentina. 

Significance of Critical Minerals

Recognizing the economic and strategic importance of minerals such as lithium (Li), nickel (Ni), and cobalt (Co), Coal India Ltd is taking steps to ensure it remains relevant in the era of clean energy technologies.

Official Statements

•  A senior Coal India official stated that critical minerals are indispensable for India's future industrial strategy, indicating the company's commitment to adapting to contemporary industrial needs. 

Microfinance Sector Delinquencies in India

The microfinance sector in India is currently facing a significant rise in delinquencies, despite the overall banking sector experiencing a 12-year low in non-performing assets (NPAs).

Current Delinquency Statistics

• Microfinance loans to low-income groups have seen the Portfolio at Risk (PAR) — loans overdue by 31-180 days — double to Rs 28,154 crore by September 2024 from Rs 14,617 crore a year ago.
• The delinquency rate in the 31-180 days overdue category increased to 6.8% of the total portfolio of Rs 4.14 lakh crore as of September 2024, up from 3.8% of Rs 3.84 crore in September 2023.
• The incremental rise in PAR was Rs 8,117 crore for the quarter ending September, with a total increase of Rs 13,468 crore for the 12 months ending September, according to the CRIF High Mark report.
• PAR was 4.6% of advances in June 2024.

Geographical Concentration and Contributing Factors

• Bihar, UP, Tamil Nadu, and Odisha accounted for 62% of the incremental delinquency, with Bihar alone seeing a Rs 1,715 crore increase in the three months ending September 2024.
• Key factors for the decline in portfolio quality include over-leverage by borrowers, debt-waiver campaigns, high field-staff attrition, elections, and extreme weather conditions.

Sectoral Impact and RBI Regulations

• Rising delinquencies may increase credit costs for NBFC-MFIs, impacting microfinance sector growth.
• The Reserve Bank of India has set a common household loan limit of Rs 300,000 to qualify as microfinance, applicable to all sector entities.

Outlook and Challenges

• India Ratings and Research (Ind-Ra) revised the microfinance sector outlook to deteriorating from neutral, maintaining a ‘Stable’ rating for FY26.
• Challenges include borrower overleveraging, reduced center attendance, high branch-level attrition, and frauds leading to higher operating and credit costs.
• Ind-Ra expects near-term challenges to continue, with recovery anticipated in the second half of FY26.
• Recent regulatory actions on some entities, concerns about loan pricing, and an increase in risk-weighted assets have heightened lender concerns.

Impact of Tightening Liquidity on Financial Markets

Commercial Paper (CP) and Certificate of Deposit (CD) Rates

• Increase in CP Rates: CP rates have risen by 10-13 basis points (bps) in January, indicating higher borrowing costs for short-term funds.
• Increase in CD Rates: CD rates have increased by 20-30 bps across tenures, reflecting tighter liquidity. Current CD rates are between 7.40% and 7.51%, up from last month's 7.10% to 7.20%.

Liquidity Conditions

• Tight Liquidity: Systemic liquidity is constrained due to the Reserve Bank of India (RBI) interventions, leading to increased CP and CD rates.
• Liquidity Deficit: The liquidity deficit reached Rs 2 trillion as the RBI made payments on maturing buy/sell swap agreements without rollovers.
• RBI Forex Interventions: Heavy RBI intervention in the forex market to stabilize the rupee has further reduced rupee liquidity.

RBI's Potential Measures

• Combination of Instruments: According to Gaura Sen Gupta, the RBI might need to employ a mix of Open Market Operations (OMO), buy-sell swaps, and possibly a Cash Reserve Ratio (CRR) cut to infuse liquidity.
• Magnitude of Liquidity Infusion: The required liquidity infusion is substantial, necessitating the use of multiple instruments.

Additional Economic Observations

• Stakeholder Discussions: NFRA to release papers for audit questions; AIFs seek government funds for startups.
• Foreign Portfolio Investment (FPI) Trends: FPIs have withdrawn Rs 22,194 crore in January amidst a weak earnings outlook and rising dollar.
• Market Influences: Inflation data, Q3 earnings, and FII trading are expected to influence market movements.
• Market Valuation Impact: The market capitalization of five of the top-ten valued firms fell by Rs 1.85 trillion, with HDFC Bank significantly affected.