How strong is the evidence against Mallya? (BL 28.09.17)
The CBI and the Enforcement Directorate will need a watertight case to prove their recent claim that former liquor baron Vijay Mallya’s companies did divert a large part of the Rs. 6,000 Cr he received from lenders for his Kingfisher Airlines. Else, any chance of extradition will go up in smoke. Early this week, there were reports that both the agencies are preparing a chargesheet alleging Mallya and his companies laundered a major part of the Rs. 6,000-Cr bank loans taken for Kingfisher Airlines. The money apparently was diverted to several shell companies in seven countries, including the US, the UK, France and Ireland. “It all depends on whether the agencies are able to establish the money laundering trail. Everything depends on the evidence they can come up with,” Ramesh Vaidyanathan, Managing Partner of Mumbai-based Advaya Legal said. The agencies should be able to show funds in a particular bank account overseas, that the money was actually diverted to that bank account from a bank here, and that funds intended for the airline were actually diverted for other purposes, he added. This will involve a lot of work, documentation which should result in watertight evidence. “Only then a money laundering case can be established, which will be a serious offence both for local laws and for the purpose of extradition,” he said. A former top official in the UB Group said the CBI and the ED have left the exact amount laundered rather vague. “They have said it was most of the amount and not the entire amount. This can be interpreted in several ways,” he pointed out. He further said there is a possibility that a large part of the amount of a single vendor could have been laundered.
Nod for pacts by Exim Bank under BRICS mechanism (BL 28.09.17)
Exim Bank can now enter into bilateral agreement for co-financing with large developmental institutions to ensure lending in single currency. This follows a decision by the Union Cabinet giving its approval to the signing of the Interbank Local Currency Credit Line Agreement and Cooperation Memorandum Relating to Credit Ratings by Exim Bank with participating member banks under BRICS Interbank Cooperation Mechanism. The move follows expiry of an initial Master Agreement in March. The agreement was on extending credit facility in local currency under the BRICS Interbank Cooperation Mechanism. It is understood that some of the member banks (like CDB and VEB; CDB and BNDES) have entered into bilateral agreements for local currency financing under the Master Agreement signed in 2012. Although the current conditions are not conducive to usage, it was useful to keep the same alive as an enabling feature in case a suitable opportunity materialises in future. As both the agreement and the MoU are umbrella pacts, and are non-binding in nature, the Board of Directors of Exim Bank have been authorised to negotiate and conclude any individual contracts and commitments within their framework, it added. The agreements will promote multilateral interaction within the area of mutual interest which will deepen political and economic relations with BRICS nations.
Syndicate Bank cuts savings account interest rate by 0.5% (BS 28.09.17)
Syndicate Bank has cut savings account interest rate by 0.50% to 3.50% for deposits up to Rs 25 lakh. "The bank has revised rate of interest on savings bank deposits with effect from October 10 to 3.50% from 4% existing rate," the bank said in a regulatory filing. For the deposits above Rs 25 lakh, the interest rate is unchanged at 4%. With this, Syndicate Bank has joined over two-dozen banks, both from public and private sector, who have cut interest rate on deposits in various quantum.
Andhra Bank cuts base rate by 0.15% to 9.55% from Oct 1 (BS 28.09.17)
Andhra Bank said it has cut the base rate by 0.15% to 9.55% from October 1. "The base rate of the bank has been revised from 9.70% to 9.55% with effect from October 1, 2017," the bank said in a regulatory filing. Base rate is the minimum rate below which a bank cannot lend. The benchmark prime lending lending rate (BMPLR) has been kept unchanged at 13.95%. Benchmark prime lending rate is based on the credit worthiness of bank customers.
Lakshmi Vilas Bank gets board nod to raise Rs 800 cr via rights issue (BS 28.09.17)
Lakshmi Vilas Bank (LVB) is planning to raise funds through rights issue. The bank's Board of Directors' approved the financial entity's proposal to raise funds by way of issue of equity shares on rights basis to existing shareholders of the LVB for an amount of up to Rs 800 Cr. The Board has authorised the Capital Raising Committee to determine the terms and conditions of the rights issue, including the rights entitlement ratio, the issue price, issue size, record date, timing of the issue and other related matters- all of which shall be decided in consultation with the lead manager of the rights issue. The bank is moving away from large corporates and has decided to grow its SME and retail portfolios, where a stronger focus will be lent to gold loans, home loans and SME credit, among others. At present, the corporate portfolio accounts for around 51% and the bank wanted to bring it down to 47-48% by the end of the current financial year. Lakshmi Vilas Bank has surpassed the Rs 50,000-Cr business mark and has set a target to double it in next three years.
Air India partners PNB, IndusInd for Rs 3,000 cr loan (BL, BS 28.09.17)
Air India has tied up with public sector lender Punjab National Bank and private lender IndusInd to secure loans to the tune of over Rs 3,000 Cr for meeting working capital requirements. The airline expects the two banks to disburse the amount by next week, a source close to the development said. Earlier this month, the disinvestment-bound Air India had floated tenders for availing government guarantee backed INR short-term loans totalling up to Rs 3,250 Cr in the first phase to meet its urgent working capital. Banks were asked to submit their financial bids by September 19, indicating the amount of government-guaranteed short-term loans they were willing to offer. "Punjab National Bank and IndusInd bank have won the mandate to lend us loans worth Rs 3,250 Cr. They are expected to disburse the amount next week,".
Non-food bank credit grows 7.52% (FE 28.09.17)
Non-food bank credit grew 7.52% year-on-year (y-o-y) during the fortnight ended September 15 with the outstanding loans to companies and individuals rising to Rs 77.27 lakh Cr from Rs 71.86 lakh Cr in the same fortnight last year. Aggregate deposits with the banking system grew 9.95% on a year-on-year basis to Rs 107.07 lakh Cr. However, compared to two fortnights ago it reduced from the Rs 107.47 lakh Cr. The net corporate bonds outstanding of Rs 24.81 lakh Cr at the end of June was up 20% from Rs 20.63 lakh Cr in June 2016, as per data released by the Securities and Exchange Board of India. Data released by the RBI showed that the net outstanding on commercial papers (CPs) stood at Rs 3.69 lakh Cr as of August 31, down from Rs 3.88 lakh Cr in the same period last year. Loan offtake was subdued in recent quarters in an environment of muted private sector investment. In addition, increased levels of disintermediation have also hurt demand for bank credit.
Performing PSU Banks Likely to Get Capital Push (ET 28.09.17)
The government plans to give “growth capital” to performing state-run banks as it looks to encourage credit disbursement for private investment. An assessment is being carried out and adequate capital will be provided to performing state-run banks to push credit growth, a senior finance ministry official said. “Banks have said they are aiming to achieve around 8% increase in their lending books, based on their size and operations,” said the official, who did not wish to be identified. While the government has only budgeted 20,000 Cr for bank capital infusion till 2018-19, it is looking at all options to increase this amount. “Various options including capital bonds are being looked at to provide this extra support,” the official said. According to the latest RBI data, gross lending by all commercial banks stood at more than 69.45 lakh Cr in July 2017, a growth of just 4.7% over the previous year. Last week, finance minister Arun Jaitley had said at the 70thannual general meeting of Indian Banks' Association that improving the lending capacity of banks and encouraging private sector investments are the two biggest challenges confronting India. “We are looking at both consolidation and strengthening,” Jaitley had said, adding the government would rather have strong banks merging with strong banks than weak banks merging with weak banks. A finance ministry official said that non-performing lenders will be further pushed to consolidate their business, increase recoveries and finally look for merger with other banks. The government has sought details from banks on their non-core assets and the other steps that they are taking to raise capital from the markets.
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Nomura warns against stimulus, blames fiscal stress on higher spending (BL 28.09.17)
Amid reports of a fiscal stimulus to boost the sagging economy, a foreign brokerage has warned the present macro problems are due to higher spending and not lack of it and also not due to low revenue receipts and hence a pump priming maybe counterproductive this time around. “The fiscal stress is more a result of excess spending thus far, which has not left much room for spending in the remaining months: it can rise only 1.5% y-o-y in August-March versus 23.1% in April—July to meet the FY18 budgeted spending target. “Therefore, a fiscal stimulus may not be so much to boost growth as to prevent a bigger drag,” Nomura India chief economist Sonal Verma has said in a report. Noting that the current fiscal trends suggest spending is to blame, not revenue, she said revenue collection for April-July was only 2.1% below the historical run-rate, but better than in recent years. “We expect some revenue shortfall on telecom receipts, disinvestment and dividends, but the buoyancy in direct tax collections suggests the overall revenue miss should not be large. Despite teething issues, GST should lead to higher revenues as it has been inflationary,” she said. Expenditures, on the other hand, are off the charts, with the Central Government spending 7.5% above the historical run-rate, the report said. The government has spent 37.7% of its budgeted target, even exceeding the 2008/09 run-rate (the year of stimulus), to offset the impact of note ban and GST, said the brokerage.
FinMin, RBI meet likely to finalise borrowing calendar for second half (BL 28.09.17)
Amidst calls for a booster shot to the economy, the Finance Ministry and the RBI are expected to meet on Thursday to finalise the Centre’s borrowing calendar for the second half of the financial year. The Centre has a gross borrowing space of Rs. 2.08 lakh Cr for the six month period between October 2017 and March 2018. It has already raised Rs. 3.72 lakh Cr or 64% of its annual gross borrowing target in the first half of the fiscal. The Budget had pegged the Centre’s gross borrowing target at Rs. 5.8 lakh Cr and net borrowings at Rs. 4.25 lakh Cr. Buybacks of Rs. 75,000 Cr are also planned in the current fiscal. But, despite expectations of more borrowing to fund a stimulus package, the Finance Ministry is expected to stick to its borrowing plan in order to meet the fiscal deficit target of 3.2% of the GDP. “Instead of additional expenditure, it is necessary that Departments and Ministries focus on fully utilising the already allocated funds,” noted a senior official. Analysts also point that the limited fiscal space is a challenge. “The availability of fiscal space with the government is questionable,” said Devendra Pant, Chief Economist, India Ratings, adding that a shortfall in revenue is expected due to lower dividend payment from the RBI and also less-than-expected proceeds from disinvestment and telecom. The Finance Ministry is instead hoping for a further reduction in policy rates to help boost domestic demand and spur growth as various forecasts show that growth may be lower than anticipated this fiscal.
Direct tax receipts may be a spoiler for fiscal maths (BS 28.09.17)
Growth in advance tax collections slowed to 11% in the first half of the financial year, against 14% a year ago, posing a challenge to the government’s tax collection target for the year. This may, in turn, disturb the fiscal maths in these difficult times when the economy is in need of additional expenditure. Fiscal consolidation is facing challenges from the non-tax revenue side due to lower than expected receipts from spectrum. Besides, the income declaration scheme is likely to yield only Rs 7,000-8,000 Cr in its third instalment, due by September 30, against Rs 15,000 Cr in the first two. Up to 50% of the taxes and penalties were to be paid in the third instalment, but assessees paid more in the first two instalments. Within advance taxes, growth in corporation tax collections also fell, reflecting that India Inc is yet to come out of the woods. Pulled down by the slowing economy, goods and services tax (GST) implementation, banking sector woes, and muted demand, advance corporation tax revenues grew by 7.5%, compared to well over 8% in the corresponding period last year. Growth in personal income advance tax was also lower at 35%, against more than 40% in the second half of the last year.
India likely to be $6 trillion economy in 10 years: Morgan Stanley (FE 28.09.17)
India is expected to be a $6 trillion economy — the third largest in the world — in the next 10 years, majorly helped by digitisation, says a report. According to global brokerage Morgan Stanley, India’s digitisation drive would provide a boost of 50-75 basis points to GDP growth in the coming decade. “We estimate that digitisation will provide a boost of 50-75 basis points to GDP growth and forecast that India will grow to $6 trillion economy and achieve upper-middle income status by by 2026-27,” Morgan Stanley head India research and India equity strategist Ridham Desai said. “We expect India’s real and nominal GDP growth to compound annually by 7.1% and 11.2% respectively over the coming decade,” he added. Citing the report ‘India’s digital leap – The multi-trillion dollar opportunity’ released today, Desai said apart from some short term teething problems including implementation of GST, there is scope for visible shifts in economic activity starting in 2018 which would eventually lead India to be the top five equity markets in the world with a market capitalization of $6.1 trillion and the third-largest listed financial services sector around the globe with a market cap of $1.8 trillion by 2027. India’s consumer sectors is also likely to add about $1.5 trillion over the next ten years. “We project gross FDI inflows amounting to $120 billion by FY’27, almost double the current 12-month trailing run rate of $64 billion,” Desai said.
Economic downturn has bottomed out, expect growth in 2 quarters: NITI Aayog (BL, BS 28.09.17)
Niti Aayog Vice Chairman Rajiv Kumar said the economic downturn which began in the last two years of UPA II regime has bottomed out and the growth will improve in the next two-quarters. Kumar also admitted that there have been problems on account of demonetisation and Goods and Services Tax (GST) implementation but now people have adopted to the new tax regime. "...this downward cycle of economic growth began in the last two years of the UPA II government and that downward cycle in my view has bottomed out. "We will be achieving higher growth in the next two quarters, and I think 2018-19 will be much better than the current year (in terms of economic growth)," he said. India's economic growth has slipped to a three-year low of 5.7% in the first quarter of the current fiscal. The Niti Aayog vice chairman also pointed out that in manufacturing and services PMI, the lowest point reached in July and therefrom it has started rising. Kumar noted that historically countries which have adopted GST have all seen some decline in the growth rate because the system struggles to come to new norm. "This formalisation of economy is going to take some cost," he observed.
RBI may opt for status quo in next policy: SBI report (BL, BS, FE 28.09.17)
The Reserve Bank is likely to maintain status quo on key lending rate in its October 4 policy decision as it is “stuck in a conundrum” of low growth, mild inflation and global uncertainties, a SBI report said. The Monetary Policy Committee of the Reserve Bank reduced the key interest rate (repo) by 25 basis points to 6% in August. The committee is scheduled to come out with next bi—monthly monetary policy decision on October 4. With country’s growth falling to a 3-year low of 5.7% in the April-June quarter of 2017-18, the industry is demanding further cut in the repo rate. “On the eve of the forthcoming monetary and credit policy, the central bank is stuck in a conundrum of low growth, mild inflation, saving financialisation and external uncertainties. This will make the job difficult for the RBI on October 4,” the SBI Ecowrap in the report titled ‘RBI caught in a bind: Expect status quo on October 4, 2017’ It said that against the background of flexible inflation targeting, the obvious question that arises is choosing between — the move towards the 4% inflation target swiftly or staying in the inflation band. “In hindsight if the central bank move towards the 4% target in January 2018 as was suggested earlier, there would be limited room for rate cut in forthcoming policies,” it said, adding “for the record, we expect a status quo in the October policy“. Retail inflation was 3.36% in August and wholesale inflation was 3.24%. The report said there are other challenges too, like an uncertain global environment and weak growth. “In particular, the external environment looks a little bit wobbly compared to what it was at the beginning of 2017,” it said.
PM Narendra Modi for increased use of RuPay debit cards (FE 28.09.17)
Prime Minister Narendra Modi asked the Secretary, Financial Services, to look at ways to increase the use of RuPay debit cards that have been issued to Jan Dhan account holders. He gave the directive while reviewing the progress towards handling and resolution of grievances related to the banking sector, according to a PMO statement. Modi was chairing a meeting of Pro-Active Governance and Timely Implementation (PRAGATI), a monthly exercise of interaction with top officials of the states via video conference. He was briefed on the relief that has been received by the Jan Dhan account holders, as part of the insurance provisions that are linked to these accounts, the statement added. The prime minister also called for sustained efforts to boost digital payments and work towards a less cash society, it added.
Piramal Housing eyeing Rs. 15,000-cr AUM by 2020 (BL 28.09.17)
Piramal Housing Finance, the newly-floated wholly-owned subsidiary of Piramal Enterprises, is eyeing assets under management of Rs. 15,000 Cr by 2020. The housing finance company, which received a licence from the National Housing Bank on September 4, has already disbursed Rs. 200 Cr in three weeks, said Ajay Piramal, Chairman, Piramal Enterprises. “We have close relationship with 100 plus developers and they have been persuading us in the last few years that since you are funding so much of real estate, you ought to be also funding housing loans. “Housing finance is not a B2C business. Basically, it is a B (lender) 2 B (developer) 2 C (customer) business,” explained Piramal. Piramal elaborated that his company will lend across the value spectrum, from affordable to high-end housing, and fund not only the salaried class but also the self-employed.
Sensex, rupee slump on wave of grim economic news (BL, FE 28.09.17)
A clutch of bad news for the Indian economy, combined with a flare-up of tension on the Indo-Myanmar border, and the prospect of another interest rate hike by the US Federal Reserve, collectively dragged key stock indices down for the seventh straight session and the rupee to a six-month low on Wednesday. Opening weakly owing to relentless selling of Indian equity by foreign institutions and indications of a further rate hike by the US Fed later this year, the market nosedived in the second half of the trading day after the government announced that the army had carried out operations against Naga militants across the Myanmar border. Former Finance Minister and BJP leader Yashwant Sinha’s searing criticism of the Modi government’s management of the economy, particularly the demonetisation exercise and the implementation of the Goods and Services Tax (GST) framed a day of dismal discourse about the economy. Adding to the doom-and-gloom outlook, India Ratings and Research agency lowered its GDP growth estimates for 2017-18 to 6.7% from the earlier 7.4%. It reasoned that the combined effect of demonetisation and introduction of GST “is proving to be more disruptive for the economy than was expected earlier.” The benchmark BSE Sensex lost 440 points on Wednesday to close at 31,159.81, while the Nifty lost 1.38% to finish the session at 9,735.75. The Bank Nifty lost 1.6% to close at 23,812.95. All the sectoral indices on the NSE closed in the red, with pharma, PSU banks and metal stocks losing the most. On the BSE, the broader indices registered bigger losses, with the BSE 100 losing 1.45% while the BSE Midcap index closed down nearly 2%. Foreign institutions have sold close to $777 million of net equity this month, as they seek safer havens in home markets amid rising geopolitical tensions between the US and North Korea.
IDFC-Shriram merger unlikely by early October (BS 28.09.17)
The chances of a definite deal emerging from the merger talks between the IDFC and Shriram group by early October appear dim, as the 90-day window for negotiations draws to a close. Without committing on the outcome of the talks, Ajay Piramal, chairman of Shriram Capital and Primal Enterprises, said: “We will explore ways to see if the merger works out on the basis of what the RBI approves and what the valuations are. We are still looking into it." On July 8, IDFC and the Chennai-based Shriram group had entered into a 90-day merger talk. Under the tentative arrangement, IDFC would be the holding company of the merged entity. Shriram Capital’s retail lending arm Shriram City Union Finance would be merged with IDFC Bank, while the Shriram Transport Finance would be a fully-owned subsidiary of IDFC. IDFC would own 75% of the life and general insurance arm of Shriram Capital. As per the proposed deal, the mutual fund arm of IDFC would be integrated with Shriram Asset Management, following which the entity would get listed.
Sensex can cross 100,000 mark in just 10 years: Morgan Stanley (BS 28.09.17)
The government thrust on digitisation could result in a threefold increase in India’s gross domestic product (GDP) and equity market capitalisation in the next 10 years, said Morgan Stanley. “India’s digitisation drive has raised our confidence in long-term growth estimates. We forecast GDP to reach $6 trillion, equity market capitalisation to rise to $6.1 trillion and the market value of financials and consumer sectors to hit $1.8 trillion and $2 trillion, respectively, by 2027,” said the brokerage. "We see the BSE Sensex crossing the 100,000 mark, albeit the bulk of the returns are likely to be front ended in the coming five years," Morgan Stanley added. Ridham Desai, MD, Morgan Stanley India, said, “Around 90% of the market gains could happen in the next five years itself.” The technological leap for India has come through reforms such as Aadhaar, an initiative to biometrically identify all citizens; Jan Dhan, a scheme aimed at providing bank accounts to every household; and the goods and services tax (GST), a unified and digital indirect tax. “These reforms have digitised India and brought the country to an inflexion point in terms of growth, with a concomitant impact on stock returns, financial sector dynamics, consumption growth, and e-commerce activity,” said Morgan Stanley.
NBFC delinquencies to swell from current levels: Icra (BS 28.09.17)
Non-banking Finance Companies (NBFCs - excluding NBFC-MFIs) are likely to witness an increase in the 90+ day delinquencies, by about 20-50 bps, from the levels of about 4.9% as on June 30, 2017. While some key asset classes like loan against property (LAP) would register an increase in delinquencies, others like tractors and construction equipment are likely to see some reduction from their peaks. Commercial vehicles (CVs), passenger vehicles (PVs), gold etc are likely to register moderate increase or would remain range-bound, depending on the extent of improvement in demand and operating conditions. "The GST implementation is likely to have a transitional impact on small businesses and self-employed borrowers, the key target segments of NBFCs. Demonetisation hangover coupled with the slowdown in business on account of GST during Q1 FY2018 weighed on the growth prospects. Credit growth is expected to remain moderate in Q2 FY2018 too but is expected to pick up in H2 FY2018 as the tax regime slowly stabilises. We expect overall credit growth of about 16-18% for FY2018 for retail NBFCs," said senior vice president and group head, Financial Sector Ratings, ICRA Limited, Rohit Inamdar. As on June 30, 2017, the total managed retail credit of NBFCs stood at ~Rs. 6.4 trillion (up from Rs 6.3 trillion in March 2017) and grew by about 15% over June 30, 2016 (as against ~16% in FY2017 and ~21% in FY2016). The microfinance and the LAP segment continued to record moderate growth compared to historical trends, while performance of most of other asset segments (CVs, PVs, two and three-wheelers and tractors) remained largely range-bound.
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GVK upbeat as debt gets pruned, projects take off (BL 28.09.17)
After several quarters of posting losses and headwinds, both regulatory and external, GVK Power & Infrastructure Ltd sees the company business turning around with some of the key developments driving the change. These include fuel linkage for the stranded coal-fired Goindwal Sahib thermal power plant for 24 years, refinance of the Rs. 9,000-Cr debt of Mumbai International Airport Ltd (MIAL) and divestment of a stake in Bangalore International Airport Ltd (BIAL), all enabling the company to prune its debt. The company, which had earlier sold a gas-based power plant in Andhra Pradesh, is also looking at divesting another gas plant, also to Andhra Pradesh Power Generation Corporation. GVK Reddy, Founder Chairman of GVK, said: “Our focus in the recent times has been to strengthen the balancesheet, bring down debt and focus on consolidation. This has begun to yield positive results. “The divestment of a 43% stake in BIAL to Fairfax and the gas plant has helped us bring down debt significantly.”
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