The Reserve Bank of India (RBI) is expected to cut its key repo rate to a four-year low on Tuesday (29 September) to help support the domestic economy at a time when consumer inflation is at a record low, but may express caution about easing further as price risks still loom. A Reuters poll last week showed 45 of 51 economists expect the RBI to cut the repo rate by 25 basis points to 7 per cent, its lowest since May 2011. The RBI has already eased the policy rate by 75 bps so far this year. But another rate cut may depend on how food prices impact consumer inflation starting in September, given India could be facing its driest year since 2009 as monsoon rains have fallen below their long-term average. A favourable base effect seen in the previous two months is also expected to wane. The RBI is also likely to err on the side of caution as US interest rates are expected to rise by the end of this year for the first time since 2006, potentially putting pressure on emerging market currencies, including the rupee. RBI Governor Raghuram Rajan is expected to express that cautiousness as he looks to manage expectations, and counterbalance the calls for aggressive easing from government officials and corporate executives. "I expect the RBI to cut the repo rate and sound a cautionary tone on the deficient monsoon's impact on food prices and the Fed," Soumya Kanti Ghosh, chief economic adviser at State Bank of India, said. Expectations for a rate cut surged after the release of data showing consumer inflation at a record low of 3.66 per cent in August. Inflation looks set to undershoot the government's projection of 6 per cent inflation by January 2016. The economy expanded at a slower-than-expected annualised rate of 7 per cent in the April-June quarter. That is faster than China, but well below the government's target of 8 to 8.5 per cent for the year ending in March. The stuttering recovery in the growth rate lies behind the calls for the central bank to lower interest rates, but the RBI is worried about the potential for inflation to flare up again. Rajan this month pointed out that without a favourable base effect, August inflation would have been around "mid five per cent." Looking ahead, analysts expect Rajan to set a new target to bring consumer inflation down to 5 per cent by January 2017, as part of his longer-term objective to keep inflation at around 4 per cent.(Reuters)
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The Reserve Bank of India (RBI) said on Thursday (24 September) it would allow banks to convert the status of their "stressed" loans to a company into "standard" ones if the entity is sold to a new major stakeholder, although certain conditions would apply. The change is important, given that in India a loan deemed as "stressed" must follow strict recovery rules, while "standard" ones offer much more flexibility in how companies repay their debt. Among the conditions that must be met, the RBI said the new so-called promoter, or major stakeholder, must buy at least 51 per cent of the paid-up equity capital of the company. The new promoter can also not have any ties to the existing stakeholder. India's banking sector, dominated by more than two-dozen state-run lenders, has been hobbled by its highest bad-loan ratio in a decade as slower economic expansion hurt companies' abilities to service debt.(Reuters)
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Citibank India on Thursday (24 September) has launched a new retail banking platform, Citi Priority, to service the growing base of the aspirational and financially progressive consumers in the country.Citi Priority offers a digital, convenient, simple and efficient banking experience to customers and is backed by a dedicated relationship manager. India is the fifth country in Asia to offer Citi PriorityKartik Kaushik, Country Business Manager, Global Consumer Bank, Citibank India., said, “The sweeping trends of urbanization, digitization and globalization are leading to an expansion of a new economy, consisting of India’s thriving start-up base and growing e-commerce industry. As this emerging base of wealth grows, the customer demands better control over their finances and time, in order to achieve their future goals. Global travel and lifestyle are also important to this emerging wealth builder and Citi Priority addresses these demands".“We will continue to redefine our market propositions based on the emerging market trends and changing demands of our customers,” Mr. Kaushik added.Citi Priority is designed for customers who maintain a relationship value of a minimum Rs 1.5 million with Citibank. In addition to world-class wealth management services with a unique online Financial Planning Tool and Model Portfolio, clients receive a Citi Priority World Debit Card with MasterCard that offers exclusive global rewards and privileges. Clients also receive the Citibank PremierMiles credit card, India's most valued travel credit card that earns and burns miles across 100 airlines, will be serviced through the Priority Citiphone Hotline with 24/7 access and receive preferential pricing on Citibank products A host of Citi Priority Privileges are available with the Citi Priority World Debit Card, including an additional 10 percent discount on Groupon and offers at various e-retailers, 15 per cent discount on meet and greet assist at airports worldwide, complimentary lounge access at major airport lounges in India and complimentary golf lessons at leading golf courses in the country(BW Online Bureau)
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The Centre and Mint Road wants to ensure that India Inc is not starved of funds – who know what happens after a Fed Rate hike. Raghu Mohan explainsIn a bid to widen the pool of capital sources for India Inc to drink from, the Reserve Bank of India (RBI) is to weigh the option to allow firms to borrow from global long-term fund dispensers. In its draft framework for external commercial borrowings (ECBs), Mint Road said India Inc can tap pension funds, sovereign wealth funds (SWFs) and insurance funds as part of a revised ECB policy which is on the anvil. The draft paper (which has been placed for feedback till October 1) on ECBs also proposes to lower the all-in cost borrowing by 0.50 per cent (50 basis points) to ensure funds borrowed from abroad are at a reasonable interest rate. Raghu MohanIn effect what it means is that India Inc (to the extent it can borrow liberally from SWFs and pension funds) will able to hook into long-term sources of capital. It is worth to recall here what RBI deputy governor S S Mundra, explained at a summit on ‘Financing India’s Growth - Way forward’ in New Delhi on 9th September 2015. He pointed out that traditionally, like other emerging markets, Indian economy has been bank-dominated. So whether it is for project development, or working capital needs of corporates, banks have been the primary source of credit. Though primarily banks are supposed to undertake maturity and liquidity transformations, there are limitations on the extent of asset-liability mismatches they can run on their books. In simple terms what it means is that banks raise short-term deposits between one and three-year’s maturity; and they can’t be expected to finance long-gestation projects (like say in in infrastructure) of 15 years or more. The large scale distress being witnessed in banks’ infrastructure portfolio also raises issues about their ability to critically appraise such projects. The typical role for the banks in mature markets is to originate loans and then distribute to other willing players in the market. They predominantly undertake working capital finance and provide structured financial solutions to their clients. They also act as market makers for various financial sector products. “With the gradual widening and deepening of our financial markets, it would be fair to expect our banks to also gradually shift their focus to SME and retail clients while leaving the long-term resource contribution to other players including pension funds and insurance companies which have long-duration liabilities on their balance sheets”, said Mundra. The urgency shown by (to the extent the feedback deadline is 1 October) shows that the Centre and Mint Road wants to ensure that India Inc is not starved of funds – who know what happens after a Fed Rate hike. Moreover, many a state-run bank is no position to lend too given the precarious nature of their books and pressure on capital ahead of Basel-III capital norms which kick in from fiscal 2019. It’s not a surprise that on Wednesday, Union Economic Affairs Secretary Shaktikanta Das said that “we cannot have the luxury of giving two months’ time for discussion because enough has been said and enough has been heard. Now, the time has come to decide and move forward”. He was speaking at the ‘Global Investors India Forum’ organised by Assocham. Mint Road said that the proposed guidelines are aimed at replacing the ECB policy with “a more rational and liberal framework, keeping in view the evolving domestic as well as global macroeconomic and financial conditions, challenges faced in external sector management and the experience gained so far”. The basic thrust of the revised framework, RBI said, is to retain more qualitative parameters for the normal (foreign currency denominated) ECBs and to provide more liberal dispensation for long-term borrowings in foreign currency. What’s On The AnvilBasic Structure: Retention of the existing basic structure of ECB framework for normal foreign currency borrowings with certain liberalisations made based on experience. The restrictions on eligible borrowers, end-use (capital expenditure), maturity (not less than three to five years) and all-in-cost (linked to a spread over Libor) for such ECBs will continue. Lenders/investors: Expansion of the list of recognised lenders to include entities having long term interest in India. Overseas regulated financial entities, pension funds, insurance funds, sovereign wealth funds and similar other long term investors are included in the list of recognised lenders for long-term funding into India. Long-term foreign currency borrowing: Prescription of only a negative list of end uses for long-term foreign currency borrowings (minimum maturity of 10 years). Rupee denominated borrowings: Prescription of more liberal stipulation for rupee-denominated ECBs with only minimum maturity stipulations. The borrowing can be accessed for all purposes save a small negative list.
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Asset reconstruction companies (ARCs) are going to play a limited role in absorbing the non-performing assets (NPAs) of banks due to capital constraints and rising acquisition costs, says India Ratings and Research (Ind-Ra). Capital is constrained due to higher investment requirements in security receipts for ARCs and shareholding ceiling for sponsors at below 50 per cent. ARCs are now tapping debt markets to raise funds, which is a shift to leverage from the near zero debt model earlier. Also, interest coverage may be a concern due to the lack of predictability in ARCs’ cash flows. ARCs play a crucial role in the financial sector and help banks clean up stress loans, which is the need of the hour. The Reserve Bank of India is clear that the forbearance regime has ended and the central bank is unlikely to provide any further relaxation to banks on the classification of restructured assets. Banks are turning to ARCs but capital remains a key challenge for the industry. Banks’ stressed loans (NPAs+restructured) as of March 2015 stood at 11.1 per cent of the outstanding credit of INR65.25trn, while all ARCs put together have a capital base of mere Rs 4000 crore. ARCs at best have the ability to purchase NPAs worth around Rs 1.2 trillion which is a mere 17 per cent of the total stressed assets in the system. Acquisition cost has also been rising due to the shift of stressed assets into new NPAs where recovery is likely to be higher than for earlier seasoned NPAs. Acquisition cost has now gone up to around 60 per cent from 40 per cent earlier. Acquisition cost has risen given bankers are now selling stressed loans at an early stage post changes in regulations. Also, earlier banks would offer NPAs which were more seasoned, while of late they have resorted to offer even fresh NPAs. This shift has pushed up acquisition cost and led to bankers asking for higher amounts due to a higher probability of recovery. Investment requirement by ARCs of the total security receipts issued increased to 15 per cent with effect from August 2014 from 5 per cent earlier. This has limited ARCs’ potential of buying large NPAs as capital remains a constraint. However, this guideline has also helped ARCs to refrain from aggressive bidding, bringing in the discipline needed in the industry. Banks are looking to clean up their books but are unwilling to sell NPAs at a significant discount. Headline stress loans on balance sheet are thus unlikely to decline. Credit costs will also remain elevated due to amortisation charges arising out of the losses on sale. Asset Reconstruction Company (India) Limited (ARCIL) (‘IND A+’/Stable) has been active in buying bad loans for over a decade, while a majority of new ARCs have been growing at a fast pace in recent times. The key players in the market are Edelweiss Asset Reconstruction Company Limited, ARCIL, JM Financial Asset Reconstruction Company Private Limited, Phoenix ARC Private Limited (‘IND A+’/Stable) and Reliance Asset Reconstruction Company Limited (‘IND A+’/Stable). Public sector banks are more aggressive in cleaning up their books than their private counterparts. The 10 largest public sector banks sold 6,040 accounts to ARCs in FY15 with a book value of Rs 1,11,400 crore, up 64 per cent yoy. The top five private banks have sold a much smaller quantity of assets, with 1,100 accounts sold to ARCs in FY15 with a book value of Rs 11,100 crore, little over double the amount sold in the previous year. In the last five years, there has been a 5x jump in the number of issues and their sizes which shows the high appetite for such products.
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Lloyd Blankfein, the chairman and chief executive officer of Goldman Sachs Group Inc, said on Tuesday he had a "highly curable" form of cancer and would be able to work mostly as normal during treatment. The veteran Wall Street boss, who steered the U.S. investment bank through the financial crisis, told employees and shareholders he would undergo chemotherapy for lymphoma over the next several months in New York. The bank's shares finished down 1.98 percent at $179.72 a share on the New York Stock Exchange, underperforming a weaker wider market, as the announcement put Goldman's succession plans under the spotlight. While Blankfein, 61, is undergoing treatment, other senior bank officials, including his top deputy, Chief Operating Officer Gary Cohn, will assume some of his responsibilities in dealing with the public, a person familiar with the matter said. Cohn, who is seen as the most likely successor to Blankfein if he left his post in the near future, replaced his boss at the last minute at a public discussion in New York on Monday night. The company has a number of long-serving senior executives, including Vice Chairman Michael Sherwood, investment banking co-head David Solomon, Chief Financial Officer Harvey Schwartz and Chief Strategy Officer Stephen Scherr, who investors said offered stability. "The culture of the firm transcends one person," said Mike Donnelly, senior vice president and portfolio manager at CS McKee, which manages $10.5 billion in assets and owns Goldman shares. "Obviously, Blankfein has done a great job and embodies the culture, but in terms of this changing the investment thesis given the valuation, no, absolutely not." In a statement, Blankfein said he underwent tests after not feeling well over several weeks in late summer. He did not disclose the type of lymphoma, a cancer that affects the immune system, or how advanced it is. He received a final diagnosis on Monday around midday, and informed Goldman's board of directors around 4 p.m. EDT (2000 GMT), the source said. Chemotherapy TreatmentLymphoma is a cancer that begins in the lymphatic system, which is a part of the immune system that carries away waste and transports white-blood cells that attack disease. It can occur as Hodgkin lymphoma; 86 out of 100 people diagnosed with it live for five years or more. For non-Hodgkin lymphoma, 70 out of 100 people will survive for five years or more. Dr. Len Lichtenfeld, an oncologist who is deputy chief medical officer of the American Cancer Society, said chemotherapy is the main treatment for both Hodgkin and non-Hodgkin disease. Individuals in their 60s and 70s are more likely to have the more common and harder-to-treat non-Hodgkin variety of the blood cancer, which affects the body's infection-fighting white blood cells, he said. Depending on where enlarged lymph nodes are found, and their size, he said, doctors may use radiation as well as chemotherapy. There are no specific rules on how publicly listed companies inform investors about a senior executive's health. But investors expect to be informed. "You don't want day-to-day health bulletins, but you do want to know if the prognosis changes," said Chris Niemczewski, managing principal at Marshfield Associates in Washington, which has $2 billion under management and is a Goldman shareholder. "You want to know if it stops being a risk." Blankfein's disclosure comes a little more than a year after JPMorgan Chase & Co CEO Jamie Dimon said he had throat cancer. Dimon continued to lead the bank during treatment, which finished last autumn. Dimon wished his rival a fast recovery on Tuesday, and Blankfein told staff he was confident he would be cured. "There are many people who are dealing with cancer every day," Blankfein said. "I draw on their experiences as I begin my own. I have a lot of energy and I'm anxious to begin the treatment." Blankfein has led what is viewed as the most powerful U.S. investment bank since 2006, and bank executives say he has never hinted at when he might retire or his plans after Goldman. The New Yorker is credited with helping to keep the company afloat during the financial crisis with an early decision to rein in exposure to risky mortgage-backed securities and a successful appeal to Warren Buffett to invest in Goldman during the chaotic days after Lehman Brothers went bust. Goldman's role in the U.S. housing bubble and the billions of dollars paid out in bonuses to its top staffers have made the firm a magnet for popular anger about Wall Street. Rolling Stone magazine once referred to the firm as the "vampire squid" of finance. Blankfein, a former chain-smoking gold trader, has helped improve the bank's public image and aided its transition from a pure investment bank to one with a greater exposure to commercial lending. Blankfein's No. 2, Cohn, has followed a similar career path as his boss. Like Blankfein, Cohn got his start at commodities firm J. Aron & Co, which Goldman then acquired. He has been COO as long as Blankfein has been CEO and is six years younger. Blankfein's life is a classic rags-to-riches story. Born in the South Bronx and raised in a housing project in Brooklyn's East New York neighbourhood, he worked his way through Harvard College and Harvard Law School, helped by financial aid. (Reuters)
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Reserve Bank of India Deputy Governor S.S. Mundra called levels of debt in the domestic corporate sector "a major concern" on Wednesday, while admonishing banks to clean up their bad loans more quickly. Mundra added leverage levels had risen "very substantially in the last few years in the corporate world", calling it a concern that was also felt globally, at an event in Mumbai for chief financial officers. The RBI deputy governor also called on banks to move more quickly to recognise bad loans. "Our simple message is if there is a problem, to recognise it and address it quickly," he said. "Don't pretend and extend."
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Infrastructure finance firm IDFC on Saturday (19 September) said it has got regulatory approval to utilise Rs 2,500 crore non-distributable reserves for provisions against bad loans as part of exercise to clean its book before venturing into universal banking. The regulator has now granted the approval to utilise non-distributable Statutory Reserves up to Rs 2,500 crore for creation of specific provisions against stressed assets, IDFC said in a BSE filing. "These additional provisions are being created after a careful examination of the stressed assets portfolio and in accordance with our philosophy of prudent risk management and transparency," it said. These provisions are far in excess of the regulatory requirement and exceptional in nature as indicated in our investor call post our quarterly results for quarter ended June 30, it said. In an earlier filing, IDFC had said that it will make an additional provision in the second quarter of this fiscal against coal and gas power assets, as it transitions into a bank by the end of the period. IDFC said with these additional provisions, its net worth will reduce by approximately Rs 1,600 crore. It said that the volume of net restructured assets, non- performing assets (NPAs) and security receipts (SRs) as of June 30, 2015 was 8.4 per cent of its loan book. "Almost 80 per cent of our risks relate to coal and gas-based assets," it had said. In line with generally accepted accounting principles, these additional provisions will be charged to the Statement of Profit and Loss in the current quarter resulting in a significant one-time loss for the period, it said. However, this will not impact the distributable profits since an equivalent amount will be transferred from the non distributable statutory reserves, as approved by the regulator, it added.(PTI)
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