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Daily briefing - 2 August 2019

India's state banks continue to suck in taxpayer money as the sector struggles for financial health. Over the past four years the government has pushed $36 billion into state-owned banks and is now following with another $10 billion. Still, there's an expectation that the banks will need a lot more bailing out. "Such glum talk is based on the experience of previous bailout attempts and the build-up of major stresses in the economy and in corporate India," writes Reuters. "Almost every week there is talk of another major company getting into financial difficulties or facing an investigation for fraud or other malfeasance. A further failure to turn around the big government-owned banks will be bad news for the economy which has slowed to itslowest growth rate for five years - 5.8% - in the quarter ending March 31, partly because of the lack of new lending by both the banks and shadow lenders, such as housing finance firms. Prime Minister Narendra Modi's government has targeted long-term annual growth rates above 8%." The hangover from the boom years of 2006 to 2011 is hurting with losses mounting also in the shadow banking sector. The death this week of VG Siddartha, founder of the Coffee Day chain, compounded the gloom. He left a letter explaining he was under tremendous financial pressure.

Europe, of course, has its own banking dilemmas. Chief among those is the persistence of negative interest rates, which the ECB introduced back in 2014 in an effort to prevent banks from just parking cash instead of lending it out or investing it. "European banks paid a record 7.5 billion euros on their surplus deposits in 2018 alone, amounting to 21 million euros being paid to the ECB daily, according to a report from open banking platform Deposit Solutions," says CNBC. However, bank customers are none too happy to end up carrying the can, with UBS announcing this week that it will start passing negative interest rates to its wealthy customers. Now the ECB is considering tiered rates which will exempt some deposits from the higher negative interest rates. "The ECB itself has been keen to point out that the damage done to bank profits by negative rates has been offset by other, more positive, effects of its stimulus efforts. The central bank's vice-president Luis de Guindos said last month that the overall effect of its monetary policy on banking sector profitability has been 'broadly neutral'." After five years of negative interest rates, that's hardly acceptable, is it? The tinkering to exempt part of deposits from negative rates sounds like a terrible idea. In too deep?

"I've tried Monzo, Revolut and N26," tweets entrepreneur Pat Phelan. "Can anyone actually explain what they do that my normal bank doesn't do? Besides extract venture of course? Easy sign up is not a good answer." Andrew Smith of ClearBank is first off the mark: "How about, Monzo and others haven't missold you anything. PPI for example. To date, challengers have shown that they are customer centric propositions, from UX to outcomes . This may look small, but it's a winner." Indeed. Follow the thread here.

Lafferty News is on holidays for the next two weeks and returns in the second half of August.

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