Paula Hearn

On Tuesday, the Reserve Bank of India (RBI) imposed a monetary fine on seven public sector banks for violating various banking rules. The banks on which penalty have been imposed are Bank of Maharashtra, Kotak Mahindra Bank, HDFC Bank, IDBI Bank, Allahabad Bank, Andhra Bank, and Indian Overseas Bank.

The penalty has been imposed mainly for breaching various directions that were issued by the Central Bank (RBI), which included the norms on monitoring of the end-use of funds, reporting of frauds and classification, sharing of information with other banks and reorganizing of accounts. A fine of Rs 1.5 crore has been imposed on banks namely Allahabad Bank, Indian Overseas Banks and Bank of Maharashtra.

Taking into account the failure of the seven banks to hold on to the directions issued by RBI under Banking Regulation Act of 1949 and under the provisions of section 47A (1)(c) along with Section 46(4)(i) the penalties have been imposed due to exercise of power that is vested in RBI.

The RBI further announced that the action is due to lack in regulatory compliance and is not planned to affirm the transaction or agreement that are enrolled into by the banks along with their customers.

HDFC Bank, IDBI Bank, and Kotak Mahindra Bank have also imposed a penalty of Rs 20 lakh each by the central bank, i.e., RBI. The penalty has been imposed due to the violation of various norms of the bank mainly Know Your Customer (KYC) norms and Anti- Money Laundering (AML) standards.

Andhra Bank has been imposed a fine of Rs. 1 crore for violating similar rules of RBI.

In the previous week, the RBI had imposed fine over 11 more banks for non-compliance of various directions.

The slowdown in China has come as a bitter shock for some of the biggest corporations in the world, and a large percentage of business has recorded poor fourth quarter numbers due to the declining demand for a range of products in the country. However, for French luxury brand Hermes, the situation is different, and the company announced that their sales continued to be strong in the fourth quarter of 2018. This is in sharp contrast to what has been happening with many other luxury brands in China and without a doubt, a testimony to the appeal of its products.

Over the years, it has become abundantly clear that China is a huge factor in the continued growth of some of the biggest luxury products’ companies in the world. Not only are the sales in China a big revenue driver but Chinese tourists are also a big part of the equation, and overall the consumers in Asian country account for around 33% of their total sales.

It is hardly a surprise then that many of the biggest luxury names in the world have had a bit of a struggle after the slowdown in the Chinese economy. For instance, luxury jeweler Tiffany from the United States and Tapestry suffered depressed sales due to the shrinking of demand in China. However, for Hermes, which is famous for manufacturing the iconic Birkin bags, has not suffered at all and continue to report strong sales figures. The Birkin bags, which are usually priced more than $10000, are one of its most popular products and more often than not, customers are put on waiting lists if they want to buy it. In this regard, it is interesting to point out that Hermes’ rival and fellow French luxury brand Louis Vuitton has expressed the same thoughts. The company has stated that despite the slowdown, the sales in China are still on the rise.

Speaking to journalists, the Chief Executive Officer of Hermes, Axel Dumas said, “We are still growing strongly in Asia, we did not see any change in momentum in our stores in China.” On Friday, the group revealed its sales figures in the fourth quarter, and overall, sales went up by a healthy 9.6% in the quarter. In the Asia Pacific region alone, excluding Japan, went up by 13.1%. In the third quarter, the sales in that region had gone up by 11.7%. Last but certainly not the least, Hermes posted revenues of $1.93 billion, which reflected a 10.1% jump.

The United Nations warned in a report that the world might encounter currency wars, widespread protectionism, and billion-dollar losses if the trade conflicts between the U.S. and China persists.

The report was published by the UN Conference on Trade and Development (UNCTAD) on Monday. It also said that while some countries would see a surge in exports, negative global effects were likely to dominate.

China and the United States have been engaged in trade conflict since early 2018. In September, the U.S. increased tariff by 10 percent on around $200 billion of Chinese imports, and it planned to increase those rates to 25 percent in January. However, the head of the two Governments agree to adopt a freeze the increment until March 1, and in the meantime, they are supposed to have talks.

The Damage-

As per the UN report, continuing or increasing tariffs between the two superpowers would have an unavoidable impact on the “still fragile” global economy, including disturbances in commodities, financial markets, and currencies.

UNCTAD’s report said, “One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service, another worry is that more countries may join the fray and that protectionist policies could escalate to a global level.”

Generally, a currency war occurs when nations depreciate the value of their national currency deliberately for stimulating their economies.

The report also noted that protectionist policies usually hurt weaker economies the most, while moves like tit-for-tat of the trade giants will have a domino effect affecting other dependent countries.

The report noted, “Tariff increases penalize not only the assembler of a product but also suppliers along the chain.”

UNCTAD said the Chinese exports affected by the United States’ tariff measures are likely to hit East Asian value chains the most, and it is estimated to be around $160 billion.

Gains-

Out of the total $250 billion worth of exports which is subject to U.S. tariffs, about 82 percent will be covered by other countries. And 12 percent is expected to be retained by the Chinese firms only. And a mere 6 percent would be captured by U.S. firms.

The same way, of the U.S. exports to China which is subject to Chinese tariff, about 85 percent would be covered by other countries, as per the study. U.S. firms, however, will retain less than 10 percent of exports. And the Chinese firms would capture around 5 percent.

The countries which are expected to benefit from the scuffle are those capable of replacing American and Chinese firms. EU exports would be getting $70 billion from U.S. – China trade war. And the major economies like Japan, Mexico, and Canada would each gain around $20 billion.

However, the countries which are going to see the highest change in their export share are Australia, Brazil, and India.

Pamela Coke Hamilton, head of UNCTAD’s international trade division, said at a press conference on Monday, “Because of the size of their economies, the tariffs imposed by the United States and China will inevitably have significant repercussions on international trade.”

“While bilateral tariffs are not very effective in protecting domestic firms, they are valid instruments to limit trade from the targeted country. The effect of U.S. & China tariffs would be mainly distortionary. U.S. & China bilateral trade will decline and be replaced by trade originating in other countries.”