ICICI Bank's takeover of a stake in a debt-laden telecom tower firm is an ominous sign of things to come as India's slowing economy and slumping shares erode the value of collateral on loans that companies are struggling to repay.Weak markets, the global debt crisis and surging interest rates will further cripple Indian companies' ability to raise funds and manage borrowings and could worsen banks' credit quality.State-run lenders, which account for 70 per cent of the country's total advances, have voiced concerns over loan-repayment capabilities of borrowers after a rise in bad debts.Compounding the problem, founders of several companies have pledged their shares for loans, meaning that as stocks fall, banks are demanding a top-up in security.More than $33 billion worth of shares have been pledged with banks as collateral, with founders of as many as 17 companies pledging over 90 per cent of their holdings, Bank of America-Merrill Lynch said in a June report."This is over-leveraging. It's like a fire. It will hit both the corporates and the banks," said Jagannadham Thunuguntla, equity head at brokerage SMC Capitals."There are some companies where the founders have pledged almost 100 per cent of their shareholding. It could backfire."Crisil, majority owned by Standard & Poor's, expects more credit downgrades and defaults for Indian companies in the coming months, Director Ramraj Pai told Reuters.Bad loans at Indian banks are expected to rise to about 2.6 per cent of their total assets in the year to March 2012 from 2.3 per cent a year ago, ratings agency Crisil said. They have remained at the 2.3-2.4 per cent levels since 2008.A total of 43 accounts have defaulted in the June quarter, more than a third in the year to March 2011, Crisil said.Investors have dumped bank shares on concerns of credit quality, slowing growth and lower profitability in a rising interest rate environment.Shares of Indian lenders including No.1 State Bank of India, ICICI, Bank of India and Union Bank of India have fallen 18-22 per cent so far this year, compared with a 13 per cent fall in the BSE Bank index.Sinking FeelingAbout 17 per cent of Indian banks' outstanding credit could be stressed, IDFC Securities said in a recent research note titled 'Asset Quality - That sinking feeling.'"Stubborn inflation, a spurt in interest rates and slower economy are straining India Inc's debt-servicing capacity. Ongoing infrastructure projects are at risk due to policy paralysis and a plethora of scams," it said.Infrastructure assets including telecom, construction and power, which account for about 25 per cent of total corporate credit, are a key concern for banks."Real estate will be more vulnerable to slippages, and infrastructure as well," said Alok Mishra, chairman and managing director of state-run Bank of India.Banks are also keeping a close eye on India's No. 2 mobile carrier Reliance Communication, which is struggling to reduce a $7 billion mountain of debt, after posting a seventh straight quarterly profit decline in January-March.Reliance has said that "strategic initiatives" were underway to reduce its debt. It had said in May it was looking to sell its tower arm to raise funds to lower borrowings but is yet to announce a deal.The telecom sector is under pressure due to the ongoing investigations over irregularities in the 2G spectrum allocation that state auditors say cost the government $39 billion in lost revenues, higher interest rates and low average revenue per user."Some companies in the infrastructure sector specifically have extended themselves beyond their capabilities. If these projects don't go through or there is a change in fundamentals, they can be in trouble," said J Venkatesan, fund manager at Sundaram BNP Paribas Asset Management."Project finance loans are a problem too, specially when projects don't happen as scheduled."He expects impact of these loans to show in banks' books in two years as most infrastructure projects have a long gestation period. Sundaram BNP Paribas owns stakes in India's top lenders.A Rough PatchICICI Bank, India's No.2 lender, assumed a 29 per cent stake in GTL Ltd in July, taking over shares pledged by its founder. The bank recovered nearly 2 billion rupees ($44.2 million) of the 5 billion rupees it loaned to GTL.GTL shares had fallen more than 60 per cent in just one day in June on market talk it may have fallen behind the debt-repayment schedule or a stakeholder could have sold shares in the open market.Lenders to another group firm, GTL Infrastructure, plan to meet on Aug. 12 to consider terms and conditions for its debt-recast proposal, three bankers involved in the restructuring told Reuters.They declined to be identified as they were not allowed to talk about their clients.Earlier this year, liquor baron Vijay Mallya's Kingfisher Airline ceded a more than 29 per cent stake to a group of 14 banks including top lender State Bank of India as part of a debt restructuring.Cases referred for corporate debt restructuring (CDR) are also rising, banks said.In July, nine new cases worth 170 billion rupees were referred to CDR, a bulk of it for GTL Infrastructure's nearly $2.5 billion of debt involving more than 20 banks, the bankers said."As interest rates rise and there is a slowdown there will be some companies that might want to go for debt restructuring," said B Ravindranath, chairman of the Corporate Debt Restructuring cell, which assesses and approves CDR proposals by banks.The cell, a voluntary forum of Indian banks, said it is currently working to recast 131 loans worth nearly 700 billion rupees for sugar mills, textile units and micro lenders, among others.Companies that turned to lenders to get their loans restructured in the past months include Oudh Sugar Mills, which was hit by soaring input costs in a highly regulated Indian sugar industry, and microfinance firms such as Asmitha Microfin and Future Financial Services.Analysts have cautioned against investing in the banking sector. Their top-picks are ICICI, HDFC Bank and Axis Bank, but they have a unanimous "avoid" rating on several state-run banks.The RBI, one of the most aggressive globally, has raised interest rates 11 times since March 2010 by a total 3.25 percentage points to tame inflation, but at the cost of growth, pushing corporate loan rates up to more than 10.25 per cent.The country's January-March growth was a worse-than-expected 7.8 per cent, with economists expecting India to grow at 7.9 per cent in the fiscal year that began in April, according to a Reuters poll, less than the 8.5 per cent in the fiscal year ended in March."Signs of slowdown are undeniable. We are heading into a rough patch," SMC's Thunuguntla said."Banks' asset quality should come under pressure, there is no doubt about that." (Reuters)
Read More
When the Securities and Exchange Board of India (Sebi) banned entry loads in June 2009, it heralded a new era for the mutual fund industry. Here are the key changes, which impact the industry as a whole: Exposure To Derivatives: With effect from 1 October 2010, Sebi has barred funds from writing Options (and selling) and buying instruments with embedded Options. Mutual funds have been told to have cumulative gross exposure through equity, debt and derivative positions of not more than 100 per cent of the scheme's asset size. Also, mutual funds should restrict the Options exposure to 20 per cent of the scheme's net assets. Debt And Money Market Valuation: All money market and debt securities, including floating rate securities, with residual maturity of up to 91 days, will be valued at the weighted average price at which they are traded on the valuation day. When such securities are not traded, they shall be valued on the amortisation basis. Sebi wants to preserve the liquid nature of the schemes and protect them from mismatches or pressure in the case of redemptions. Speedy Dividend Dispatch: Asset management companies (AMCs) must dispatch dividend warrants within 30 days of the declaration of the dividend. If not, they will have to pay 15 per cent interest per annum to the unit holder. No NOC For Changing Distributor: AMCs have been asked not to insist on the investor procuring an NOC (no objection certificate) from the existing distributor when switching distributors. Investor Complaints: AMCs must disclose the details of investor complaints on their website, the Association of Mutual Funds in India (AMFI) website, and their annual reports. All Investors At The Same Level: To stop AMCs from conceding too much to large institutional investors at the expense of small investors, uniform exit loads across all categories of investors have been levied. Reducing NFO Period And Extending ASBA: New fund offering (NFO) limit has been brought down from 30-45 days to 15 days, barring ELSS (equity-linked saving schemes). AMCs should allot units or refund money and dispatch statement of accounts within five business days from the closure of the NFO. They should also provide applications supported by blocked amount (ASBA) to mutual fund investors of NFOs launched after 1 July 2010. Unit Premium Reserve: Unit premium reserve, which is part of the sales price of units that is not attributable to realised gains, can no longer be used to pay dividend. Transacting On Stock Exchanges: To end the dominance of existing distributors in sale of mutual funds; mutual fund units are permitted to be transacted through registered stock brokers of recognised stock exchanges. No Third-Party Cheques: AMCs can no longer accept third-party payments, barring a few exceptions. Maintaining Unit-holders Documents: AMCs should ensure that distributors submit all investor-related documents to them. And they should hold back commissions / fees of distributors who don't furnish the details. Commission Disclosure: Distributors must disclose all commissions paid to them by competing mutual fund schemes. This curbs mis-selling by distributors. Certification Programme: Since 1 June 2010, the National Institute of Securities Markets (NISM), and not AMFI, is conducting certification examination for distributors and agents and those employed in the sale of mutual funds. Curb on Liquid Funds to Ensure Fair Play: The new rules ensure investors can't get their units allotted till their money actually reaches the fund. This is to check those investors who made it a practice of getting an extra day's return from their investments in such funds. The author is CEO of Value Research (This story was published in Businessworld Issue Dated 28-03-2011)
Read More
With all eyes on the global situation, Finance Minister Pranab Mukherjee on Tuesday said India's macro-economy was moving in a positive direction and hoped international commodity prices would decline, helping the government tame inflation and cut subsidies.Mukherjee maintained that India's economic fundamentals were strong and capable of meeting any challenge posed by the downgrade of the US economy and the crisis in some eurozone nations."I would like to emphasis that some of the investment banks have upgraded India to market weight, that means the basic fundamentals are strong and macroeconomy recovery is moving toward a positive direction," he told reporters, referring to Monday's Goldman Sachs report.The minister said the US downgrade has created some problems for India, but the country could handle any situation arising out of international developments."The challenge is there, but we have the capabilities of facing these challenges," Mukherjee said. "... Collectively, with the efforts of all concerned, particularly with the cooperation of the RBI, we will be able to face the challenges," he added.Expressing happiness over the quick recovery shown by the Indian stock market, which was much better than other Asian countries, he said, however, it was too early to say how the markets would behave in future.The downgrade of the US economy by Standard and Poor's last week has created havoc in stock markets worldwide, but led to a decline in commodity prices, including crude oil.Talking about the decline in crude prices, Mukherjee said he was not fully satisfied with the downward movement from USD 107 per barrel to USD 102 per barrel, as it is still "reasonably high". Mukherjee hoped that prices of oil and other commodities will come down further, "which will help us to manage inflation and also help in reducing subsidy on oil".Referring to the movements in the Indian stock market today, Mukherjee said "it has recovered from the loss in the morning... if you compare it with Asian markets... the average going down of various Asian markets are varying from 2-4 per cent."The BSE benchmark Sensex plunged deep into the red today after suffering an early morning loss of 558 points, but staged a smart recovery to regain the 17,000 points level by early afternoon.(PTI)
Read More
The global economy edged closer to calamity as stock markets slumped further in Asia on Tuesday, with investors losing confidence that the United States and Europe can rein in their debt burdens quickly and avert a double-dip recession.The worsening market trauma has piled pressure on the US Federal Reserve to announce fresh measures of support for the US economy at a policy meeting on Tuesday, but analysts said its options were limited."The current situation could be seen as a fast, complete and unexpected loss of confidence that has been building up over the past few weeks," BNP Paribas said in a note published as Asian stock markets swooned, losing between two and seven percent."Given that the global economic recovery remains fragile, this fast disappearance of confidence is worrying, which puts us back in a vicious circle where the market drop feeds pessimism."As of Monday, stock losses had wiped more than $3.8 trillion from investor wealth globally over eight days and sent investors rushing for safety in the Swiss franc, the Japanese yen and gold.China Inflation Dashes Stimulus HopesAs the flight from risk continued in Asia on Tuesday, there was more bad news, this time from China, the stuttering global economy's main engine room.Official data showed China's annual inflation rate quickening to 6.5 per cent in July, putting the country's central bank in a bind as it tries to keep prices in check without dragging down an economy facing increasing threats from abroad.With inflation at that level, China may not be in a position to reprise its 2008 role of lifting the global economy, although some analysts called on Beijing to act.When the Lehman Brothers bankruptcy triggered a worldwide slump, China implemented a stimulus package that helped buffer its own economy and buoy the world."It's time for Beijing to announce to the whole world that it will try to stimulate domestic demand again," said Tang Yunfei, an analyst with Founder Securities in Beijing.Global leaders failed to reverse sliding markets on Monday after the blow dealt to investor confidence by Standard and Poor's downgrade of the US sovereign credit rating.The downgrade heightened concerns that the twin-pronged crisis of a worsening euro-zone debt crisis and a faltering US economy raised the risks of a double-dip recession.The European Central Bank (ECB) swept into the bond market to buy up Italian and Spanish debt and sling a safety net under the euro zone's third- and fourth-largest economies. But bickering persisted in Europe over a longer-term rescue plan.In the United States, President Barack Obama called for urgent action on the U.S. budget deficit, but his proposal on taxes was promptly rebuffed by Republicans.A pledge by G7 finance ministers and central banks on Sunday to provide extra cash if markets seize up also provided little solace as the authorities' credibility wore thin."Four years into the financial crisis, it is becoming increasingly clear that the biggest deficit is not in credit, but credibility," Harvard University economist Kenneth Rogoff wrote in the Financial Times."Markets can adjust to a downgrade of global growth, but they cannot cope with a spiralling loss of confidence in leadership and a growing sense that policymakers are disconnected from reality."Markets Pricing 'For A Crisis'In the United States the broad Standard and Poor's 500 index plunged 6.7 per cent to close at 1,119.46 on Monday, its worst sell-off since Dec. 1, 2008. The Dow Jones shed 634.76 points to 10,809.85.Particularly worrisome was a more than 20 percent plunge in the shares of Bank of America, the largest US bank. AIG sued it for $10 billion for allegedly deceiving investors, on top of mounting concerns about the size of its potential losses from mortgages litigation and questions about management.In Asia concern mounted that the region would inevitably feel the cold wind of the West's slowdown.Japan's Nikkei share average fell 3.2 per cent and MSCI's broadest index of Asia Pacific shares outside Japan shed 4.1 per cent, taking its losses over six trading days to 18.5 per cent.South Korea's KOSPI slid 9 percent at one stage. A stock exchange official in Seoul said the bourse may ban short selling of shares to stabilise markets."The speed and degree of deterioration in the situation is akin to what we saw during the failure of Lehman Bros, through the dot.com burst ... and during the 1982 recession," said Warren Hogan, chief economist at ANZ Banking Corp in Australia."We are looking at markets pricing for some sort of financial crisis. I think we are at a critical period now."ECB To The RescueOn the political front, Obama said he hoped the loss of the prized AAA credit rating would add urgency to U.S. budget cutting plans.Standard and Poor's cut the ratings of credits tied to US sovereign debt to AA-plus, namely government mortgage agencies, clearing houses and insurers. The Treasury market soared on Monday despite the downgrade as investors fled stocks.Obama called for both tax hikes and cuts to welfare programmes as part of the $1.5 trillion in deficit reduction that a special committee would deliver in late November. But Republican House Speaker John Boehner once again rejected the call, saying tax hikes were "simply the wrong approach."Obama also spoke with Italian Prime Minister Silvio Berlusconi and Spanish Prime Minister Jose Luis Rodriguez Zapatero, welcoming measures by their governments to address the economic turmoil in Europe.Traders estimated the ECB bought about 2 billion euros in Italian and Spanish debt after it agreed on Sunday to broaden its bond-buying program for the first time to halt an attack on the Mediterranean countries. Italian and Spanish yields declined sharply.The ECB move was seen as only a temporary solution however, due to the sheer size of Italy's bond market -- $1.6 trillion -- and there are doubts in the market it can be sustained."What the market is demanding is the assurance either from Europe or the G7 or the G20 that ... there will be someone who can lend to Italy and Spain," said Takuji Okubo, chief economist for Japan at Societe Generale.(Reuters)
Read More
Vijay is a sub-dealer of Angel Broking at his office in Bhandup, a suburb in north-east Mumbai. He has been busy updating his clients who trade derivatives, asking them to keep deposit adequate margin money with Angel Broking to avoid penalties that could be levied because of Securities and Exchange Board of India's (Sebi) new directive. Sebi's objective appears to be to limit excessive market volatility stemming from higher than normal trading activity in derivatives on the stock exchanges.Starting Friday, stock exchanges will monitor the margins in the derivative (future & options) segment at the client level, and not just at the broker level. If the margin requirements fall short, exchanges will levy a heavy fine on the client as well as the broker. As a consequence, traders and investors may have to keep a larger than hitherto required amount of money on deposit with their brokerage firms, which could dampen the level of trading activity. And that may be exactly what the markets need.Earlier And NowHere's an example: if a client has gone short on Reliance Industries, and the price of Reliance Industries moves upwards, it creates a shortfall. Earlier margin shortfalls were monitored by the exchanges at the broker level at a threshold acceptable to the exchange, At such times, members were issued a warning. Beyond the threshold, members are charged a penalty which is a certain percentage of the shortfall amount with a cap on the same. Now the exchanges will monitor the margin shortfall at the client level and any shortfall in margin money, clients will have to pay the differential immediately. In case the client fails to provide additional margin money or even if it is short by a single rupee it will attract a penalty. For shortfall up to Rs one lakh, the exchange will levy a penalty of 0.50 per cent of the shortfall amount per day and if the shortfall is greater than Rs one lakh, it will attract a flat 1 per cent penalty on the shortfall amount per day. However if there is a shortfall for 3 consecutive days or 5 days in a month, the penalty will be increased to 5 per cent of the shortfall amount per day. In fact the exchanges are going to be strict to the extent that it can even suspend trading of a member in case it comes to know that the collections are reported wrongly. With the new norms it's unlikely that with large number of brokers and their multiple branches and large number of clients they won't default on margin collection on a daily basis. One wonders why the regulator, Sebi has been harsh on brokers who have not run into problems even on days when the market has gone into freeze. It clearly shows that the regulator perceives risk in the market and with the new norms it is trying to cut down the risk. This would certainly cut down risk as the new norms will increase cost of trading and in the current scenario with markets being volatile, clients will prefer to stay away from the market thus in the near term bringing down the volumes in the market.
Read More
With residential property rates falling, buyers can heave a sigh of relief! Going by the National Housing Bank's Trend and Progress of Housing in India (2010) report and the housing price index or RESIDEX (January – March, 2011) released on Friday, property prices in seven cities across India saw a fall of 2.63 per cent to 17.6 per cent during the January to March quarter. Another five cities are showing a marginal change in prices in the same period. However, three cities, Pune, Lucknow and Delhi, showed an increase in property rates by 2.6 per cent to five per cent.NHB RESIDEX covers the residential properties in different parts/locations of the cities. It estimates the value of the property to be financed and assesses the adequacy of security cover on the outstanding loan. The Residex for the first quarter of the 2011 calendar is a comparative study with the previous quarter. The latest NHB Residex results are in contrast to the previous quarter data. During October to December 2010, property prices went up in 13 out of the 15 cities surveyed, compared with the July to September 2010 data. In the remaining two cities, prices had either remained the same or dropped marginally. NHB is planning to add another five cities to the Residex this year, taking the number of cities being covered to 20.When asked about the possible range of property price correction in the coming months, NHB chairman RV Verma said: "We can't hazard any guess on property price correction as it may impact the market." He added: "There are blips in the property market." NHB's trend report has analyzed the impact (during the year 2009-10) of the operations of Housing Finance Companies (HFCs), Scheduled Commercial Banks and the co-operative sector on the housing sector and the housing finance in the country. ‘Affordable housing for all' --- the national policy of the government of India--- seemingly caught the attention of the stakeholders, builder community and the lending institutions. To support the cause of ‘Affordable Housing', NHB seeks to pursue its interventions and partnerships with National and State Governments in implementation of various financial sector-related programmes and schemes.The report highlights an exponential growth in housing finance during the last five years with the Compounded Annual Growth Rate (CAGR) around 28 to 30 per cent, due to the participation of banks in the housing finance sector.The Wholesale Price Index (WPI) measured inflation at 8.6 per cent in January, 2010 as against 5 per cent in January, 2009 on year-on-year basis. The bank credit growth on year-on-year basis was 15.1 per cent during 2009-10 compared to 19.8 per cent during 2008-09. The National Sample Survey Organization's (NSSO) Reports on Housing Conditions and Amenities in India based on the 65th round survey during July 2008 to June 2009 comprise of the report, with the focus on quality housing, ownership vs rental housing and the housing and the infrastructure conditions in the slums.The housing loans registered a growth of 20.79 per cent during the year March 2009 to March 2010. The Net Owned Funds of the registered HFCs recorded an increase of 26.41 per cent. The Regional Rural Banks (RRBs) have emerged as an important channel for rural housing in the report. NHB sanctioned Rs. 2.25 crore for Housing Micro-Finance (HMF) lending, during the year. Rs 70,640 crore worth home loans were disbursed by public sector banks during 2009-10 . This was mainly on account of low interest rates that prevailed during the major part of the financial year 2009-10 and teaser rates also played a part in that.At the end of March 2010, the outstanding housing loans of banks and housing finance companies stood at Rs 3.16 lakh crore and Rs 1.53 lakh crore.
Read More
Policymakers on Monday rushed to calm jittery investors, pledging to take necessary steps to weather a new bout of global economic uncertainty stoked by US and euro zone sovereign debt worries, helping shares pare their losses. Amid a fall in the stock markets in the wake of economic problems in the US, Finance Minister Pranab Mukherjee said India's fundamentals are strong and the government is ready to address any concern that may arise, while admitting there could be some impact."We would focus on encouraging greater domestic consumption and give impetus to the drivers of domestic growth", Mukherjee said while talking to reporters outside Parliament.Chief Economic Adviser to Finance Ministry Kaushik Basu reiterated the government stand saying the centre and the RBI will step in to contain the impact of an uncertain global economic situation, if needed. The RBI said the Indian banking system does not face any immediate liquidity stress, and it vowed to ensure adequate rupee and forex liquidity.The government, Mukherjee said, will fast track the implementation of the pending reforms while keeping an close watch on international developments.India, Mukherjee said, is in a better position than other nations to meet the challenge posed by the developments in the US and the Eurozone.The BSE Sensex, which tumbled more than 3 percent in early trade as a rating downgrade of the United States by Standard & Poor's triggered panic selling across Asian equity markets, recovered to end the day 1.82 per cent lower.Shares across Asia fell sharply on Monday despite efforts by global policymakers to stem a collapse in investor confidence after S&P downgraded US credit rating from AAA to AA+ last week.Another rating agency Moody's, repeated a warning on Monday that it could cut the US rating before 2013 if the fiscal or economic outlook weakens significantly but said it saw the potential for a new debt agreement in Washington to cut the budget deficit before then.The Finance Minister expressed confidence that India could see faster and greater FII inflows unlike after 2008 meltdown, in view of the higher returns that global investors could get here."The recent developments in the US and the Eurozone have injected certain uncertainty in global markets. These developments could have some impact on India. But as India's growth story is intact and its fundamentals strong, we are in a better position than many other nations to manage the challenge," he said. Mukherjee also mentioned about the steps being taken by RBI to deal with the problem."The most important part of the RBI statement is that in the immediate future the Reserve Bank priority is to ensure that adequate rupee and foreign exchange liquidity are maintained in domestic markets to prevent excessive volatility in the interest rates and exchange rates," he said, adding, "this is very much reassuring".The Finance Minister also spelt out views expressed by G-20 Finance Ministers and Central Bank Governors."We, the Finance Ministers and Central Bank Governors of G-20, affirm our commitment to take all necessary initiative in a coordinated way to support financial stability and to foster stronger economic growth in a spirit of cooperation and confidence..."...We will remain in close contact throughout the coming week and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets." Moreover, we will continue to work intensively to achieve concrete results in support of strong, sustainable and balanced growth in the context of G-20 framework on growth," the finance minister said. US investment bank Goldman Sachs on Monday upgraded India to "market weight" from "underweight," given a likely turn in the macro cycle, lower oil prices, lower valuation, and policy reforms.The Melting WorldWorldwide, the grim market mood was caught by economist Nouriel Roubini writing in the Financial Times."The misguided decision by Standard & Poor's to downgrade the US at a time of such severe market turmoil and economic weakness only increases the chances of a double dip and even larger fiscal deficits," he warned."So can we avoid another severe recession? It might simply be mission impossible."The rout was all the more alarming as it came despite an assurance from G7 finance ministers that they were "ready to take action to ensure stability and liquidity in markets".In early trade, the BSE Sensex fell 2.5 per cent on Monday, while the rupee weakened past 45 to the dollar for the first time in five weeks following a global equities rout.In an announcement early on Monday before the markets opened for trading, RBI said it would ensure adequate rupee and forex liquidity, a move to calm the jittery markets.Noting that India was not insulated from global developments like the downgrade of the US, the Reserve Bank of India (RBI) Monday said it was closely monitoring the situation and would continuously assess the impact on the Indian economy and financial markets.The RBI also said the entire policy and regulatory framework of the country must be "prepared to respond to turbulent financial market conditions arising out of external developments"."Developments relating to the US economy last week have significantly increased uncertainty about its prevailing condition," the RBI said in a statement."The Reserve Bank is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability. We will respond quickly and appropriately to the evolving situation," it added.The US lost its top-notch 'AAA' rating this weakened and the development has further added to the worries of global markets, already grappling with the debt crisis in Europe."A sharp fall in US equity markets on Thursday was followed by a downgrade in the long-term US sovereign rating by rating agency Standard & Poor's from AAA to AA+ with a negative outlook on Friday," the RBI said."Two other rating agencies, Moody's and Fitch, had recently maintained their AAA rating, but suggested that this could change."The downgrade has raised concerns of continuing turmoil in global financial markets, as investors re-allocate portfolios in response to heightened risk perceptions stemming from both developments," the RBI said. Inflation OutlookRiding on its robust domestic demand, India managed to withstand the global financial crisis in 2008-09, clocking an economic growth of 6.8 per cent.Worries over the health of the global economy are clouding the export outlook for Asia's third-largest economy -- after recent double-digit export growth -- but are also helping moderate global commodity prices, particularly oil.Oil fell as much as $3 a barrel on Monday as worries over a possible double-dip recession spread after S&P cut the United States' top-tier credit rating and European central banks struggled to contain a deepening debt crisis. A moderation in global oil prices is expected to help rein in India's oil subsidy bill, or the cash compensation the government offers to state-run firms for cheaper fuel sales, and ease inflationary woes."It (the fall in international crude and commodity prices) can have a dampening effect on Indian inflation," said Kaushik Basu, chief economic adviser to the finance ministry.India has been struggling with high inflation for the past two years. The RBI has raised interest rates 11 times since mid-March 2010 to tame price pressures, but headline inflation of 9.44 per cent in June continues to be well above the central bank's comfort zone of 4-4.5 per cent.Policymakers globally intensified efforts to contain the fallout from the historic downgrade of the US debt rating."I can take the rating as a special event which is telling us that a double-dip recession will occur ... that is possible," Basu said.The European Central Bank stepped into bond markets on Monday, backing up a pledge to support Spain and Italy with the aim of averting financial meltdown in the euro zone, while the G7 and G20 offered soothing words to investors shaken by a historic downgrade of the US debt rating.US Still Needs To Find Further Cuts: Moody'sMoody's repeated a warning on Monday it could cut the US rating before 2013 if the fiscal or economic outlook weakens significantly but said it saw the potential for a new debt agreement in Washington to cut the budget deficit before then.With markets in the US still to open after rival Standard & Poor's stripped the United States of its AAA rating on Friday, Moody's said in a statement its own decision to affirm the US rating on August 2 was on the condition that further cuts were found.It said the United States had a tough job ahead to come up with additional deficit-reduction measures needed to safeguard its Aaa rating from Moody's, but a new debt agreement in Washington was not impossible before 2013.Three days after rival Standard & Poor's stripped the United States from its AAA rating, Moody's said it could do the same before 2013 if fiscal discipline weakens in the next few months or the economy deteriorates significantly.Questions about whether US lawmakers will be able to agree on further budget savings next year lie on the center of the disagreement between the two ratings agencies. While S&P downgraded the United States to AA-plus after an Aug. 2 debt deal fell short of its expectations, Moody's is willing to give the government more time tackle its debt problems.(Agencies)
Read More
The government is set to unveil on Monday a schedule for a stock offering worth about $2.6 billion for state-run explorer Oil and Natural Gas Corp (ONGC), sources with direct knowledge of the deal told Reuters on Friday.The timetable would set the deal in motion, two sources said, after it was postponed several times this year because of turmoil in global markets and lingering concern over government fuel subsidies.A separate source said ONGC, as the company is called, is ready to file a prospectus with regulators at short notice and could also start meetings with investors next week.The sources did not want to be identified as they were not authorised to speak to the media on the plans.The government owns 74.14 per cent of ONGC and has said it plans to sell a 5 per cent stake in the offering.The sale is part of broader proposal to raise about $9 billion through share sales in public sector firms to help plug the government's fiscal gap and generate funds for schemes for the poor.(Reuters)
Read More
Shares in Cairn India rose more than 5 percent in Mumbai trade, a day after the cabinet gave conditional clearance to miner Vedanta Resources to buy controlling stake in the firm.At 12:11 p.m. (0641 GMT), Cairn India shares were up 4.1 per cent to Rs 324.80, but had risen as high as Rs 327.85 in early trade."It has been under pressure because of uncertainty over the deal. It seems to be adjusting for the rise in crude prices since, and the likely faster development of its fields," an oil & gas analyst at a Mumbai brokerage, who declined to be named, said.On Thursday, India approved the deal valued at around $6 billion, but said Cairn would have to share royalty and cess burden with partner Oil and Natural Gas Corp for its key oilfields in western India.Shares in ONGC, which will gain from sharing of the royalty burden that it had entirely borne so far, rose more than 6 per cent in early trade, but had since eased to Rs 278.40, still up 1.5 per cent in a weak Mumbai market.(Reuters)
Read More
India may allow foreign investment of up to 26 per cent in the pension sector, giving global players access to a roughly $2 billion pool of assets that is expected to grow quickly as more people join the organised workforce.The recommendation by a parliamentary panel on a pending pension bill is the latest fillip to economic reforms that have stalled as the government was paralysed by a spate of scandals.The government has been taking steps of late to make the country more investment friendly, backing in principle foreign direct investment in multi-brand retail, a reform that has been delayed for years.Some of the reform measures, including a proposal to lift the cap on foreign holdings in insurance companies to 49 percent from 26 percent, require parliamentary approval.Now, pension funds of over a million employees in India are managed by IDFC, State Bank of India, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Reliance Capital and Life Insurance Corp of India.Foreign firms have been lobbying for liberalising access to the pension and insurance sectors in a fast-growing country where most of the 1.2 billion population lack such investments.Most of the 23 life insurance players in India, nearly all of which have a foreign partner holding a 26 per cent stake, are eager to enter the pension fund market, analysts said.Global players holding stakes in Indian operators include Aviva, AIG, and AXA.The pension and the insurance bills are currently being examined by a parliamentary panel, headed by Yashwant Sinha, former finance minister and a leader of the main opposition Bharatiya Janata Party.The panel has also recommended that the returns from a new government pension scheme -- subscribed by employees of the central and state governments -- should fetch a minimum return at par with the state-run social security fund, the Employee Provident Fund (EPF).The EPF, covered by separate law, manages more than $50 billion worth of assets for around 40 million employees and paid a 9.5 percent return in the fiscal year that ended in March 2011.(Reuters)
Read More
