HYDERABAD: Despite growth and inflation balance shifting favourably, the Reserve Bank of India (RBI) foresees inflationary pressures in the medium and long term. In the present economic environment, there is little room for lowering interest rates, said RBI deputy governor Subir Gokarn.
“The central bank has started the process of reducing interest rates from last month. However, if you look at our inflation projections, in relation to what we consider as long-term or medium-term objective, there are inflation pressures. That, in a sense, limits the room that we have to reduce rates,” Gokarn said on the sidelines of Ficci’s national executive council meeting held in Hyderabad on Tuesday.
For the first time in three years, RBI had slashed the short-term lending rate by 0.5 per cent to eight per cent in April 2012. In March, it reduced the cash reserve ratio (CRR) by 75 basis points from 5.5 per cent to 4.75 per cent, thereby injecting around Rs 48,000 crore of primary liquidity into the banking system. After reducing the CRR, the daily withdrawal and borrowings have come down to a little over Rs 1 lakh crore from Rs 1.9 lakh crore, Gokarn said.
Roll-out of goods and services tax (GST) would help reduce inflation, said the deputy governor. “To have a balance between growth and inflation, tax reforms in the form of GST and investments in increasing food productivity are vital,” he said.
Declining to comment on when the rupee situation is expected to come to an acceptable level, he said, “It is a fluid situation, both domestically and globally, and we need to respond to the market conditions as they emerge.”
A widening current account deficit and a negative balance of payments amid rising imports are still worrying the central bank, which could limit RBI’s ability to defend the local currency, Gokarn said, adding that the ultimate determinant on what the exchange rate is going to be will depend on how much capital comes in.
“Capital inflows have dwindled. The demand on current account remains very strong and so the pressure is still there. You cannot be putting yourself in a situation of greater vulnerability by running into what is perceived by investors as a situation of inadequate capacity to meet external obligations. And, that’s high risk,” he said.
Replying to a query on the bond purchase programme through open market operations (OMO), Gokarn said RBI had announced the programme as the tight cash situation did not seem to be short-lived. “Over the last few days, we have seen borrowings touching Rs 1 lakh crore. The situation is still outside the comfort zone and hence (RBI) decided to go in for an OMO,” he said, adding that pressure on food inflation was still strong in the country and the risk of inflation becoming resurgent was significant.
The central bank is conscious of the extreme volatility in the rupee exchange rate and has a variety of tools to guard against such fluctuations, Gokarn said.
Capital flows will be the “ultimate determinant” for the currency, he said while reiterating that the widening current account deficit and a negative balance of payment were “stress points” for the economy.
Foreign institutional investors turned net sellers in both equity as well as debt in the month of April, although they were net buyers so far in the overall calendar year. FIIs sold about $927 million of debt and equity in April.
LET’S BITE THE BULLET ON FUEL & REFORMS: FM TO OPPOSITION, STATES
NEW DELHI: The United Progressive Alliance’s chief crisis manager Pranab Mukherjee made a compassionate plea to all political parties and states to urgently bite the bullet on fuel subsidies and urged the Opposition to help with the passage of some crucial economic laws. He also tinkered with the indirect tax rates to cheer some sectors, including commercial vehicles, solar energy, polyester fibre, yarn from waste and certain parts of footwear, even as he expressed hope that the Goods and Services Tax could be rolled out next fiscal. Winding up the debate on the Finance Bill, 2012 in Lok Sabha, Mukherjee also promised the House a white paper on black money in the ongoing session of Parliament itself, though he declined to reveal the names of tax evaders. “…the government is awaiting the reports about the estimate of black money stashed abroad, which are being prepared by three independent groups,” he said on Tuesday. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/lets-bite-the-bullet-on-fuel-reforms-pranab-mukherjee/articleshow/13059049.cms)
COMING SOON: PROVIDENT FUND NUMBER PORTABILITY
NEW DELHI: Soon, you will be able to switch jobs without worrying about transferring your lifelong savings lying with the Employees Provident Fund Organisation (EPFO). Like your mobile number, the EPFO intends to shift to a portable unique account number that will make this possible. And, unlike several government promises that come without any timeframe, EPFO has set a deadline for the end of 2012. A senior ministry official said the EPFO would soon appoint a consultant to initiate the process. The new number that every employee would get would be independent one. EPFO has at least 4.4 crore active subscribers, which is less than 50% of the actual accounts. The organization manages a corpus of at least Rs 3.5 lakh crore. The move has been prompted by the entity’s experience with inactive accounts. At least 1 crore of the accounts with EPFO, with over Rs 15,000 crore, are lying idle as subscribers have not transferred the funds to their new accounts. (For details log on to : http://timesofindia.indiatimes.com/business/india-business/Coming-soon-Provident-fund-number-portability/articleshow/13059249.cms)
INVESTORS CAN BE WRONG ABOUT ADVERSE IMPACT OF BASEL III NORMS ON ROE
Oftentimes, the will of the lobbyist turns out to be stronger than that of the regulator. It will be more so, if the lobbyist happens to be the government itself. Ever since the Reserve Bank of Indiacame up with the Basel III guidelines, the Bankex is down 6.9%. State Bank of India, which holds a fifth of the industry, is 8.8% lower. The deep erosion of value in such a short time is due to worries that the implementation of the so-called Basel III proposals will have an adverse impact on the return on equity, financial ratios will be hurt and that banks won’t be able to grow their loans since government-dependent lenders won’t have capital. As in most cases, investors could turn out to be wrong with this one too. Not for anything else, but because of the fact that a major section of the banking industry may find it tough to meet the Basel III norms. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/investors-can-be-wrong-about-adverse-impact-of-basel-iii-norms-on-roe/articleshow/13059469.cms)
DENA BANK PROFIT RISES 62 PER CENT
MUMBAI: Dena Bank on Tuesday reported a 62 per cent rise in net profit for the quarter ended March 31 at Rs 255 crore, against Rs 157 crore reported in the corresponding period a year ago, on the back of healthy growth in fee-based income. The lender has reported a 35 per cent rise in its fee-based income to Rs 160 crore, compared with Rs 118 crore in the same quarter last year. In the same period, net interest income (NII) was higher by 27 per cent to Rs 598 crore, from Rs 471 crore. Net interest margin (NIM) improved 12 basis points to 3.21 per cent on year-on-year basis. The bank restructured assets worth Rs 3,400 crore during 2011-12. Deposits of the Mumbai-based bank grew by 20.18 per cent to Rs 77,167 crore, while gross advances were higher by 26.56 per cent at Rs 57,159 crore. Gross non-performing assets (NPA) ratio improved to 1.67 per cent, from 1.86 per cent, and net NPA ratio stood at 1.01 per cent against 1.22 per cent earlier. (For details log onto : http://www.business-standard.com/india/news/dena-bank-profit-rises-62/473816/)
CENTRAL BANK OF INDIA POSTS LOSS
MUMBAI: State-run lender Central Bank of Indiareported a net loss of Rs 105 crore for the quarter ended March 31, on the account of significant rise in provisions for non-performing loans. In the same quarter last year, the bank had reported a net profit of Rs 113 crore. This is the first quarterly loss posted by the bank since it was listed in mid 2006. Due to higher restructured assets, provisions during the quarter more than doubled to Rs 857 crore against Rs 306 crore in the same period a year ago. During 2011-12, loans worth Rs 17,347 crore were restructured, a three-fold rise from Rs 5,294 crore a year ago. Of these, Rs 7,781 crore of loans were restructured in the last quarter. “During the last quarter total slippages on restructured loans stood at Rs 1,495 crore, which impacted the profitability of the bank,” M V Tanksale, chairman and managing director of Central Bank of India, said. (For details log onto : http://www.business-standard.com/india/news/central-bankindia-posts-loss/473814/)
KOTAK MAHINDRA BANK NET UP 6 PER CENT
MUMBAI: Kotak Mahindra Bank has posted a six per cent rise in consolidated net profit for fourth quarter ended March 2012 at Rs 521 crore on lower contribution from treasury. The consolidated net profit for Q4 ended March 2011 stood at Rs 491 crore. The consolidated total income rose to Rs 4,364 crore in Q4 from Rs 3,049 crore a year ago. Much of the profit growth came from the banking business. The net profit, on standalone basis, in Q4 rose to Rs 297 crore, from Rs 249 crore in Q4 of FY11. Uday Kotak, vice-chairman and managing director, said the profit growth was subdued due to lower income from treasury and higher advertising expenditure. (For details log on to : http://www.business-standard.com/india/news/kotak-mahindra-net6/473815/)
PRAHLAD SHANTIGRAM QUITS STANDARD CHARTERED
MUMBAI: After a successful nine-year stint, the man who took Standard Chartered to the pinnacle of merger and acquisition in Indiaand Southeast Asiahas quit. Singapore-based Prahlad Shantigram, global head (M&A) of the bank, resigned in April. Shantigram was with the bank since 2003 and for the past three years, was its global M&A head, first out of Mumbai and then relocated to Singaporein early 2011. The sudden departure has taken the entire investment banking fraternity by surprise. Shantigram, 47, was seen as a key personnel in the bank, responsible for many bulge bracket transactions. Under him, the bank topped the M&A league tables in 2010, with Bharti’s $10.7-billion acquisition of Zain Africa being the jewel in the crown. “We can confirm that Prahlad Shantigram is no longer with Standard Chartered. We wish him the best in his future endeavours,” said a Standard Chartered spokesperson. (For details log on to : http://www.business-standard.com/india/news/prahlad-shantigram-quits-standard-chartered/473809/)
AEGON NOT EXITING FROM INSURANCE JV WITH RELIGARE AND INDIA: HENCK
NEW DELHI: Dutch insurance major, AEGON has re-iterated that the company is committed to the insurance joint venture in India, AEGON Religare, and the Indian insurance market. Nor is it planning to exit the Indian market or its joint venture. AEGON’s chairman and chief executive officer (Asia) Douglas Henck said that Indiawas of strategic importance to the company and was a country that had attractive growth opportunities for the future. “Favourable demographics and income profile will continue to drive growth (e.g. growing middle class, growing urbanisation, rising income levels, favourable age profile, low insurance penetration, and increasing awareness),” he said in a statement issued in response to a Business Standard report published on Tuesday (AEGON may exit Religare venture). Henck further added, “Together with our partners in Indiawe continue to build a successful venture towards becoming a leader in our chosen markets by 2015 – not necessarily the biggest, but the “most recommended” among our customers, employees and distributors, as well as the “most respected” insurer in wider society”. (For details log on to : http://www.business-standard.com/india/news/aegon-not-exitinginsurance-jvreligareindia-henck/473835/)
LIC HOUSING FINANCE RAISES RS 250 CRORE FOR REAL ESTATE PRIVATE EQUITY FUND
BANGALORE: LIC Housing Finance Ltd, the mortgage unit of India’s biggest insurer, has achieved a first close of Rs 250 crore for its maiden real estate private equity fund. Launched late last year, the fund has a target size of Rs 500 crore, with a green shoe option of Rs 250 crore. This provision will allow LIC Housing Finance Asset Management Company, the manager of the fund, to sell more units than planned. “We have raised Rs 250 crore so far from institutional investors like banks and corporates,” AK Sharma, chief executive of LIC Housing Finance, told ET. “We also have additional commitment of Rs 50 crore and are hopeful to finish fund raising by June end.” The fund has a target net internal rate of return of over 22%. It will invest in urban real estate such as mid-income housing projects, IT parks and warehouses across tier I and II cities. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/lic-housing-finance-raises-rs-250-crore-for-real-estate-private-equity-fund/articleshow/13059128.cms)
SHRIRAM TRANSPORT FINANCE TO RAISE RS 500 CRORE THROUGH NCD ISSUE
MUMBAI: Shriram Transport Finance, the largest commercial vehicle financier in the country, plans to raise Rs 500 crore by issuing secured non-convertible debentures to meet the lending requirement. The issue, with a coupon of 10.5%-11% will open in July and will close in 15 days. “We are planning to raise Rs 500 crore through NCD issue,”” said Sanjay Mundra vice president Shriram Transport Finance. “While the coupon rate would depend on the interest rate movement but would be in the range of 10.5%-11%.” The Chennai-based company today posted lower net profit of Rs 308 crore in the fourth quarter of 2011-12 from Rs 340 crore, due to lower growth in advances. The company disbursed loans worth Rs 5,000 crore in the quarter against Rs 6,200 crore in the same period last year. Margins for the non-banking finance company has come down to 7.24% from 7.59% a year ago. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/shriram-transport-finance-to-raise-rs-500-crore-through-ncd-issue/articleshow/13052605.cms)
FIIs TURN BEARISH AS MACRO FEARS WEIGH
MUMBAI: Foreign investors, drivers of domestic stocks, have increased their bearish bets by buying Nifty put options, raising fears of a further decline in markets despite the government having postponed a controversial set of tax laws, which has spooked them, by a year. The government announcement that general anti-avoidance rules (GAAR) had been deferred to FY14 led to huge short-covering on Monday, which pulled the markets back from the brink and raised hopes that the bounce-back will continue. However, Nifty shed over 100 points to settle just under the 5000-mark on Tuesday, underscoring the view that the economy’s bleaker prospects are a bigger concern for investors than GAAR. “FIIs have been buying 4800-4900 Nifty index puts over the past two days to hedge their long books,” said TS Harihar, head – institutional derivatives, ICICI Securities. “Sentiment is still bearish what with the rupee at lows of 53-54 (to the US dollar) and May typically being a bad month for the markets.” (For details log on to : http://economictimes.indiatimes.com/markets/analysis/fiis-turn-bearish-as-macro-fears-weigh/articleshow/13057690.cms)
SMALL-CAPS CAN GIVE BIG RETURNS IN LONG TERM
MUMBAI: Betting on quality micro-cap stocks may fetch you superior returns, if you have the patience to hold those for a long term. Nearly 85 per cent of micro and nano-cap stocks, having less than Rs 265 crore market capitalisation, delivered better returns than the overall market’s returns in the past 10 years, according to Morgan Stanley. The Wall Street firm studied the returns on 1,613 stocks traded during March 2002 and March 2012 in Indiaand found wealth creation was best in micro-cap stocks. Companies de-listed or merged with other companies during the past decade were excluded from the analysis. Morgan Stanley also excluded companies like TCS, Coal India, NTPC, Maruti, Reliance Communications and DLF, which were listed during this decade and hence have a less-than-10-year price history. The median 10-year return for 1,613 stocks was 18.4 per cent compounded annual growth rate (CAGR), while the average price return for the sample was 18.7 per cent CAGR, Morgan Stanley found in its analysis. The median return from equities exceeded the 10-year government bond yield or the risk-free rate, which was 7.5 per cent in March 2002, by almost 11 percentage points. In comparison, average return for stocks having a market cap less than Rs 265 crore was 23 per cent CAGR. (For details log on to : http://www.business-standard.com/india/news/small-caps-can-give-big-returns-in-long-term/473786/)