Strengthening dollar depletes India’s foreign exchange coffers

Feb 28, 2016 0

Mumbai– A strengthening dollar, coupled with the central bank’s attempts to arrest the fall in the rupee’s value plunged the country’s foreign exchange (Forex) reserves during the week ended February 19, experts said on Saturday.

According to the Reserve Bank of India’s (RBI’s) weekly statistical supplement, the overall Forex reserves declined by $1.46 billion to $350.36 billion.

The foreign reserves had risen by $347.2 million to touch $351.83 billion for the week ended February 12.

Currency analysts, cited revaluation impact as the main reason for the depletion in
foreign exchange coffers.

“The country’s foreign exchange reserves were negatively impacted by a strengthening dollar during the week under review,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

The foreign currency assets (FCA), which is the largest component of India’s Forex reserves, slumped by $1.43 billion to $328.58 billion during the week under review.

Apart from the US dollar, the FCA consists of nearly 20-30 percent of other non-US dollar major global currencies, securities and bonds.

The individual movements of these currencies against the US dollar impacts the overall foreign reserves value.

“The US dollar rallied by more than one percent against major global currencies during the week under review. This receded the foreign exchange reserves,” Banerjee added.

Other currency analysts blamed the central bank’s dollar selling activity to arrest the fall in the rupee’s value for the decline in Forex coffers.

“RBI has been very active. It has been selling US dollars to stem the fall in the rupee’s value,” a currency analyst told IANS from New Delhi.

“It may have even sold more US dollars at the forward and futures market, which are not counted, as part of the official reserves statistics.”

On a weekly basis, the rupee weakened by 23 paise to 68.47 (February 18) against a US dollar from its previous close of 68.23-24 (February 12).

The weakness in India rupee’s value indicated the massive outflow of foreign funds from the equity and debt markets.

National Securities Depository Limited (NSDL) figures showed that the FPIs (Foreign Portfolio Investors) sold Rs.3,307.47 crore or $484.42 million in the equity and debt markets from February 15-18.

Data with stock exchanges disclosed that the FPIs divested stocks worth Rs.2,608.87 crore during the week under review.

Notwithstanding the downward trend, the country’s gold reserves remained stagnant at $17.69 billion for the week ended February 19.

However, the special drawing rights (SDRs) were negatively impacted by currency revaluation as they plummeted by $2.57 billion to $1.48 billion.

Similarly, the currency revaluation impacted the country’s reserve position with the IMF. But unlike SDRs, the impact was positive, which swelled the reserve position by $2.54 billion to $2.59 billion. (IANS)

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Rupee touches 30-month closing low

Feb 22, 2016 0

Mumbai–The Indian rupee weakened by 14 paise on Monday to touch its 30-month closing low.

The rupee closed at 68.60 against the US dollar, at level which was last seen during late August, 2013.

It weakened by 14 paise to 68.60-61 to a US dollar from its previous close of 68.47 to a greenback on Thursday. The domestic currency markets were closed on Friday.

RupeeOn Friday, the rupee crashed to a record low of 68.89 to the US dollar in the oversees currency markets. It ended that day’s trade at 68.72.

“Indian rupee touched a fresh 30-month-low at 68.72 levels on spot, not far from the all time low of 68.85 on spot. It closed at 68.60 to a US dollar,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

“However, alleged hand of RBI (Reserve Bank of India) may have saved the rupee from further losses.”

According to Banerjee, the RBI may have been active on exchange traded currency futures.

The weakness in the rupee value indicates the massive outflow of foreign funds from the Indian equity and debt markets.

The foreign institutional investors (FIIs) were net sellers during the day’s trade. Data with stock exchanges showed that FIIs divested Rs.656.93 crore, during the day’s trade.

According to Hemal Doshi, chief currency strategist, Geofin Comtrade, the rupee’s fell on the back of a strengthening US dollar and weak emerging markets (EMs) currencies.

“The dollar strengthened by about 0.75 percent, while all other EM currencies were under pressure in the day’s trade,” Doshi told IANS.

On technical levels, rupee is seen to have a good support at 68.85-30, a closing below this level may start the recovery rally in the Indian currency.

Other currency analysts said that caution over the upcoming budget session, too dragged the rupee’s value lower.

“Rupee was singled out in the day’s trade due to the start of the budget session. Any signs of a washout in the initial few days will dampen sentiments further,” a currency analysts told IANS from New Delhi.

Parliament’s budget session commences on Tuesday.

In addition, the slide in rupee’s value capped gains in the equity indices.

Despite this the barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) closed — higher by 80 points, or 0.34 percent, at 23,788.79 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) ended the day’s trade mildly in the green. It edged up by 24 points, or 0.33 percent, at 7,234.55 points.

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Currency revaluation swells India’s Forex reserves

Feb 20, 2016 0

Mumbai–Despite a massive decline in India’s reserve position with the International Monetary Fund (IMF), the country’s foreign exchange (Forex) reserves kitty grew by $347 million during the week ended February 12, experts said on Saturday.

According to the Reserve Bank of India’s (RBI’s) weekly statistical supplement, the overall Forex reserves gained by $347.2 million to touch $351.83 billion for the week under review.

The foreign reserves had risen by $2.33 billion to $351.48 billion for the week ended February 5.

Analysts attributed the rise in Forex reserves to the currency revaluation effect and appreciation in the US dollar value.

“The country’s foreign exchange reserves rose by $347.2 million to $351.831 billion in the week to February 12, thanks to revaluation impact from the non dollar part of reserves,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

“RBI may have been selling US dollars that week through the forward and futures market, which is not going to be counted as a part of the official reserves statistics.”

The currency revaluation strengthened the foreign currency assets (FCAs) which is the largest component of India’s Forex reserves. It grew by $1.58 billion to $330.01 billion during the week under review.

Apart from the US dollar, the FCAs consist of nearly 20-30 percent of other non-US dollar major global currencies, securities and bonds.

The individual movements of these currencies against the US dollar impacts the overall foreign reserves value.

“US dollar had rallied by around one percent against major global currencies and that may have also contributed to the increase in reserves,” a currency analyst from New Delhi told IANS.

Notwithstanding, the country’s gold reserves remained stagnant. The bullion had risen by $456.6 million to $17.69 billion for the week ended February 5.

The special drawing rights (SDRs) were higher by $21.5 million to $4.06 billion.

However, the country’s reserve position with the IMF plunged by $1.25 billion to $54.2 million.

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Parliamentary proceedings to guide rupee’s movement

Feb 20, 2016 0

Mumbai– Parliamentary proceedings, coupled with announcements on the upcoming union budget and global cues, are expected to guide the Indian rupee’s trajectory during the coming week, experts said on Saturday.

They pointed out that the currency market participants will keenly follow parliament’s budget session which commences on Tuesday.

“Any signs of a washout in the initial few days will dampen sentiments and dent the rupee,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

RupeeHe elaborated that an “over-valued rupee” will come under pressure from February 22 onwards as a string of US macro-economic data points released till date are expected to keep the dollar well supported.

The rupee had crashed to an all time low at 68.89 to the dollar in the oversees currency markets on Friday and ended the day’s trade at 68.72.

Domestically, the rupee had closed unchanged from its previous close of 68.47 to a greenback on Thursday. The domestic currency markets were closed on Friday.

“There might be some pressure on the rupee on Monday. We can expect the Reserve Bank of India (RBI) to intervene heavily to stem any wild moves in the rupee’s value,” Banerjee predicted.

“Over the next week, we can see some volatility as the market grapples with uncertainty surrounding the budget and the global market developments.”

In addition, investors will look out for any positive budgetary announcements and news on expected banking sector reforms.

Market participants are hopeful that the central government may increase expenditure, announce tax concessions and pave the way to reduce the NPAs (non-performing assets) levels of the banking sector.

“Sentiments are currently down and any positive announcement is surely going to trigger a relief rally in the equity markets. This rally might spill-over to the currency markets,” Banerjee added.

Even the interest of foreign investors in the country’s equity and bond markets will set the tone for the Indian rupee.

On a weekly basis, the rupee weakened by 23 paise to 68.47 (February 18) against a US dollar from its previous close of 68.23-24 (February 12).

The weakness in the India rupee’s value indicates a massive outflow of foreign funds from the equity and debt markets.

The National Securities Depository Limited (NSDL) figures showed that the FPIs (Foreign Portfolio Investors) sold Rs.3,307.47 crore or $484.42 million in the equity and debt markets from February 15-18.

Data with stock exchanges disclosed that the FPIs divested stocks worth Rs.2,608.87 crore during the week under review.

According to Hemal Doshi, chief currency strategist, Geofin Comtrade, the spot market has found good support at 68.30-35 and 68.10-15.

“Resistance is faced at 68.80-85 mark, a break from 68.85 level will open upside towards 69.20-25 levels. The trend is on the upside, only risk would be RBI intervention,” Doshi told IANS.

Other market observers cited that the rupee’s value will move in line with the crude oil price trajectory.

“The rupee seems to be on a thin line. Pressure continues to remain on the rupee till there’s no positive movement in crude. A break of either will lead to 67.50 or 69 plus respectively,” Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.

“Multiple statements are being heard on the crude front. But markets now await a real cut or addressing the slump in the crude oil market. This will lift global sentiments and thereby lessen risk aversion,” Sharma added.

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Indian Income Tax office settles international disputes worth Rs.5,000 crore

Feb 16, 2016 0

New Delhi– India’s Income Tax department has resolved 180 disputes worth Rs.5,000 crore since April 2014 under a mutual agreement procedure (MAP), the government said on Tuesday.

“The Central Board of Direct Taxes (CBDT) resolved cases pertaining to various sectors of the economy like software services, IT-enabled services, manufacturing, consultancy services, among others,” a union finance ministry statement here said.

The countries with which cases have been resolved are the US, Japan, the UK and China, it added.

MAP is an international tax dispute resolution mechanism under the Double Taxation Avoidance Agreements (DTAA) India has signed with many countries.

“The MAP programme is led by one or more Competent Authorities designated by the signatory countries to resolve tax disputes under the provisions of each treaty,” the statement said.

“MAP has emerged as an effective alternative tax dispute resolution mechanism. In the past two years, increased focus on MAP has resulted in resolution of large number of disputes relating to double taxation,” it added.

According to the finance ministry, this is one of the CBDT initiatives to ensure a fair and expeditious dispute resolution regime to encourage foreign investment in the country.

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Did $505 billion go out of India during 2004-13?

Feb 15, 2016 0

New Delhi– The Special Investigation Team (SIT) on black money has asked the DRI to probe if 505 billion dollars were sent out of India during 2004-13, as reported by an American think tank, the government said on Monday.

“The SIT obtained detailed calculations of country-wise illicit financial flows for each of these years from (think tank) Global Financial Integrity,” a finance ministry statement said here.

“The details have been sent to the Directorate of Revenue Intelligence (DRI) on February 8, 2016, and it has been asked to verify the extent to which the calculations are correct,” the statement said.

Necessary action would be taken by SIT after receipt of the DRI’s report, it added.

The ministry said that the SIT through various reports had highlighted trade-based money laundering as a major source of illicit money flow out of the country.

In its second report, the SIT had recommended that there should be an institutional mechanism through a dedicated set-up which examines mismatches in export-import data with corresponding data of other countries on a regular basis.

The SIT also recommended a system for cross-checking prices of imports-exports with international prices wherever possible, especially in case of commodities.

“Various reports including those by Global Financial Integrity have emphasised that trade-based money laundering is the main medium or process through which funds are illegally taken out of countries,” the statement said.

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Bad loans exposing distress among Indian banks

Feb 11, 2016 0

By V. Jagannathan

CHENNAI– The distress in India’s banking system is becoming evident by the day with more of these financing institutions reporting poor results in the third quarter of this fiscal, amid mounting bad loans. What is more, the stress is more pronounced in state-run banks.

“Such reporting of losses by the Indian banks is unprecedented. The trend is clear — unfortunate that several public sector banks are posting negative results and wiping out the equity,” Saswata Guha, director of financial institutions at Fitch Ratings, told IANS.

Technically called non-performing assets, or NPAs, with only some subtle differences, the finance ministry’s own assessment is that these are growing — even though they are equally feared to be grossly under-estimated.

Guha expects the Indian banking sector to close this fiscal with a NPA of around a whopping Rs.4 trillion and total stressed assets of around Rs.9 trillion.

On Thursday, the trend of state-run banks declaring low profits or losses and the ever-ballooning provisions and NPA continued. The index for state-run banks of the National Stock Exchange fell 3.17 percent and that of the Bombay Stock Exchange was down3.81 percent.

In the past year, BSE’s banking index of Bombay Stock Exchange (BSE) has taken a 67 percent hit. In the case of Punjab National Bank, for example, the stock is down 58 percent, while for State Bank, it is down 52 percent.

Reserve Bank of India (RBI) Governor Raghuram Rajan sought to assuage the feelings. “The decline in bank share prices caused investors to panic. Bank share prices are being hit by the global markets turmoil,” Rajan said.

“We’re looking at banks having clean and fully provisioned balance sheets by March 2017. Banks are using tools devised to clean up their balance sheets.” Yet, Guha said government banks are aggressive on write-offs but not on recovery — not even a fifth of the write-offs.

Fitch Ratings’ Guha said the NPA levels do not seem to have plateued and may not go up sharply in the coming quarters. By 2017, it is expected that the balance sheets will become cleaner. The earnings outlook is also more daunting and the pain may continue during the next year.

“For government banks, the revenue is mainly from interest on loans whereas the private bank’s revenue stream is diversified,” Guha said, adding He said it is not that the private banks are immune to NPAs but their credit risk management is better than government owned banks.

Rajan said there was hope. “Change in attitude in the banking system takes time as banks try to unlock the value of their NPAs. But the end-game is in sight. We don’t envisage a further set of AQRs (asset quality review) and new loans that require to be dealt with.”

Rajan said public sector banks’ non-core credit grew at only 6.6 percent, while the same for the private sector was over 20 percent. The only reason for this is of managing stressed assets and some resulting risk aversion because of which public sector banks have curtailed lending.

“We have to clean up banks balance sheets to restore growth.”

Going by the finance ministry, the NPA Ratio of banks — net exposure versus bad loans — rose from 3.42 percent as on March 2013 to 4.62 percent as on the same month of last year. And in absolute terms, the ministry pegs it at Rs.1,83,854 crore versus Rs.3,09,409 crore.

Take the case of Punjab National Bank. Announcing the third quarter results, it said NPAs stood at Rs.22,983.40 crore on December 31, 2015, against Rs.13,787.76 crore in the like period of the previous fiscal — up a whopping 66 percent.

And State Bank of India (SBI), the country’s largest lender? The NPA at Rs.72,792 crore was 17 percent higher than Rs.61,991.45 crore at the end of December 2015, and 28 percent up from Rs.56,834 crore at the end of the quarter ended September 2014.

But the RBI’s Rajan has rubbished the suggestions that the NPA ratio could be at alarming levels.

“I think the 17 percent, 18 percent numbers maybe a little on the high side. But broadly speaking I think we should also be careful about treating any stressed asset as a total write-off,” he had told reporters earlier this month.

According to Guha, the next issue for state-run banks is the capital infusion. The government has said fresh capital infusion from the government will be based on good performance. “Our estimate is that the government infusion is sufficient,” Rajan said.

In the final analysis, Guha feels the situation may be ripe for consolidation in Inia’s e banking sector. “Let’s see if the government bites the bullet.”

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Improving loan origination quality must for India’s securitisation market to develop

Feb 5, 2016 0

CHENNAI–Securitisation of loan accounts is one way of improving liquidity of banks’ assets but the development of securitisation market depends on improving the quality of loan origination, said a senior official of the Reserve Bank of India (RBI) here on Friday.

“For the securitisation markets to develop, we need to improve the quality of loan origination, which solely depends upon ‘ownership of decisions’ relating to loan origination,” said deputy governor R.Gandhi.

He was speaking at the ‘Union Bank Conference on Financial Stability, Credit distress and Economic Growth: The way forward’ at the Great Lakes Institute of Management near here.

Simply put, securitisation is the sale of loan accounts to another player for a sum. The loan accounts thus transferred will not figure in the books of the seller.

According to Gandhi, directed lending in whatever form and outsourcing the loan appraisal function dilutes the concept of owning up this crucial decision of loan origination and contended that those who outsource the loan origination process have no commitment to the loan quality.

He also said central government – the owner of public sector banks – will be more than compensated by increased revenues and better valuations if the costs of social banking is provided through budgetary support after costing them on commercial principles.

Noting people perceive the public sector banks are relatively immune to destabilising impacts owing to government’s support, he said that the same sense of safety evades the government-owned banks when it comes to their valuations which in turn has an efficiency imperative – when judged by their returns on asset or capital employed.

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Reserve Bank of India to ease doing business for start-ups

Feb 2, 2016 0

MUMBAI– Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday announced various steps to facilitate the ‘ease of doing business’ for startups.

Rajan announced a string of initiatives, while announcing the sixth bi-monthly monetary policy review here.

“In keeping with the government’s Start-up India initiative, the Reserve Bank will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups,” he said in the monetary policy statement.

Raghuram Rajan

Raghuram Rajan

Rajan pointed out that the slew of RBI initiatives will include enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, and deferring receipt of considerations for transfer of ownership.

The initiatives also consists facilitating ‘escrow arrangements’ and simplification of documentation and reporting procedures for start-ups, he said.

Besides, the Indian central bank aims to make it easy for start-ups to raise foreign capital and operate in India.

Start-ups across sectors will find it easy to receive foreign venture capital investments and also easily transfer shares from foreign venture capital investors to other residents and non-residents.

The RBI is also planning to permit start-ups to raise rupee denominated loans from foreigners and allow them to create innovative convertible instruments to raise funds.

In addition, it aims to enable startups to issue shares without cash payment through ‘sweat equity’ or other legitimate payment owned by the company, as long as the payment does not fall into the purview of the Foreign Exchange Management Act (FEMA).

Rajan said RBI is preparing a detailed statement on start-ups to be issued separately.

The start-up India campaign was started by Prime Minister Narendra Modi on January 16.

He had then announced tax rebates for the first three years, exemptions on capital gains, a corpus fund of Rs.10,000 crore and a mobile app to register startups in a day among others.

The central government is expected to bring out more incentives to promote entrepreneurship and startups in the forthcoming budget.

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Securitisation of loans key to develop small banks

Jan 22, 2016 0

NEW DELHI– While non-banking finance companies (NBFCs) in India will continue to fund through securitisation, the practice of pooling of loans will be key for developing small finance banks, Moody’s Investors Service said on Thursday.

“Securitisation will continue to be instrumental for these small Indian finance banks, as it will take time for them to develop a retail deposit franchise,” the American agency said in a report here.

Securitisation involves pooling of financial assets or loans together to create a new security, which is then sold to investors.

“At the same time, NBFCs and MFIs (micro-finance institutions) will continue to fund through securitisation as the sector grows,” Moody’s said.

The Reserve Bank of India in September 2015 granted in-principle approval to 10 entities, including eight MFIs, to operate as small finance banks.

“With the aim of promoting financial inclusion to the under-served segment, the small finance banks will accept deposits and extend credit to marginal farmers and small business units. Their mandate overlaps with the target market of MFIs,” the report added.

In both India and China, NBFCs are key providers of credit to individuals and small businesses that would otherwise have limited access to bank loans or would incur high interest for such loans, Moody’s said.

“While there are various funding avenues open to the NBFCs in India and China, securitisation has proven to be reliable and competitively priced, and is therefore an important source of the funds the NBFCs use for lending,” said Moody’s assistant vice president Georgina Lee.

According to the US consultancy firm, the development of domestic securitisation markets will help both India and China achieve the objective of financial inclusion.

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