Bank of Baroda Ltd, India's second-biggest state-run lender by assets, posted on Friday an unexpectedly sharp 89 percent tumble in its quarterly net profit, hit by a spike in bad loans and higher provisions for impaired assets. The numbers cast a shadow over hopes of an improvement in the asset quality of India's banks, helped by a pickup in Asia's third-largest economy. State Bank of India, the country's top lender will report earnings later on Friday. Slower credit growth and a surge in bad loans in the past three years has hobbled the country's lenders. Despite some signs of a pick up in the economy, bank loan growth in the three months to September was less than 10 percent. Lenders including State Bank of India, the country's largest, however, have been able to rein in the pace of rise in bad loans in the last few quarters, by tightening scrutiny and increasing recovery efforts. Net profit at Bank of Baroda, which in August became one of the first state-owned lenders to appoint a boss from the private sector, fell to 1.24 billion rupees ($18.9 million) in the quarter ended September 30, from 11.04 billion reported a year earlier, the Mumbai-based lender said in a statement. The bank's gross bad loan ratio for the quarter rose to 5.56 percent, a jump from 4.13 percent in the previous three months and 3.32 percent in the same quarter a year earlier. Bank of Baroda's provisions for problem loans in the July-September quarter more than doubled to 18.9 billion rupees, which included 25 percent of a credit account worth 3.74 billion rupees that was declared as fraud by the bank, it said. That number, seen by analysts as a partial "clean up" effort by the bank's new boss, includes a provision to cover a probe into suspected money laundering of about 60 billion rupees through one of its branches. Shares in the Mumbai-based bank tumbled almost 10 percent at the market open, but by 0530 GMT had erased most of the losses to be down just 0.6 percent. (Reuters)
Read More
Governor Raghuram Rajan on Thursday (05 November) said the government and the central bank have agreed on composition of the interest rate-setting monetary policy committee (MPC).“MPC agreement has been largely done. Only fine-tuning is left. The government and RBI are broadly on the same page on composition of MPC,” Rajan said. The government has proposed to set up MPC, which will consist of representatives from the Finance Ministry and RBI, to decide on interest rate. Rajan said the final call on the timing of implementing MPC will be taken by the Finance Ministry. The revised draft of the Indian Financial Code (IFC), released by the ministry in July, had suggested doing away with RBI Governor’s veto power and proposed a 7-member MPC to take rate decisions by a majority vote. Of the seven members, four are proposed to be government nominees and the rest from RBI. Under the current set-up, the government appoints RBI Governor, who controls the monetary policy and has veto power over the existing advisory committee of RBI members and outside appointees that sets rates.(PTI)
Read More
Yes Bank has launched the Gold Sovereign Bond soon after Prime Minister Naredra Modi launched three gold schemes on Thursday (05 November).Rana Kapoor, MD & CEO, Yes Bank said, “I applaud this much needed, far-sighted initiative that is timed very well to coincide with the Gold buying festive season of Dhanteras and Diwali. The Gold Schemes will have important ramifications for the economy. The consumer will benefit from market expansion as financial substitutes for physical gold would be made available with simplified access. At a macro level, it will unlock savings in unproductive physical assets and thereby help channelize financial savings towards more productive investments. It will also develop expertise in local hallmarking which would drive demand for Made in India Gold both locally and internationally.”Through its Yes Institute had floated multiple concept and implementation papers on the Gold Monetization Schemes to build an industry level consensus thereby augment the government’s stellar effortsWhile the Gold Schemes operationalized by the Government are indeed innovative structural policy initiatives, the following recommendations will help in fine tuning the scheme, while also improvising on certain aspects:1. Create More CPTCs (Collection & Purity Testing Centres): The Western and Southern states of India have the highest concentration of household gold & gold buying propensity. Hence, while the initial CPTCs are concentrated in these states, in due course of time, the balance six states and UTs which currently don’t have a certified hall marking center may also be covered, which will make it convenient for depositors to transact with banks.2. Tweak Disclosure Patterns: The Government could introduce a suitable slab-based disclosure basis the amount deposited, keeping in mind the sensitivities involved. For high net worth religious trusts, the Government could make participation mandatory without declaration of sources of procurement.3. The Government could also suitable suitably communicate the applicability and implications of various regulatory commercial levies (i.e. treatment of excise duty/ VAT/ Custom duty etc.) to all stakeholders; this will ensure seamless implementation of GMS by participating players."The Gold Monetization Scheme is a breakthrough step towards financialization of gold and will also significantly strengthen our economy and help easing pressure on CAD. The Gold Monetization Scheme (GMS) aims to tap household gold stocks of around 22,000 tonnes, while the Sovereign Bond Scheme will help shift part of the estimated 300 tonnes of physical gold bars and coins purchased every year in the country for investment into Demat Gold Bonds.” Kapoor added.(BW Online Bureau)
Read More
By Sunil DhawanThree different gold schemes have been launched to keep the current account deposit under control by making Indians less reliable on gold imports. Here's a quick glance on what each scheme offers Gold! We Indians certainly cherish its possession. Almost every Indian household would own gold in some form or the other. But every time, we buy gold coins from banks as an investment or purchase jewellery as a wearable to be adored, there's a price that our government pays. In 2013, gold imports saw a huge increase thus pushing the current account deficit (CAD) to nearly $190 billion thereby prompting the government to hike its duty on imports to a record 10 per cent. The effect was evident as in 2014-15, India imported an estimated $34 billion of gold. In simple terms, CAD refer to excess of imports over exports thus leading to deficit. Indian exports haven't been promising and thanks to flat oil prices, the CAD may look to be tamed within limits this year. Putting a break on gold imports too can do the trick in controlling CAD which has come down substantially to around 1.3 per cent of GDP in 2014-15, as against around 4.8 per cent two years earlier. The country's total forex reserves as on October 23 stood at an all-time high of $351 billion. India is one of the largest consumers of gold in the world and imports as much as 800-1,000 tonnes of the metal each year, which is nearly 25 percent of the global demand. The stock of gold in India that is neither traded nor monetised is estimated to be over 20,000 tonnes. Gold holds a prominent place in one's financial savings. The chart below highlights the fact that over 17 per cent of respondents invested in gold deposit schemes, gold coins and bullion, paper gold and gold accumulation plans much more than bonds, mutual funds and even insurance. In order to monetize existing gold reserves, give an option to invest in paper gold and buy indigenously manufactured gold coins, government has today launched three different schemes - Gold Monetisation Scheme (GMS), Sovereign Gold Bond Scheme (SGB) and the Gold Coin and Bullion Scheme. Keyur Shah, CEO, Precious Metals Business, Muthoot Pappachan says, "The India Gold Coin and the Sovereign Gold Bond Scheme and Gold Monetisation Schemes launched by PM today is a historic moment giving it a very clear direction to Indian gold industry on the way forward. We are hopeful that these initiatives will bring out the "locker gold" into the formal sector as well as these gold certificates/bonds will help reduce India's over dependence on imports. There may be some initial implementation related challenges but as time goes by, once these schemes are also made available to the public via many more touch points e.g. banks, post offices, gold loan NBFCs, authorized jewellers it will have the desired good impact in long run". GOLD MONETISATION SCHEME (GMS)Who all are allowed to invest: Only resident individual Indians are allowed to invest in the GMS. Joint deposits of two or more eligible depositors are also allowed under the scheme and the deposit in such case shall be credited to the joint deposit account opened in the name of such depositors. How much of monetization: The minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold of 995 fineness. There is no maximum limit for deposit under the scheme. Tenure: The designated banks will accept gold deposits under the short term (1-3 years) as well as medium (5-7 years) and long (12-15 years) term schemes. There will be provision for premature withdrawal subject to a minimum lock-in period and penalty to be determined by individual banks. Interest: The designated banks are free to fix the interest rates on these deposits. The interest earned on it would be exempt from income tax as well as capital gains tax. The government has notified to offer a rate of 2.25 percent on medium-term deposits (5-7 years) and 2.5 per cent on long-term deposit (12-15 years). On maturity: Redemption of principal and interest at maturity will, at the option of the depositor be either in Indian Rupee equivalent of the deposited gold and accrued interest based on the price of gold prevailing at the time of redemption, or in gold. The monetization involves opening an account with the bank and taking gold to the Collection and Purity Testing Centres (CPTC). Read here, to know how CPTC would melt and value your gold. The ease including the accessibility and the entire process - from opening account to completing the CPTC formalities needs to be smooth enough to evince interest in gold monetization scheme. SOVEREIGN GOLD BONDSGovernment has launched the sovereign gold bonds, 2015 scheme (SGB) for the benefit of those who wish to invest in gold. Rather than owning gold in physical form and keeping it idle without earning anything on it, GBS gives an opportunity to own gold and yet earn interest on it. The SGB's may be purchased through banks and post offices in the initial launch period from November 05, 2015 to November 20, 2015. Only resident Indians can invest a minimum of 2 gram and a maximum of 500 grams in a year either individually, jointly or in the name of minor as well. The bonds have a tenure of eight years with exit option from fifth year. The price as set by the government is Rs 2,684 for a gram of gold while the interest rate has been fixed at 2.75 per cent per annum payable half-yearly on the investment. Read here what State Bank of India has to offer for the bonds. Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar Card/PAN or TAN /Passport will be required. A self-declaration to this effect will be obtained. A mechanism will be put in place for internal verification of the self-declarations. Interest on the Bonds is fully taxable as per the tax rate of investor. For someone in 10, 20, 30 per cent tax rate, the post-tax return come to 2.47 per cent, 2.18 per cent, 1.9 per cent respectively. On maturity, the difference in prices (buy and redemption price) may give rise to capital gains and it will be treated as that for physical gold i.e. tax of 10 per cent or 20 percent after indexation after holding for 36 months or more. Even though the interest rate being offered is marginal, it should help in owning paper-gold rather than physical gold which has its own concerns of cost of owning, purity, and security. GOLD COIN SCHEMEFor those who would still want to buy gold coins, there's still an option. Instead of making Indians buy the imported coins, government has launched ingeniously minted coins which will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side. Initially the coins will be available in denominations of 5 and 10 grams while the bullion will be for 20 gram. The Indian Cold coin & bullion will be of 24 karat purity and 999 fineness carrying advanced anti-counterfeit features and tamper proof packaging. All coins and bullion will be hallmarked as per the BIS standards. These coins will be distributed initially through designated and recognised MMTC outlets and later through specified bank branches and post offices.
Read More
With food production growing, India needs more storage and transportation capacity, writes Paramita Chatterjee Fortigo, an early stage logistics venture that aims to solve the logistics and transportation problems for small and medium businesses, was recently in news for its prospective investment by Infosys co-founder Nandan Nilekani and venture firm Accel Partners. Homegrown company in the Indian agri-warehousing sector, Sohan Lal Commodity Management, recently raised its fourth round of funding - about Rs 100 crore - from private equity firm Creation and existing investor, Everstone Capital. These are not the only ones. There is a burgeoning list of companies - both startups and established companies in the logistics space - that are increasingly attracting investor interest as the importance of augmenting India's storage capabilities gets critical. Currently, there is a paucity of warehouses in India, especially in the agriculture sector. In fact with the increase of food production in the country, the marketable surplus of agricultural produce exceeds India's storage capacity. For instance, if the country had approximately 159 million metric tonnes of food grains as marketable surplus in 2013-14, it is yet to have the combined storage capacity to handle the additional quantity. It is this wide gap that is giving rise to a business opportunity which in turn is prompting risk capital investors such as private equity and venture capital funds to invest in the sector. What's more, while established companies in the agri-logistics and cold chain industry are receiving funding from investors to expand their business, even those who focus on providing back-end support in the ecommerce rush are increasingly evincing investor interest. Recently, Peepul Capital made over six-fold a return on its investment that it had made in logistics firm Ecom Express. Corporate lawyers on condition of anonymity reveal there are quite a few private equity deals that are in advanced stages of discussion in the logistics space. For instance, ColdEX Logistics, a cold chain company that provides support and distribution services to well-known international brands including Burger King, Subway, Domino's Pizza and Starbucks, is currently in talks with a host of private equity investors to raise about $80 million. In December 2010, it had raised $10 million from India Equity Partners in lieu of a significant minority stake. Investments indeed have started picking up in this sector. Starting 2012, private equity investors have infused around $275 million in the sector, as per data available with research firm Venture Intelligence. Recently, Canadian investment giant Fairfax invested $126 million in National Collateral Management Services Ltd, a private-sector agricultural commodities storage company headquartered in Gurgaon. Other prominent deals in the sector include Temasek's $40 million investment in Star Agriwarehousing and Collateral Management, a post-harvest solutions company focused on empowering farmers and Mandala Capital Fund's $25 million funding in logistics firm Gati Kausar. The company, which has a network of cold warehouses, transports refrigerated goods across sectors including healthcare, meat, poultry, and bio-pharma, among others.
Read More
By Sunil DhawanManoeuvring between different mutual fund schemes for maximising corpus and not just for arranging down payment should be the approach. Here’s how. One of the first big ticket expense that most of us face in our life is owning a home. To own a roof over one's heads is certainly not a tough job considering the financing option available these days. Buy it outright if you have the funds at your disposal else borrow from bank or other lending institutions. Presently, home loans are anywhere between 9.55-10 per cent per annum calculated on monthly reducing basis. How much of self-finance: Home, however, cannot be entirely financed by lenders. As per new RBI rules, one has to pay-up at least 10 per cent (earlier it was 20 percent) of property value as down payment to the lender and the balance i.e. 90 percent can be financed. This holds true if the loan amount is less than Rs 30 lakh. For loan amount between Rs 30-Rs 75 lakh, the minimum down payment is 20 percent of loan amount, while for loans above Rs 75 lakh, the minimum down payment is 25 percent. So, on a Rs 60 lakh property, the down payment comes to Rs12 lakh, while the balance Rs 52 lakh can be availed as loan. If you are 3-5 years away from owning a home, start investing towards creating a corpus for the down payment. Firstly, fix a budget for the home. Estimate the down payment amount and then find out how much you need to save each month towards it. Ideally, do not aim for securing the mandatory 10/20/25 percent margin which the bank would seek as down payment. Use the financing option to bridge the gap and rather not depend on it entirely. After all, lesser the loan amount, less will be the interest burden and that much less will be the final cost of your home. Where to invest: If you have already arranged or accumulated the amount for down payment and the search for the right house is still on, better to put the amount in a liquid fund or a short-term bond fund. The volatility in such funds is least and will help to preserve the capital. If the horizon is anywhere 3-5 years, a bit of exposure to equities helps. Choose at least two balanced mutual funds with more than 65 percent exposure to equities for tax effective high returns. Balanced or hybrid funds exploit the potential of both debt and equity asset classes to generate returns. Start systematic investment plan (SIP) in them and opt for the growth option in them. Another alternative for saving for house if horizon is around 5 years could be through equity linked savings scheme (ELSS). This would appeal primarily to those looking to save tax on their investments. ELSS mutual funds schemes have a lock-in period of three years hence each SIP amount too gets locked in for that period. Therefore, in ELSS if the goal is to save for house, do not initiate SIP rather save a lump sum. Investing in the right scheme may not be sufficient. You need to strategize your investment moves thus exiting the investment is equally important. At least a year before reaching your goal, move your funds into less volatile liquid or debt fund. This helps to preserve the capital accumulated. End note: Life on rent is very different from living in a place which you could call as your own. The sense of ownership overpowers all other things especially when the trade-off is between renting and owning. Renting after all involves frequent changes in residences at the whims and fancies of the land lord and is sure to witness constant increase in annual rent revision. With several financing options and the property prices lying flat, it's time to bargain hard with developers and get a home of your own. But make sure you do not over stretch your EMI amount. After all there are other goals in life too that needs your attention. Prepare a partial repayment plan simultaneously to finish off the home loan as early as possible to lower your interest burden.
Read More
The Indian operations of Standard Chartered Bank (StanChart) will see "rationalisation" as part of the bank's global lay-off of 15,000 staffers. The move is part of the bank's chief executive officer Bill Winters' larger plan to restore profitability hit by emerging market's economic woes. While the exact staffing to be cut in India is not known as this point in time -- it employs close to 20,000 in India -- the bank may redeploy key local human resources across its global franchise. A key reason for this is on a standalone basis, the largest foreign lender in India in terms of branch network (100) saw its net profit rise 93 per cent in 2014-15 to Rs 3,051.4 crore (Rs 1,584 crore). For the times we live in, that's not bad for a foreign bank in India. The result is seen as a vote of confidence in the ability of the bank's top brass in India; and to that extent pink slips may not be issued left, right and centre. Local incorporation of the bank is also on the cards - as on date no foreign bank in India is locally incorporated; they are branch operations of their parents. Local incorporation will offer them "near national treatment" on a par with Indian private banks even as it means that they will have meet regulatory requirements on priority sector lending like local banks. The churn at the bank started from the time former global CEO Peter Sands and Asia chief Jaspal Bindra left the scene. Sand's deputy CEO Mike Rees saw his wings being clipped; he had joined the bank in 1990 and had regional chiefs reporting into him was the best paid board member last year and has been awarded about $72 million in the six years after the financial crisis. Another biggie who quit was V Shankar -- head of Middle East & Africa -- to set up a private equity fund which will invest in the region. Winters rationalised the bank's eight regions into four new regional businesses: ASEAN & south-Asia, (including India), led by Ajay Kanwal; Africa & middle-East (Sunil Kaushal, India CEO of the bank till then); Greater China & north-Asia (Ben Hung); and Europe & Americas (Tracy Clarke). India now resides in the new ASEAN & south-Asia region under Ajay Kanwal; he assumed his new role on 1st October 2015 based out of Singapore. Kaushal moved over to take charge as regional CEO for the combined Africa & middle-East regions (1st October 2015). A new CEO for India is be appointed (the grapevine says it is Manisha Girotra, boss at Moelis & Company Holdings; and a former India head of UBS) soon and this role will report to Kanwal; both Kaushal and Kanwal do so to Winters, and the Group's management team. StanChart is to cut 17 per cent of its workforce to reduce costs by $2.9 billion by 2018, and sell or restructure $100 billion of loans, on a risk-adjusted basis - or a third of its total. Winters, a former JPMorgan investment bank boss who took the helm of StanChart in June, described this as an "aggressive and decisive set of actions" to shore up the company. The news of the rights issue and restructuring came as Asia-focused bank posted a third-quarter operating loss of $139 million, weighed down by growing global regulatory costs and rising loan impairments in India.
Read More
Fitch Ratings on Tuesday (03 November) said the growth in non-performing loans (NPLs) of the Indian banking system will slow down in the current fiscal and some green shoots are visible with regard to their asset quality. “Fitch Ratings expects Indian banks’ stressed asset ratio to improve marginally to 10.9 per cent in the current fiscal from 11.1 per cent in FY 2014-15,” it said in a report on Indian banks’ asset quality. It said the growth in new non performing loans would slow down further with cyclical recovery, and a moderate pick-up in loan growth will also provide a support. “The stress in structurally weak sectors has not entirely subsided, though we believe that banks will use the available recourse to restructure and reschedule sector-specific loans,” it said. Fitch also highlighted the need to clear stalled projects, saying speedier resolution can have a huge impact in reviving the sector, stimulate capital formation and allow greater flexibility to banks to pass on interest cuts. Fitch said asset quality is likely to remain an issue for the sector for some time despite some evidence of ‘green shoots’. The infrastructure and steel sectors could yet see greater asset-quality stress if structural and policy-related issues are not addressed more urgently. Infrastructure and steel together account for 20 per cent of total system loans, and are reported to account for up to 40 per cent of stressed assets. “Despite some green shoots in certain sectors (road), there will be potential challenges in structurally weak sectors like infrastructure (including state electricity distribution companies), steel, construction, although NPL additions might be moderate,” it added. It said with a recovery in GDP growth, the NPL formation would be held back. Fitch projected the economy to grow 7.8 per cent in the current fiscal and 8 per cent in FY 2016-17, up from 7.3 per cent in FY 2014-15. Further, the RBI’s more accommodative monetary policy stance since January 2015 should also help to boost credit demand and aid the recovery in banks’ asset quality. “Slower-than-expected economic growth and weak ability of banks for monetary transmission are likely to make the asset-recovery process prolonged,” it said. State banks account for more than 90 per cent of the total stressed assets and are increasingly resorting to write-offs and NPL sales as a preferred recourse for reducing NPL stock. “We expect this trend will continue until recoveries and upgradations outrun incremental NPLs by a meaningful margin,” it said. Fitch said the retail sector would remain the primary loan growth driver in the near term, until private-sector capex sees some revival. It expects the policy initiatives to bring the investment climate in India closer into line with that of its peers, though whether reforms would translate into higher real GDP growth would hinge on actual implementation. Indian banks’ loans grew by 9.7 per cent in last fiscal from 15 per cent in FY 2013-14, the slowest in a decade. The retail and farm sectors were key contributors, while industry and services witnessed a sharp reduction. Loan growth was weak in the first quarter of the current fiscal, but a moderate pick-up is likely if the central bank’s more flexible monetary stance finds equal transmission by banks. “The state banks will find it difficult to pursue aggressive growth, given their weak capital buffers and high share of stressed assets,” Fitch added. (PTI)
Read More
