Beijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world's biggest corporate debt pile - $16.1 trillion and rising - is a much greater threat to its slowing economy and will not be so easily managed. Corporate China's debts, at 160 percent of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows. And the debt mountain is set to climb 77 percent to $28.8 trillion over the next five years, credit rating agency Standard & Poor's estimates. Beijing's policy interventions affecting corporate credit have so far been mostly designed to address a different goal - supporting economic growth, which is set to fall to a 25-year low this year. It has cut interest rates four times since November, reduced the level of reserves banks must hold and removed limits on how much of their deposits they can lend. Though it wants more of that credit going to smaller companies and innovative areas of the economy, such measures are blunt instruments. "When the credit taps are opened, risks rise that the money is going to 'problematic' companies or entities," said Louis Kuijs, RBS chief economist for Greater China. China's banks made 1.28 trillion yuan ($206 billion) in new loans in June, well up on May's 900.8 billion yuan. The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where long-term borrowing costs remain high, and banks are reluctant to take risks. Manufacturers' debts are increasingly dwarfing their profits. The Thomson Reuters study found that in 2010, materials companies' debts were 2.8 times their core profit. At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit. For industrials, from 2.5 to 4.2. Low ReturnsGao Hong, investor relationship principal at railway equipment maker Jinxi Axle Co, which has seen its debt-to-core profit multiple triple to 10.25 between 2010 and 2014, said the company struggled to find profitable capital projects to invest in, so put money into short-term bank products that guaranteed returns. "The risk for these (capital) programmes is so high and the rate of return so low that we have to make the best decision for our investors (by) purchasing bank products. Last year, we made profits thanks to the sale of CNR shares," said Gao. Much of the new lending is going to China's notoriously inefficient state-owned enterprises (SOEs) as part of the government's fiscal stimulus. “They are lending more to fund infrastructure projects, and some may be done by SOEs where leverage is increasing as a result," said Tao Wang, UBS head of China research. "Prices are declining and revenue is slowing, and in this environment you cannot force too quick a deleverage – that would lead to a hard landing," said Wang. S&P expects China's companies to account for 40 percent of the world's new corporate lending in the period through 2019. But quantity is not the only problem. Getting credit to the most efficient companies, where it has the most impact on the economy, would be easier if inefficient companies were allowed to fail, so markets can price debt effectively. Policymakers have said they want market mechanisms to play a bigger role in credit pricing, but in practice have baulked at the consequences, effectively bailing out companies in trouble, as it did last year when state-backed Shanghai Chaori Solar Energy Science and Technology Co Ltd defaulted on a bond coupon payment. Rapid debt growth, opacity of risk and pricing and very high debt to GDP are a hazardous combination, Standard & Poor's says. It took an unprecedented series of measures to arrest the plunge in China's stock markets, which are worth just over $8 trillion and are a minority pursuit for the relatively wealthy. Tackling corporate debt might make that seem like child's play. "Managing the debt market is probably more dangerous than the stock market because the scale of the debt market is bigger, and without any high-profile default, the moral hazard is a significant issue," said David Cui, BofA Merrill Lynch analyst. (Reuters)
Read More
Barclays Plc plans to cut more than 30,000 jobs within two years after firing Chief Executive Antony Jenkins this month, The Times reported on Sunday. This redundancy program, which could reduce the bank's global workforce below 100,000 by 2017 end, is considered as the only way to address the bank's chronic underperformance and double its share price, the newspaper said, citing senior sources. These job cuts are likely to affect staff at middle and back office operations, where largest savings are achieved, the Times said. The paper said that a potential candidate, who would replace Jenkins, is expected to axe jobs much faster and more deeply than the ousted boss. Barclays deputy chairman Michael Rake joined payments processing firm Worldpay as its new chairman in mid-July. Barclays could not be reached immediately for comments outside regular business hours. (Reuters)
Read More
SBI has signed up a tripartite pact with BankBazaar.com, an online personal finance products collector and SBI CAP Securities Ltd (SSL) to show its housing loan products on the bankbazaar.com.This tripartite deal will strengthen the online presence of SBI and improve the response time for its customers.BankBazaar.com will offer them a repertoire of benefits such as loan customisation and online application. The plan is to further pre-integrate with e-KYC that will further simplify the online applications approval process as customers will upload the documents online on government portals, which can then be verified quickly.The platform can enable a loan approval in as early as seven minutes, along with correctly addressing paperwork complexities. Additionally, the BankBazaar.com technology allows its customers to have single authentication online accounts with specific username and password. This technology will help them save their data and track their applications.(BW Online Bureau)
Read More
Sunil Dhawan explains what are the steps you need to take to live comfortably after retirementDepending solely on EPF may not be the right decision by employees to meet post-retirement needs. Here are the steps to arrive at your exact retirement need and monthly savings required.Pause for a moment. And see how we all are building ways and means to fend for ourselves in the future. In our daily hustle and bustle, we tend to live mostly for the present. Retirement for most of us remains the most ignored goal. For others especially salaried employees, it could be lot of misplaced confidence when it comes to saving for retirement.Why Not To Bank On EPF: The interest rate on EPF varies each year and is currently 8.75 percent per annum for FY 2015-16. With inflation hovering around 9 per cent, the real impact on your money would be negative and will hardly help you create wealth. Debt assets are preservers of your principal amount of savings. The real-return i.e. inflation adjusted return is low in EPF and can tremendously damage your purchasing power by the time you retire.Is Contribution Enough: Look at the contribution both from employee and employer in rupee terms. Would that be sufficient to create a comfortable amount of corpus for retirement? Not all employers or corporates have a similar salary structure for their employees. If the basics salary is high, contribution too will be more compared to another employee in different organisation at similar level (same CTC) whose basic salary is lower. Employers may offer higher allowances while keeping the basic salary low. The maximum that one gets to save in EPF is 12 per cent of the basic pay. The employer too contributes an equal amount, however, not all goes into employee’s EPF. Out of employer’s contribution, only 3.67 per cent comes into the EPF, balance moves into employee’s pension scheme. So, for employees with lower basic salary (not necessarily low CTC) may end up saving less towards their retirement. Banking solely on EPF by them could be more fatal.Salaried employees largely bank upon their employee provident fund (EPF) contributions. There are two concerns with EPF savings – contributions or savings might not be sufficient to meet retirement goal and secondly real rate of return after adjusting for inflation is low, EPF being a debt asset. The solution to both of these concerns may be met through investment products that are equity-oriented. Get The Exact Retirement Number In Place: The first thing is to arrive at the exact post-retirement monthly needs. If you think, meeting it is possible through your EPF contributions is sufficient, it’s great. Else, you need to create your own portfolio and do some additional savings. Here are the steps:1. Get a fix on your household’s present monthly expenses at current costs.2. Get the number of years left for you to retire.3. Inflate the household’s present monthly expenses at about 5 per cent.What you arrive at is the monthly expenses that you would incur once you have retired after adjusting for inflation.4. Now, estimate how much you corpus needs to be created to provide for the inflated monthly expenses amount.5. Finally, you will have to find out how much monthly savings (at around 8.5 percent) will be required to create that corpus.If monthly savings required is equal to your EPF, its fine. Else, you need to start additional saving.It’s highly improbable that EPF contributions will help you create enough corpus to meet post-retirement monthly inflation adjusted needs.Let’s work on an example.Assumptions:A’s age – 30Years to retire – 30 (Y)Current annual expenses – Rs 2.5 lakh. (PC)Pre and post inflation rate. – 6 per cent. (Ri)Pre-retirement rate of return - 10.5 per centPost retirement rate of return – 7 per cent.End note: In our above example, for some with Rs 20,000 expense, the income could be about Rs 40,000 a month. Results shows, he needs to save about Rs 6,500- Rs 9,000 a month to save towards retirement. That’s it! And it’s well within the reach.Life expectancy not considered. However, doing this small exercise on your excel sheet using the formulas will give you fair idea as to how much you need to save.
Read More
State-run insurance companies – National Insurance, New India Assurance, Oriental Insurance and United India Insurance – are shocked by the collective financial penalty of Rs 671 crore slapped by the fair trade regulator – Competition Commission of India (CCI) – which found them guilty of bid rigging and manipulating the bidding process initiated by Kerala for selecting insurance service provider for Rashtriya Swasthya Bima Yojna for the years 2010-11, 2011-12 and 2012-13.While an official reaction from each of the individual insurance firms is awaited, sources said these firms will individually appeal against the CCI order before the Competition Appellate Tribunal within the stipulated 60-day period."The question of cartelisation arises only when there was some profit involved... we don't make any money on any of the government-run schemes. There is something wrong with the CCI order," said a senior executive of General Insurance (Public Sector) Association (GIPSA), the apex body of public sector insurance companies.The CCI, however, said that it had initiated the probe against these state-run insurance companies based on anonymous information received by it.It said in its order dated July 10th that its investigations found that there was manipulation of the bidding process in contravention of the provisions of the Competition Act.While imposing penalties, the Commission noted that the present case related to bid rigging in public procurement for social welfare schemes, the beneficiaries of which were BPL and poor families and as such the same was taken as an aggravating factor.Accordingly, penalties of Rs. 162.80 crores, Rs 251.07 crores, Rs 100.56 crores and Rs 156.62 crores were imposed upon National Insurance Co. Ltd., New India Assurance Co. Ltd., Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd.(BW Online Bureau)
Read More
The Reserve Bank of India (RBI) has asked the public not to write on the watermark window of banknotes as it bears an important security feature which differentiates it from a fake note. RBI said it was brought to its notice that members of public and institutions write number, name or messages on the watermark window of banknotes and thus deface the currency. "The watermark window has an important security feature which distinguishes it from a counterfeit note. Any defacement on the window will not allow the common man to identify one of the features of a genuine note," RBI said in a notification. "The public is, therefore, requested to refrain from doing anything that leads to defacement," it added. (PTI)
Read More
International banks and most insurers are likely to steer clear of dealing with Iran for some time, fearing they could face more fines from U.S. regulators despite this week's nuclear deal between world powers and Tehran. With almost 80 million people and annual output of some $400 billion, Iran will be the biggest economy to rejoin the global trading and financial system since Russia emerged from the ruins of the Soviet Union over two decades ago. But while Iran is trying to come in from the cold, many of the sanctions imposed over its nuclear programme are likely to stay for months and those that are lifted can be rapidly restored if the deal falters. U.S. and European banking restrictions, for example, will be lifted only when the International Atomic Energy Agency has verified that Iran is keeping to its side of the bargain. The layers of sanctions also include U.S. anti-money laundering legislation, and any breaches could lead to banks being cut off from the U.S. dollar clearing system. "There’s a real hesitancy for the right reasons," said Washington lawyer D.E. Wilson, former acting general counsel at the U.S. Treasury, whose Office of Foreign Assets Control (OFAC) enforces the legislation. "The banks don’t want to get into trouble." There are tentative signs of a financial thaw. In one of the first steps to normalise trade between Britain and Tehran, the UK's export credit agency told Reuters on Thursday it was planning to review Iran's creditworthiness. But Germany's largest bank by assets, Deutsche Bank, said it would consider doing business in Iran only when sanctions disappear. "Deutsche Bank will continue to adhere to all U.S. and EU sanctions against Iran," it said in a statement. "The bank closely monitors the implementation of the nuclear agreement and related sanctions and will reconsider its position if sanctions are lifted in areas of relevance to the bank." Deutsche has yet to reach a settlement with U.S. officials over suspicions that it may have breached sanctions in dealings with Iran. The bank has already paid about 9 billion euros ($9.8 billion) in U.S. and European settlements and fines in the past three years, and faces more U.S. penalties in the Iran case. Germany's second biggest lender Commerzbank declined to comment. In March, Commerzbank agreed to pay U.S. authorities $1.45 billion after it joined the ranks of European banks to acknowledge moving funds through the U.S. financial system for countries such as Iran and Sudan. British banks will also be cautious given past experiences, industry sources said. They are generally pulling out of business likely to stir controversy and slimming their international operations in response to recent scandals. HSBC was fined $1.9 billion in 2012 by U.S. regulators for violations including doing business with Iran, while Standard Chartered paid $667 million in 2012 for violating U.S. sanctions and a further $300 million after more compliance shortcomings were uncovered. "Global banks are unlikely to rush in until the ground rules are clearly laid out by the U.S," an executive at a major bank based outside the United States. U.S. banking groups JPMorgan Chase & Co and Citigroup declined to comment. Lenders further afield are also playing safe. "Some banks that can operate lawfully beyond the reach of the OFAC sanctions have chosen as a matter of bank policy not to engage in any Iran dealings ... The juice isn’t worth the squeeze," said Les Carnegie, who specialises in international trade and national security matters at law firm Latham & Watkins. Global transaction services organisation SWIFT said on Tuesday current European Union sanctions remained in place which included "measures prohibiting companies such as SWIFT from providing specialised financial messaging services to EU-sanctioned Iranian banks". First StepsStill, parts of Britain's financial services industry - which includes the Lloyd's of London insurance market - will be vying for business in Iran. Government department UK Export Finance (UKEF), which provides banking and insurance guarantees to support British exporters, said on Thursday it would initiate "a review of Iran to assess creditworthiness, in light of the new agreement, and the expected positive effect on the Iranian economy". However, it added that Iran had to clear arrears with UKEF "to a large degree" before full cover could be restored. Nigel Kushner, a director with the British Iranian Chamber of Commerce association, said trade prospects would depend on Iran complying with a "multitude of obligations". "The reality is that there will be no tangible change in the EU or U.S. sanctions regime for at least six to nine months at best," said Kushner, a London-based sanctions lawyer. Industry sources said that while some insurers were gearing up for a resumption of business, they were unlikely to make any moves yet. Helen Dalziel, senior market services executive at the International Underwriting Association, said the British Treasury had issued a notice to insurers saying its previous guidance remained in place. "They’re not recommending trade with Iran at present," she said. "Essentially, nothing's changed for our members and won’t change for several months, we believe." Insurer Allianz said it would adjust its business "if and when the steps specified in the political agreement have been implemented". A similar message was given by CityUK, a trade association working to promote UK financial services overseas. "Our focus will be on the need for a clear and consistent policy on sanctions and their operation," said Gary Campkin of CityUK. Under interim accords reached between Iran and world powers, Iran was allowed to secure insurance cover to transport oil cargoes - Tehran's main revenue earner - for approved business. The interim agreement was renewed on a six-month basis and most ship insurers - known as P&I clubs - remained wary of entering into contracts. The International Group of P&I clubs, whose members provide liability cover to 95 percent of the world's tanker fleet, said it was difficult to say when EU and U.S. legislation would be repealed or rolled back. "In the meantime clubs should advise members with an interest in trading to Iran to proceed with extreme caution and continue to seek independent advice before committing to trade contracts," it said in a note this week. (Reuters)
Read More
India has simplified rules for foreign investment in companies by clubbing together different categories, Finance Minister Arun Jaitley said on Thursday (16 July), effectively giving equal treatment to global capital entering Asia's third largest economy.The move, flagged by Jaitley in his budget in February, will make it easier for banks like Yes Bank and Axis Bank to raise capital up to a foreign ownership limit of 74 percent, say analysts."One of the most important decisions in relation to the investment is the introduction of composite caps for simplification of foreign direct investments," Jaitley told reporters after a cabinet meeting.Jaitley said foreign direct investment, foreign portfolio investment and investments by non-resident Indians would be "clubbed together under a composite cap".Banking stocks rose after the announcement. Axis Bank shares rose nearly 5 percent, while Yes Bank gained 3.6 per cent in a Mumbai market that was up 0.8 per cent.Previously, foreign capital had been subject to varying restrictions - a legacy of India's socialist past and its lingering reluctance to allow capital to move freely across its borders.The Department of Industrial Policy and Promotion (DIPP), part of the Commerce Ministry, proposed simplifying the investment rules after Prime Minister Narendra Modi won an election last year by pledging to boost investment and jobs.For banks, the shift will lead to an increase in their effective free float - or the number of shares that can be easily traded. That in turn would lead to an increase in their weighting in benchmark indexes tracked by many fund investors.India has also allowed 100 percent investment in pharmaceuticals and railway infrastructure under a so-called automatic route that does not require official approvals.Sectoral foreign investment caps have been raised in the insurance and defence sectors to 49 percent. No major deals have yet been announced, however, reflecting a lack of clarity over how India treats different types of capital.(Reuters)
Read More
