IOB sells Essar Steel bad debt to Edelweiss ARC (BL, BS 29.09.17)
Indian Overseas Bank has sold its bad debt exposure of Rs. 1,500 Cr in Essar Steel to Edelweiss Asset Reconstruction Company at a 50% discount to its book value, said sources close to the development. The deal comes even as the National Company Law Tribunal declared Essar Steel insolvent and appointed an insolvent professional to manage the company. Fearing a huge hair-cut, banks are selling their bad loans to asset reconstruction companies at big discounts. Interestingly, Edelweiss has been mopping up the bad debt of Essar Steel from lenders. Last October, Axis Bank sold Rs. 2,000 Cr of its bad debt with Essar Steel Ltd to Edelweiss Asset Reconstruction. Similar deals were also executed by ICICI Bank, HDFC Bank and Federal Bank early last year before the company was declared insolvent. With an exposure of over Rs. 5,000 Cr, the Edelweiss ARC has emerged the fifth largest lender to Essar Steel. In previous cases, the Edelweiss deal was executed in the 15-85 structure, wherein the ARC shells out 15% of the net asset value as upfront payment. Essar Steel owes lenders roughly Rs. 45,000 Cr, of which Rs. 31,671 Cr is bad debt.
ICICI Bank’s new home loan offers 1% cash-back for every EMI (BL, BS 29.09.17)
As part of its festive season offering, ICICI Bank launched a new home loan product that offers borrowers the benefit of 1% cash-back for every equated monthly instalment (EMI) over the entire loan tenure. The EMI cash-back benefit is available for fresh home loans with minimum tenure of 15 years. This loan allows borrowers, resident as well as non-resident Indians, to select their preferred mode of cash-back — they can choose to utilise the cash-back to prepay the principal outstanding of their home loan or take credit in their ICICI Bank account. There is no restriction on the loan amount for availing the cash-back EMI facility. Illustratively, if a borrower takes a Rs. 30-lakh loan for 30 years, according to the bank, if he opts to utilise the cash-back to prepay the principal outstanding of his home loan, then this will aggregate to Rs. 3,24,801 over the entire loan tenure. If the borrower opts for credit of the cash-back into the ICICI Bank account then it will amount to Rs. 81,897. “The cash-back will start to accrue from the first EMI itself. It will first get credited to the customer after completion of the 36th EMI. Subsequently, after every 12th EMI, it will get credited to the customer,” the bank said in a statement. This new offer is also available for other mortgage products like loan against property, lease-rental discounting and top-ups on existing mortgage loans. Anup Bagchi, Executive Director, ICICI Bank, said implementation of Real Estate Regulation Act (RERA) has brought customer confidence back in the housing sector. With the launch of the new home loan product, the bank expects to sustain the home loan growth momentum of about 17%. On September 15, ICICI Bank had unveiled an offer whereby customers who avail a new home loan or transfer their existing home loan to it can get cash-back of 20% (up to Rs. 10,000). The cash-back amount is based on minimum spend of Rs. 30,000 by the customer on his/her ICICI Bank credit/debit card. This offer is valid from September 1 to November 30.
Retail lending witnesses healthy growth so far this fiscal (BL 03.10.17)
Banks are expecting a further push in retail loan demand with the possibility of a rate-cut by the RBI in its policy review scheduled for October 4. “There has been some traction in the retail segment in the first and second quarters. We are expecting this to grow further in the current festival season, including Diwali and Christmas,” said a senior official of State Bank of India. Bank credit has grown at a tepid 6.8% during the past one year. In the first six months of this fiscal, it is down to a negative 0.8%. Even as all major sub-segments such as credit to industry, services and agriculture have shown either low or negative growth, personal loans (for housing, auto, education, as well as general) have begun to look up. Personal loans account for about 22% of the overall bank credit given in the country. And, a major portion of this is given for housing. According to the latest available disaggregated numbers of bank credit up to the end of July 2017, personal loans grew at 15% year-on-year and 3% in the current fiscal. Top banks have reported similar trends. SBI witnessed strong growth in retail loans in the first quarter ended June 30. Home loans grew at 13.92% in the quarter compared to the same period last year. Auto loans and other retail loans grew 20.1% and 9.66%, respectively. On the other hand, there was decrease in other corporate loans, especially to sectors such as infrastructure, iron and steel, trade, textiles, and engineering. Similarly, ICICI Bank’s unsecured credit card and personal loan portfolio grew to Rs. 23,180 Cr, a 39% year-on-year growth in the period ended June 30. Personal loans is still a small portion of the bank’s overall loan book — just 5% of the loan portfolio of Rs. 4.6 lakh Cr. These loans, according to the bank, are primarily cross-sold to existing customers. This is supposed to be a lot safer than selling loans to outsiders.
Bank retirees have one more chance to join group health policy sans outpatient cover (BL 03.10.17)
United India Insurance has offered all existing bank retirees another option to join the group health policy without outpatient (OP) cover. This will be considered along with renewal of group health insurance policy for retirees for 2017-18 and a new super top-up policy for both employees and retirees. One more option will be given to all retirees to join the group medical cover policy without domiciliary (OP) cover. Existing retirees under ‘with domiciliary (OP) policy’ will be allowed to switch over to one ‘without domiciliary cover.’ The option to switch over to ‘with domiciliary (OP)’ policy is not available. Employees who retired during 2016-17 will be given the option to join the policy either ‘with domiciliary’ or ‘without domiciliary’ clause. The insurer had earlier agreed to renew the employee policy and retiree policy (without OP cover) without any increase in renewal premium. It had also offered a super top-up policy without OP cover for retirees with raised sum insured limits. The group medical policy without domiciliary treatment cover (without OP) is being offered on the same terms, conditions and premiums as last year. The insurer, however, said that the policy with out-patient treatment (domiciliary) has been running on a high incurred claims ratio of 200%. In this background, it has been compelled to revise the premium for renewal of the same in 2017-18. All terms and conditions will remain the same as that of last year, including the limit of the domiciliary cover which is 10% of sum assured. The total sum assured of Rs. 4 lakh and Rs. 3 lakh includes the 10% limit for OP.
Bank of Baroda, SBI to cut base rate from October 1 (BS 29.09.17)
Bank of Baroda said it had cut the base rate by 0.35% to 9.15% with effect from Sunday. SBI has also revised interest rates on some retail domestic term deposits below Rs 1 Cr. Revised interest rate on one-year retail domestic term deposit is 6.50% for public and 7% for senior citizens. Bank of Baroda has revised base rate and BPLR, Bank of Baroda said in a regulatory filing. The base rate, minimum rate below which a bank cannot lend, has been revised downward from existing 9.50% per annum to 9.15% per annum from October 1, 2017, the bank said. The benchmark prime lending rate (BPLR), the method which charges interest on credit worthiness of customers, has also been cut to 13.45% per annum from next month. The BPLR is 13.80% per annum currently.
Modi govt's card payment push may cause annual loss of Rs 3,800 cr to banks (BS, FE 29.09.17)
The government's digital payments push, mainly online card payments through PoS machines, may leave already capital starved banks bleed by a whopping Rs 3,800 Cr annually, warns a report. After the note-ban last November, the Narendra Modi government has pushed banks into deploying millions of points-of-sale (PoS) machines to encourage online payments. Since then, banks have more than doubled their PoS terminals. The number of PoS terminals post-demonetisation has increased from 13.8 lakh in March 2016 to 28.4 lakh as of July 2017. On an average banks are installing 5,000 PoS per day. This has resulted in increase in debit plus credit cards transactions at PoS from Rs 51,900 Cr in October 2016 to Rs 68,500 Cr in July 2017, with peak reaching in December 2016 to Rs 89,200 Cr. "We estimate that for OFF-US transactions, the aggregate annual loss for card transactions at PoS terminals around is Rs 4,700 Cr. However, the net revenue gain per annum from ON-US transactions at PoS would be around Rs 900 Cr only. "Therefore, the total annual loss to the banking industry is around Rs 3,800 Cr," SBI Research said in a report.
Dena Bank to cut MCLR rate by up to 20% from Oct 1 across all tenors (BS 30.09.17)
Dena Bank said it will reduce its marginal cost based lending rates (MCLR) by 0.20 percentage point from October 1. "Dena Bank has reduced the marginal cost of funds based lending rate (MCLR) in all tenors," the bank said in a statement. The revised rates will come to effect from October 1, 2017, it said further. For overnight and 3-month tenors, the MCLRs are cut by 0.20% each to 8% and 8.10% respectively. The loans with 3 & 6 months and 1-year tenors will have a reduced MCLR by 0.15% each to 8.05%, 8.20% and 8.25% each respectively. Dena Bank said it has also reduced its base rate from 9.70% to 9.60% from October 1. The MCLR mechanism was introduced into the banking system in April 2016 as an alternative to the base rate, below which banks cannot lend, for new borrowers. MCLR is calculated on the marginal cost of borrowing and return on net worth for banks. Dena Bank stock closed 0.97% down at Rs 30.65 on BSE.
SBI waives closure charges for savings accounts that are over 1 year old (BS 02.10.17)
SBI account holders will have reason to cheer as the state-owned lender has waived off account closing charges for all savings bank customers under the condition that their account has existed for over a year. The waiver came into effect on October 1. Earlier, the bank used to deduct a sum of Rs 500, along with the applicable goods and services tax (GST), in the form of account closing charges for all accounts other than those closed during the 14-day free-look period. The same charges that were levied on the closure of account during the settlement of accounts of deceased depositors have also been waived. Further, closure of regular savings bank account by a basic savings bank deposit (BSBD) account holder will also not attract any closure charges under the new rules. However, closure of a savings account after 14 days from its opening and before it has completed one year would still attract Rs 500, along with GST, as closure charge. Bank officials cited by the Times of India, which also reported the development, said that the move would make it easier for customers who were being penalised over not maintaining the minimum balance to close their accounts. It would also allow account holders to switch from their regular savings bank accounts to a basic savings bank account.
YES Bank to raise up to Rs 4,000 cr through tier-II bonds (BS 01.10.17)
YES Bank plans to raise up to Rs 4,000 Cr through tier-II bonds, for better capital adequacy and to support business growth. India Ratings has assigned an 'AA+' rating with a stable outlook for the proposed offer. The rating factors in the bank's ability to manage credit risk, a reasonably large and expanding franchise, sufficient levels of capitalisation after equity infusion and improved profitability buffers. The stable outlook reflects an expectation that any deterioration in asset quality would be adequately absorbed by operating profits without impairing Tier-1 capitalisation (13.8% ratio in June), said India Ratings. The bank is expected to maintain above-average core capitalisation on an ongoing basis, in line with higher rated private sector peers. The rating also factors in the bank's proportion of bulk funding being relatively higher than better-rated peers. Although the former's concentration on the deposits side has been improving, depositor concentration remains higher than its larger peers. Additionally, the bank has an asset/liability tenor gap, on account of a lower though improving share of the current account and saving account deposit ratio than larger peers, said the agency. The bank's credit cost is expected to remain at 75-80 basis points in FY18. This takes into account the limited impact of the accelerated provisioning (at least 50% on identified accounts by FY18) on the accounts identified under the Insolvency and Bankruptcy Code for reference to the National Company Law Tribunal.
ATM withdrawals in July close to March levels when demonetisation limits on cash were removed (FE 02.10.17)
The volume of withdrawals from ATMs in July hovered close to their March levels, when all restrictions on cash withdrawals imposed during demonetisation were removed. According to data released by the RBI, the number of ATM transactions in July stood at 704 million, with the corresponding figure for March being 710 million. The value of transactions in July – at Rs 2.27 lakh Cr – was marginally higher than the Rs 2.26 lakh Cr of transactions clocked in March. While most ATMs are enabled with a facility to transfer funds, the feature is barely used and most transactions at ATMs involve cash withdrawals. ATM transaction volumes between April and June remained in the range of 656-668 million. Transaction values also slipped from their March levels to move in the range of Rs 2.16-2.26 lakh Cr during April-June. Industry players pointed out that there is an inverse relationship between the value of transactions at ATMs and those at point-of-sale (PoS) machines; in other words, when the value of ATM transactions rises, that of PoS transactions falls and vice-versa. The value of credit and debit card transactions at PoS machines was in the range of Rs 70,000-74,000 Cr, up from Rs 69,089 Cr in March. The figure slipped to Rs 68,498 Cr in July. Neeraj Vyas, deputy MD and chief operating officer, State Bank of India (SBI), said the bank had not experienced much of a fluctuation between March and July. “Withdrawals may have risen after March as people were still worried about ATMs running out of cash,” he said. “As cash came back into the system, people withdrew less because they were not bothered about ATMs running dry.”
Bank Staff to Resist Move to Link Pay with Performance (ET 03.10.17)
Nearly eight lakh bank staff wrangling over the next wage hike with their management are set to resist banks' move to wrest independence to decide managerial staff emoluments based on performance, said two people familiar with the matter. The management lobby, Indian Banks' Association (IBA), and unions are set to meet on Tuesday amid the worst environment for banks in years. Every five years, PSU bank managements negotiate wage hikes with employee unions and the officers' association. This time, the IBA has suggested two changes -each bank would decide salaries of those above scale III and wages of officers from scale I to scale III would be divided into fixed and variable components. The variable component would be linked to performance. “We are going to oppose these two suggestions,“ said CH Venkatachalam, general secretary of the All India Bank Employees Association. According to senior bank officials, with merger plans among banks gathering momentum, the trade unions are determined to keep their hold over wage negotiations as yielding even an inch by giving each bank the power to decide on pay hikes would weaken their movement, which has so far been successful in getting their wish irrespective of performance. Also, this would be the first time the unions are set to demand that banks agree to set up crèches near their branches or residential complexes to ensure that participation of women increase in the industry where they constitute just 20% of the workforce. “We have seen that 50% of the incremental recruits are women but the total woman workforce is just 20%. This means that a number of women may be dropping out to take care of their children,“ said Venkatachalam. In the last wage agreement, which ended this year, the management had agreed to give a 15% hike in wages. It also saw banks agreeing to keep branches shut for two Saturdays every month and working full day in the remaining two.
Digital Drive Puts Cash Out of Business in Sept (ET 02.10.17)
The government's demonetisation-led digital push may be bearing fruit. For the first time in more than a decade, the amount of currency in the hands of people has shown a contraction during the festive season, according to RBI data. Currency in circulation has dipped in three weeks out of the five to September 22. In absolute terms, it rose just 9,738 Cr between August 18 and September 22. The declines in those three weeks were the first time such a contraction took place since December 30 last year, which was the last date for surrendering old currency notes. Ever since the government effected note recall in November, electronic transactions through various retail channels have risen 37%. Currency in circulation is still at 88% of the pre-note ban level (November 4, 2016). The monthly sequential trend in electronic transactions through various channels such as cards, mobile banking and e-wallets indicate a mixed trend. “It's a combination of both permanent factors -pickup in digital transactions and structural factors -gradual recovery of cash demand in the economy ,“ said SK Ghosh, group chief economic advisor, SBI. “But going by the trend in growth in digital transactions, permanent factors seem to be outweighing structural factors.“ The banks have stepped up investment in building the relevant infrastructure to push digital transactions such as point of sale (PoS) terminals and also tie-ups with ecommerce firms to facilitate digital payments. The number of PoS terminals for instance has risen by 78% since November to 284,000 in July. In the same period, the value of card transactions has risen by over 60%.
Fitch prunes India’s GDP forecast to 6.9% (BL, BS 03.10.17)
Rating agency Fitch scaled down India’s growth forecast for the current fiscal to 6.9% from the earlier projection of 7.4%. “Activity should accelerate in the second half of the year, as the impact of one-off events, including the demonetisation shock in late 2016 and the Goods and Services Tax (GST) in July, which have dampened growth in the short term, are expected to wane,” it said in its Economic Outlook for September. Noting that economic activity was likely disrupted in the second quarter by firms running down inventory ahead of the implementation of GST, Fitch said that, going ahead, consumption should drive the pick-up in growth. “Investment is also expected to tick up in the quarters ahead, in part bolstered by ramped-up public sector infrastructure spending,” it further said, while cautioning that non-performing loans on bank balance-sheets could dampen the outlook for credit growth and business investment. Though the first-quarter growth hit a three-year low of 5.7%, analysts say the RBI, which will announce it monetary policy on Wednesday, is unlikely to cut rates further due to rising inflation.
Fiscal deficit at 96% of full-year target (BS 30.09.17)
In what could dash hopes of stimulus to propel the economy, the Centre’s fiscal deficit for April-August came in at Rs 5.25 lakh Cr, the highest ever for this period compared to any previous year. The deficit for the first five months of the year stood at 96% of the full-year target of Rs 5.46 lakh Cr despite cut in capital expenditure in August. The trend is contrary to the earlier pattern when expenditure was front-loaded, at least for capital outlays. For the same period last year, the fiscal deficit stood at 76.4% of the full-year target. The data reflected goods and services tax (GST) collection in full scale for the first time. Released by the Controller General of Accounts, the data came at a time when there have been discussions within the Narendra Modi government regarding a possible stimulus package through higher capital spending to boost manufacturing and infrastructure and to create jobs. Any fiscal stimulus could lead to a higher-than-budgeted fiscal deficit for 2017-18. Note: Fiscal deficit till August 2017-18 accounted for 96.1% of Budget Estimates for the year, against 76.4% during the corresponding period of 2016-17. The target for the year as percentage of gross domestic product is 3.2%, already under stress because nominal GDP growth in 2017-18 might not be 11.4% as assumed in the Budget. For the first quarter, nominal GDP grew only 9.3%. For April-August, tax revenue stood at Rs 3.41 lakh Cr, about 28% of the full-year Budget Estimates, compared with 26.6% for the same period last year.
Credit to services shrinks 9.1% in April-August (BS 02.10.17)
Commercial bank credit to the services sector contracted 9.1% in April-August 2017, against 1.2% growth in the year-ago period, reflecting a slowdown in the economy. RBI data showed that outstanding credit to the services segments, including trade, tourism and transport operators, declined to Rs 16,37,500 Cr at the end of August 18 from Rs 18,02,200 Cr at the end of March. There has been a slowdown in credit off-take across sectors — particularly agriculture, industry, services and retail — for about five months since April. Overall credit has declined 2.5% to Rs 69,59,900 Cr till August 18 from Rs 71,34,700 Cr at the end of March. In the previous fiscal year, credit had shrunk 0.3% in April-August 2016. Credit to services shrinks 9.1% in April-August. Bankers said besides the slump in the economic activity, the transition to the goods and services tax regime from July 1 has also impacted credit demand. Business establishment are still assessing the impact of the new tax regime. Also, a huge portfolio of bad loans and challenges in raising capital have made many public sector banks wary of extending credit. Moving to the retail segment, comprising individuals and families, loan expansion moderated to 4% in April-August 2017 from 4.6% a year ago. Loans for housing have stayed in the positive territory for five months of the current fiscal year (2017-18). Yet, the pace of housing loan growth was slow at 3.5% in April-August 2017, down from 5.4% witnessed in April-August 2016.
Direct tax collection falls in Aug (BS 02.10.17)
A huge fall in direct tax collection — both personal income tax and corporation tax — in August has come as a surprise. Within direct tax collections, corporation tax mop up declined to Rs 9,634 Cr in August, down almost 40% from Rs 16,046 Cr in July, according to data issued by the Controller General of Accounts. Compared to August 2016, it was down 28%, from Rs 13,403 Cr. Similarly, personal income tax more than halved to Rs 15,392 Cr, from Rs 32,631 Cr in July. Year-on-year, the decline was 17%, from Rs 18,084 Cr. India Ratings’ Chief Economist Devendra Pant says the figures show industrial growth has not recovered. The Index of Industrial Production rose only 1.2% in July, against a contraction in June. Another reason for the low figures could be higher refunds, suggests Aditi Nayar, principal economist at ratings agency ICRA. On the brighter side, the cumulative collection in both personal income tax and corporation tax has remained robust, due to higher figures earlier in the current financial year. Corporation tax collection in April-August, first five months of this financial year, rose 15.5% to Rs 92,939 Cr over the same period last year. Similarly, personal income tax collection was up 13.3% at Rs 1.24 lakh Cr in the first five months. In total, direct taxes grew 14.2% to Rs 2.17 lakh Cr in April-August, from 1.9 lakh Cr a year before. Finance Minister Arun Jaitley recently said direct tax collection up to September 18 was Rs 3.7 lakh Cr, about 15.7% more over the same period last year. The Budget Estimate (BE) for this financial year also pegs direct tax collection growth at 15.7%. This implies the August figures are exceptionally low. Jaitley had also said the number of taxpayers increased from 40.7 million in 2012-13 to 60.3 mn in 2016-17.
Centre plans to borrow Rs. 2-lakh cr in second half (BL 29.09.17)
The Finance Ministry and the RBI have finalised the borrowing calendar for the fiscal year at its Budgeted level. However, Subhash Chandra Garg, Secretary, Department of Economic Affairs, did not rule out reviewing the borrowing target towards the fourth quarter of the fiscal year. “If additional expenditure in the Supplementary Demand for Grants is authorised in the Winter Session of Parliament, we will have to see (additional borrowing),” he said. At present, the Centre plans to raise a gross Rs. 2.08 lakh Cr and net Rs. 1.92 lakh Cr through market borrowings conducted by the RBI in the second half of the fiscal. “A major part of the borrowing will be completed by January 9,” Garg said, adding that the government would continue raising Rs. 15,000 Cr every week from the market. For 2017-18, the Centre has a borrowing target of Rs. 5.4 lakh Cr, of which it will raise Rs. 3.72 lakh Cr in the first half of the fiscal. The decision will also give comfort to the Monetary Policy Committee, which meets on October 3 and 4 for the next policy review although analysts have ruled out a cut in the repo rate due to rising inflation. The yield on the benchmark 6.7% government security maturing in 2027 fell to 6.64% on Thursday from 6.67% a day before. Garg said discussions are also on with the RBI on increasing its dividend payment. The central bank had halved its dividend payout to the government to Rs. 30,659 Cr for the year ended June 2017.
Banks' loans rose 6.8% in two weeks to Sept 15: RBI (BS 29.09.17)
Indian banks' loans rose 6.8% in the two weeks to September 15 from a year earlier, while deposits rose 10%, the RBI's weekly statistical supplement showed. Outstanding loans rose Rs 10,500 Cr ($1.61 billion) to Rs 77.81 lakh Cr in the two weeks to September 15. Non-food credit rose Rs 7,130 Cr to Rs 77.28 lakh Cr, while food credit rose Rs 3,370 Cr to Rs 5,338 Cr. Bank deposits fell Rs 4,034 Cr to Rs 107.07 lakh Cr in the two weeks to September 15.
April-June external debt rises 3% to $485.8 bn: RBI (BS 30.09.17)
India's April-June external debt rose 3% to $485.8 billion from the January-March quarter due to an increase in foreign investment inflows into debt markets, the RBI said. Meanwhile, the external debt to gross domestic product (GDP) stood at 20.3% at the end of June, up slightly from 20.2% at the end of March, the RBI added. On a residual maturity basis, short-term debt constituted 41.1% of total external debt at the end of June, down from 41.5% at the end of March.
Reserves at $400 b on Rs. rally, RBI buying (BL 02.10.17)
India’s foreign exchange reserves crossed the $400-billion mark in early September, surging 8% over the past year, a period when the RBI went on a dollar-buying spree. The pace of build-up of forex reserves also coincides with the rupee’s sharp rally since January. A surge in inflows from foreign investors, coupled with a weakening dollar, helped the rupee climb from 68 to 65 against the dollar this year. The RBI has been making the most of the rupee’s strength by buying dollars continuously, pushing the reserves higher. Between August 2016 and July 2017, the RBI purchased $18.9 billion, almost thrice the $6.7 billion it purchased during the same period in the previous year. The central bank action serves two purposes. Healthy reserves can insulate the rupee from the shocks of a large fund outflow in the future; and they keep the rupee from strengthening too much and hurting the exporter. The move to bolster the reserves began four years ago, when Raghuram Rajan took over as RBI Governor in September 2013. From $277 billion then, the reserves have risen 45%. As of July, the RBI had an outstanding forward position of around $26.5 billion. “Whenever we talk about the reserves, we need to consider the RBI’s forward positions also. Including the forward positions, our reserves are now around $429 billion,” says Sajal Gupta, Head of Edelweiss Forex and Rates. The reserves can now cover about 11 months’ imports.
RBI likely to keep rates on hold (BL 02.10.17)
Despite slowing growth, the RBI may cite rising pressures on the retail inflation front to hold the repo rate at this week’s monetary policy review. A majority of the six members of the rate-setting monetary policy committee (MPC) are likely to vote for status quo to rein in inflation, which is expected to edge up, given the lower output of key kharif crops and rising global crude prices. The RBI last reduced the repo rate (the interest rate at which banks borrow funds from the RBI) from 6.25% to 6% in the third bi-monthly monetary policy review in August. The central bank is stuck in a conundrum of low growth, mild inflation and external uncertainties, Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said. This would make it difficult for the RBI on October 4, when the fourth bi-monthly monetary policy will be announced. “We expect status quo in the October policy,” said Ghosh. GDP growth for the first quarter stood at a three-year low of 5.7%, against 7.9% in the year-ago quarter and 6.1% in the January-March quarter. Retail inflation, as measured by the consumer price index (CPI), rose to its highest measure in the last five months at 3.4% in August 2017, compared with 2.4% recorded in July. The inflation rate, however, is still below the RBI’s target of 4%. The first advance estimates for farm output, which pegs lower foodgrains output would be of concern from the point of view of supplies as well as food inflation, said Madan Sabnavis, Chief Economist, CARE Ratings. Oil prices are also likely to remain under pressure on an expected reduction in global production, he added.
Policy rate unlikely to be cut as retail inflation shows upward trajectory, says ICRA (BL 29.09.17)
Expectation of a further rise in retail inflation may preclude the RBI from cutting the policy repo rate in the upcoming monetary policy review, according to ICRA. The credit rating agency is anticipating the Monetary Policy Committee (MPC) to leave the repo rate unchanged at 6% in a split decision in the fourth bi-monthly monetary policy statement, which is scheduled to be released on October 4. However, it sees the baseline forecast for gross value added (GVA) growth for FY18 to be revised lower from the 7.3% estimated in the policies of June 2017 and August 2017. Naresh Takkar, MD and Group CEO, ICRA, said: “The CPI (consumer price index) inflation is expected to average 3.7% in FY18, lower than the medium-term target of 4%. “With the repo rate at present at 6%, there may be room for further monetary easing. However, we do not expect a rate-cut in the upcoming policy review, as the CPI inflation is expected to chart an upward trajectory over the coming months, and print between 4.5 and 5% in March 2018.” While an interest rate cut would be welcomed by corporates, it is unlikely to be sufficient to meaningfully rekindle investment activity, he added. The agency’s chief said that extra-budgetary resources raised through tax-free bonds by central public sector undertakings could boost investment in high-multiplier sectors such as roads, railways, metro rail and affordable housing, without affecting the government’s fiscal deficit. Moreover, targeted policy intervention to address procedural concerns such as those being highlighted by exporters, may be more effective than a 25-basis-point rate-cut.
Rupee’s strength likely to be capped (BL 03.10.17)
It was a volatile week for the rupee. As expected, the currency fell sharply last week breaking below the support at 65.20. It touched a six-month low of 65.89 on Thursday. The pace of fall was threatening to drag it below 66. However, the rupee made a smart recovery from the low of 65.89, recouping most of the losses made during the week and closed at 65.28. A recovery in the dollar index, coupled with a few domestic factors like slowdown and deficit concerns, kept the rupee under pressure in the past week. A sharp sell-off in the Indian equity market also weighed on the rupee. Foreign portfolio investors (FPIs) are on a selling spree in the Indian equity segment. They were net sellers of equity for the second consecutive month. After selling $2.23 billion in August, the FPIs sold $1.75 billion last month. The debt segment also witnessed a slowdown in September. The FPIs had bought just $219 million last month after buying $3.2 billion on average in each of the previous six months. This has raised the possibility of the FPIs turning net sellers in the debt segment as well in the coming months. In that case, pressure might mount on the rupee and drag it further lower against the dollar in the coming weeks. The dollar index witnessed a strong rise in the past week. The index broke above the key resistance at 92.80 and hit a high of 93.66. After consolidating between 93 and 93.6 since then, the index seems to have regained momentum. There is a strong likelihood of the index rallying to 94 or even 94.5 in the coming days. Immediate support is at 93 and the next significant one is in the 92.8-92.7 zone. These supports are likely to limit the downside in the dollar index in the short term. The US GDP data release last week, which has increased the hopes of another rate hike in December, may support the dollar index to move higher in the coming days. The US grew at 3.1% in the second quarter.
Five housing finance companies dominate market, lend 78% of home loans: Icra (BS 29.09.17)
The housing finance market in India is fragmented, with 80-plus players. However, two large companies, HDFC and LIC, each has assets over Rs 1 lakh Cr, cornering 57%, according to rating agency Icra. The next batch, of three HFCs — DHFL, Indiabulls and PNB HFL — with a book size of Rs 15,000-50,000 Cr each — have a combined market share of 21%. Sector executives said though these five have a dominant share, the thrust on affordable housing finance will gradually change the scenario. A little more than 25 HFCs have been set up since 2015. The growth also comes with some risk, such as more laxity in underwriting standards in the midst of effort to expand books. The seasoning of affordable loans will throw up the challenge of slippages. Also, credit to developers (also known as developer loans) could be in default on account of consolidation and churn in real estate, due to regulatory reforms, they said. Further down the ladder, eight players with an asset base of Rs 5,000-15,000 Cr have a combined 12% share in the market. The prominent ones here include Gruh, HDFC’s subsidiary, Tata Capital Housing, Canfin Homes, India Infoline and ICICI Home. Rating agency data show those having a loan book below Rs 5,000 Cr hold a small share of 10% in all. The reported capital adequacy of HFCs remains comfortable, given the relatively lower risk weight for home loans.
MFIs might write off NPAs worth over Rs 4,100 cr in FY18 (BS 02.10.17)
Microfinance lenders in India might have to take a hit of more than Rs 4,100 Cr as they would have to write off about 70% of their non-performing assets (NPAs) in 2018. Rohit Inamdar, group head financial sector ratings, ICRA, said loans worth Rs 5,900 Cr were in the 90-day dues bucket. Based on the recovery trends from delinquent buckets, it was expected that more than 70% of the delinquent portfolio would be written off in FY18. Consequently, the likely credit costs — amount to be set aside for delinquent loans — for the industry was expected to be in the range of 5.5-8% for FY18, Inamdar said. The extent of impact will differ among microfinance institutions (MFIs) based on the share of their portfolio in impacted geographies, their client engagement, field discipline, collection frequency, technology systems, appraisal mechanisms and pro-activeness in curtailing operations in overheated areas. Increased disbursements in five months of 2017-18 have helped in expanding credit portfolio and reducing the zero-day past due delinquency percentage from a peak of 23.6% in February 2017 to 16.3% as on August 31, 2017. However, the 90-day delinquencies largely remained stable over the last three months, indicating that most of the clients were paying only one instalment at a time. Thus, delinquency percentage continued to be relatively sticky in the 90-day bucket at 10.9% as on August 31, 2017 (11.9% as on June 30, 2017). Over the medium term, MFIs would have to address the long-standing concerns in the sector, including accurate assessment of repayment capacity, maintaining client connect, overleveraging, multiple lending, ring-leaders and commission agents.
Govt asks PSUs to step up capex, dividends (BS 30.09.17)
The government nudged state-owned companies to spend an additional Rs 25,000 Cr as capital expenditure this fiscal year, above the budgeted combined capital spending target of Rs 3.85 lakh Cr for the Centre and public sector undertakings (PSUs). It also asked these companies to declare liberal dividend payments to the government. Additionally, the Centre said it would borrow Rs 2.08 lakh Cr during October 2017-March 2018. It had borrowed Rs 3.72 lakh Cr during April-September. While the full-year borrowing estimate of Rs 5.80 lakh Cr is being adhered to for now (net borrowing at Rs 4.25 lakh Cr), the borrowing programme will be re-assessed in December, based on spending needs, according to a senior finance ministry official. Net borrowing in the October-March period has been pegged at Rs 1.92 lakh Cr. These announcements come at a time when the Narendra Modi government looks to revive economic growth. There have been talks in the government regarding a possible stimulus package through higher capital spending to boost manufacturing and infrastructure and to create jobs. On Thursday, Finance Minister Arun Jaitley held a meeting with secretaries of various ministries and top executives of state-owned behemoths, including ONGC, BPCL, HPCL, NTPC, SAIL, CIL, and HAL. Later in the day, officials of the ministry and RBI met to finalise the borrowing calendar for the second half of 2017-18.
Lenders may Tap Other Big Players to Bail Out RCom (ET 01.10.17)
Banks will meet this week to explore the possibility of convincing other dominant industry players to step in to bail out Reliance Communications after its proposed merger with Aircel lapsed on Sunday, said bankers familiar with the development. With the standstill clause set to expire in December, bankers are worried that they may be forced to take the case to the National Company Law Tribunal for bankruptcy proceedings like the other 12 big cases. This will cause provisions to rise, hitting their bottom line. The RBI has been empowered to direct banks to take specific accounts to bankruptcy courts. “We also have to explore if there is any possibility to bring in another suitor or else the regulator may force us to take the IBC route,“ said another lender. “We will soon take a call on conversion of debt to equity in favour of lenders ... RBI gives us 210 days to do that.“ “It's too early to take a call on what we will do, lenders will meet soon and decide what has to be done now. RCom has said that they are exploring other options for deleveraging, let's see what they bring to the table,“ a lender said on the condition of anonymity. In June this year the joint lenders forum had invoked the strategic debt restructuring and allowed RCom a “standstill“ period, during which the company won't need to service loans nor will it accrue interest on bank borrowings. The banks can force a debt recast on December 31 and may even exercise their right to convert debt into equity.
Innoventive Debt Recast: Lenders Face Big Haircut (ET 29.09.17)
Lenders to Innoventive Industries, the first company that was taken to the bankruptcy court, will meet next week to decide on whether to restructure the company's 1,500 Cr debt by taking a steep haircut or liquidate its assets, as the time set to recast the loan ends mid-October. The company has given two proposals to lenders, said two senior bank officials. One is that the promoters, in partnership with an investor, will infuse 180 Cr provided banks are willing to give them an easy repayment schedule and forgo about 75% of their claim. The second proposal is a onetime settlement of the loan, which will involve a haircut of 88% for the lenders, they said. “The promoters had initially offered to infuse 150 Cr and later raised the offer to 180 Cr which will be in partnership with other investors. This appears to be a better option as compared to liquidation,“ one of the bank officials said. The liquidation value of the company is estimated at 132 Cr, he said. As per the offer, lenders will also have a 10% stake in the company.
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