Masala bonds can spice up banks’ access to capital

Aug 26, 2016 0

Chennai– The Reserve Bank of India’s (RBI) proposal to allow banks to raise additional tier-1 and -2 capital by issuing masala bonds would ease access to capital, global credit rating agencies Fitch Ratings and Moody’s Investor Service said on Friday.

Masala bonds are rupee-denominated bonds issued in offshore capital markets.

According to Fitch Ratings, the masala bonds would widen the investor pool as the domestic investor pool is limited in size given the scale of capital needed by the banks.

“Fitch estimates a capital shortfall of $90 billion over the next several years as Basel-III regulatory requirements build from the financial year 2017 (FY17) to FY19,” the rating agency said in a statement.

Moody’s said the rupee-denominated bonds overseas was a credit-positive measure for the Indian banks as it will help create an alternative funding source.

Moody’s expected only well-rated and well-managed banks will be able to tap the international market for such issuance while relatively weaker banks will have to depend on the Indian government for their capital needs.

The RBI’s proposal came as part of a series of measures pertaining to India’s fixed-income and currency markets announced on Thursday.

According to Fitch, Indian banks would find it challenging to raise sufficient additional tier-1 capital through the domestic markets.

This is the case even as most of the capital needed will be required to be denominated in rupee owing to the currency structure of most banks’ balance sheets, the rating agency said.

“As such, enabling banks to issue masala bonds opens a window to a much larger investment pool while simultaneously addressing the problem of currency mismatches which had existed with previous international bond issues,” Fitch said.

According to the rating agency, the masala bonds market remains in its infancy and corporates like HDFC and NTPC raised funds issuing such bonds this year.

“As such, the extent to which banks will be able to use the masala bonds channel to raise capital remains to be seen, and will depend to a large extent on the foreign investors’ risk appetite and pricing,” Fitch added.

According to Moody’s, the Indian central bank’s new guidelines on corporate bond issuance will enhance liquidity in the bond market though at present corporate bond market amounts to around 31 per cent of total corporate credit.

“Based on the financial performance of these banks for the year ended March 31, 2016, our analysis suggests that the external capital requirements for the 11 public sector banks that Moody’s rates totals about Rs 1.2 trillion — a figure which far exceeds the remaining Rs 450 billion included in the government’s budget for capital distribution to the banks until 2020,” Moody’s said.

Moody’s expected RBI to announce measures that would develop the bond market addressing issues like bank-dominated financial system — investment mandates of institutional investors do not permit large investments in corporate bonds — and the lack of functional trading systems for bonds. (IANS)

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Overseas borrowings by Indian companies down by 44 percent to $1.2 billion

Aug 26, 2016 0

Mumbai– Overseas borrowings by Indian companies in July this year fell by 44 per cent to $1.2 billion as against $2.14 billion in the same month last year, Reserve Bank of India (RBI) data here showed on Friday.

The central bank said that while $1.02 billion was raised through the automatic route, the remaining $183.7 million came through the approval route.

Among major Indian borrowers using the automatic route were Housing Development Finance Corporation ($446.38 million) for “on-lending/sub-lending”, Glenmark Pharmaceuticals ($200 million) for overseas acquisition and Adani Transmission ($74.40) million for refinancing of rupee loans.

Under the same automatic route category, Birla Corporation raised $40 million for refinancing of earlier external commercial borrowings, Siemens Financial Services raised $37.20 million for on-lending and Continental Warehousing Corp. in Nhava Sheva raised close to $35 million for refinancing of rupee loans.

Under the approval route, Tikona Digital Networks raised $171 million for import of capital goods, Vijayawada Tollway raised $11.07 million for road related works and Ionbond Coatings raised $1.63 million for “general corporate purpose”.

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Unchanged interest rates in India not surprising

Aug 9, 2016 0

Chennai– The Reserve Bank of India’s (RBI) decision to leave the policy interest rates untouched was in line with the predictable and transparent monetary policy, said global credit rating agency Moody’s Investors Service.

The central bank’s decision to leave policy interest rates unchanged on Tuesday was no surprise to market participants.

Marie Diron

Marie Diron

“In the next few months, we expect continuity in the RBI’s policymaking. In particular, the government’s notification of the inflation target at 4 per cent +/- 2 percent through to 2021 denotes ongoing commitment to keeping inflation at moderate levels,” Marie Diron, senior vice president, Sovereign Risk Group was quoted as saying in a statement issued by Moody’s.

“Meanwhile, the formation of a monetary policy committee is in line with common practice in many central banks around the world. We do not expect the RBI’s shift to such a structure to have any significant implications for the conduct of monetary policy,” Diron added.

According to Diron, the larger than average monsoon rainfall will help maintain moderate food price inflation to keep the headline inflation rate within or close to target this year. In the medium-term, the inflation will remain moderate.

“There are upside risks related to the implications of the rise in public sector wages with the implementation of some of the Pay Commission’s recommendations. Should higher wages boost consumption significantly, inflationary pressures could rise,” Diron said.

According to Diron, inflationary pressure could arise when the full recommendations are implemented due to increase in housing allowances.

“However, the less accommodative monetary policy stance at present than in 2009-13, when the RBI’s policy interest rates were well below inflation, mitigates these risks,” Diron said.

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Rajan to flag last independent monetary policy update by RBI governor Tuesday

Aug 7, 2016 0

Mumbai–Raghuram Rajan will on Tuesday conduct what will be his last monetary policy update for the Reserve Bank of India (RBI) and also, perhaps, the last that a central bank governor can henceforth undertake independently.

Raghuram Ranjan

Raghuram Ranjan

The policy update comes against the backdrop of the government fixing on Friday the inflation target for the next five years at plus or minus four per cent — a task which will be entrusted with the soon-to-be-constituted Monetary Policy Committee (MCP) to realise by mandating it to fix policy rates.

Finance Ministry officials said the committee — which will fashion the contours of the monetary policy once it is in place — would be finalised before the next bi-monthly policy review, due in October.

“The MPC would be entrusted with the task of fixing the benchmark policy rate (repurchase rate) required to contain inflation within the specified target level,” a Finance Ministry statement said after the inflation target was notified.

The Reserve Bank governor will be its chair with two more representatives fro the central bank, while the other three will be chosen by the government of the basis of the recommendations of a search-cum-selection committee.

“Under Sub-Section (1) of Section 45ZA of the RBI Act, the Central Government, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in every five years. This target would be notified in the Official Gazette.”

Given this backdrop and the fact that India’s retail inflation in June stood at 5.77 per cent — and as high as 6.20 per cent in rural India — the possibility of a rate cut has been virtually ruled out, as the current priceline is precariously close to the upper tolerance level of six per cent.

“While we continue to factor in another 25 bps rate cut for the rest of 20116-17, we are cautious on the 2017-18 rate cycle. We would factor in further cuts only after clarity on the pace of disinflation in Q4 of 2016-17 and RBI’s new policy regime,” said a report by Kotak Institutional Equities.

“We expect the RBI to pause on August 9,” it said.

This is also because the amended law requires the Reserve Bank to also state the reasons if it fails to meet the inflation target, along with the remedial actions the estimate time-period by which it hoped to achieve the same.

“The government’s commitment to reform continues. The monetary policy framework will provide right environment for investment and growth,”said Economic Affairs Secretary Shaktikanta Das. “An announcement on MCP members will be made soon.”

Ahead of the policy update, Rajan met Finance Minister Arun Jaitley on Friday, as has been customary, but declined to comment. “We have a policy on Tuesday. So I have to wait till policy. On Tuesday, I’ll be able to talk.”

Since January 2015, when the central bank started seeing some improvement in the economy and external conditions, the repurchase rate, or the short-term lending rate for commercial banks on borrowings from the Reserve Bank, have been cut by 150 basis points — the last one on April 5 worth 25 basis points.

Thus far, since Rajan took the high office, the policy rate has been raised thrice and and cut five times.

Now as his three-year term ends on September 4, he intends to return to academia as professor at the University of Chicago — from where he is on a three-year leave.

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Andhra Bank net plunges 85 percent in Q1

Aug 7, 2016 0

Hyderabad– State-run Andhra Bank on Saturday reported net profit of Rs 31 crore for first quarter of 2016-17, registering a whopping 85 per cent decline from Rs 203 crore from like period year ago.

In a regulatory filing to the stock exchange BSE, the city-based bank said total income, however, increased 7 per cent to Rs 4,856 crore in the quarter under review from Rs.4,592 crore in same period year ago.

Sequentially too, net profit dipped 40 per cent from Rs 52 crore and income declined 5.2 per cent from Rs 5,124 crore posted in the previous quarter of last fiscal.

Operating profit for the quarter, however, increased 21 per cent over last year to Rs 1,000 crore from Rs 826 crore year ago, but dipped 14.7 per cent sequentially from Rs 1,173 crore.

Provisioning has shot up 88 per cent to Rs 944 crore for the quarter from Rs 503 crore year ago.

Gross non-performing assets (NPAs) shot up 95 per cent to Rs,14,137 crore in Q1 from Rs 7,238 crore year ago and net NPAs up 123 per cent to Rs 8,147 crore from Rs 3,650 crore year ago.

In terms of ratios, gross NPA nearly doubled to 10.3 per cent from 5.75 per cent and net NPA to 6.21 per cent from 2.99 per cent. (IANS)

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Nationalised banks reluctant to serve in rural areas:

Jul 30, 2016 0

Kolkata– Despite repeated appeals from the state government, continued reluctance of the nationalised banks in extending their services to remote areas has hampered rural development in West Bengal, a state minister said here on Saturday.

Speaking at a conference on self-help group (SHG)-bank credit linkage, Panchayat and Rural Development Minister Subrata Mukherjee also exuded confidence of the state achieving a credit deployment of Rs 4,000 crore to SHGs under the State Rural Livelihood Mission (SRLM) in 2016-17.

“The nationalised banks have been reluctant in extending services in rural areas. Because of this, in many of the cases, we are compelled to deliver the benefits in cash which compromises transparency.

“Despite repeated appeals including from the Chief Minister, the nationalised banks for some inexplicable reason have not extended the cooperation that is desired from them,” Mukherjee told mediapersons.

Chief Minister and Trinamool Congress supremo Mamata Banerjee has been repeatedly slamming the Centre for its financial non-cooperation, claiming that funds for many central schemes were either stopped or the state’s responsibilities increased.

Mukherjee, however, refused to comment on the reason for lack of cooperation on part of the nationalised banks.

“I can’t say the reason. I don’t know if that has something to do with the Centre. Bengal has been making rapid progress in rural development, but that has been hampered to certain extent because of the banks’ lack of cooperation,” said Mukherjee.

However, the minister praised the banks’ role under the rural livelihood mission.

“The scenario is better in case of NRLM, where the nationalised banks have extended cooperation. In 2015-16, credit linkage to the tune Rs 2,012 crore was extended to self-help groups (SHGs) elevating Bengal to being the fifth largest state in the country in terms of total credit linkage.

“This year, the target for credit linkage has been pegged at Rs 3262.88 crore. If the banks meticulously extend finance to around two lakh SHGs in accordance of the State Level Bankers’ Committee guidelines, credit deployment of Rs 4,000 crore is a distinct possibility,” added Mukherjee. (IANS)

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Finance Minister Jaitley urges investors to consider alternative instruments

Jul 29, 2016 0

New Delhi–Finance Minister Arun Jaitley on Friday made a case for investment into alternative instruments instead of bank deposits for better returns.

“The conventional deposit rate, the lending rates, are very low, but you have very powerful alternative instruments, in which if you invest, you can earn a lot higher,” he said here at the launch of state-run State Bank of India’s wealth management offering SBI Exclusif.

Jaitley-US“That is how pension funds and sovereign funds are surviving and doing extremely well the world over,” he added.

Noting the convention was that that bank deposits or other government schemes were probably the safest and best investment, Jaitley said: “It was certainly safe, but then the whole concept of economic system, banking system paid high rate of interest for those deposits were no longer relevant. And world over people have successfully experimented it.”

Over the last few years as Indian economy expanded and India realised that wealth generation is a good thing, he said.

“In India now as that opportunity expands, as a number of people with additional resources increases, you need a set of competent managers to manage the resources,” he added.

The activity of wealth management products was long overdue and in fact delayed as India did not have many high net worth individuals, Jaitley said.

There is an additional section of people who no longer are in active service but they are trying to live a respectable future on the strength of strength of savings, he said. (IANS)

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LIC-Axis Bank tie-up for bank to sell insurance products

Jul 29, 2016 0

Mumbai– State-run Life Insurance Corp and private sector Axis Bank on Friday jointly announced their tie-up to sell LIC products, creating one of the largest bancassurance partnerships in India.

Under a memorandum of understanding (MoU) signed between the two, Axis Bank branches will be selling LIC policies, a joint statement here said.

“The largest Bancassurance partnership in the country after open architecture,” it said referring to the norms liberalised in 2013-14, by which banks were allowed to sell products of multiple insurance companies.

In the initial phase, Axis Bank branches in Bengal, Bengaluru and Panchkula in Haryana
will start selling LIC products, the statement added.

“The coming together of the two major reputed organisations would enable them to combine and utilise the synergies for enhancing customer satisfaction,” LIC executive director for Bancassurance, Mukesh Gupta, said.

“Over the past five years, the life insurance business at Axis Bank has grown at a CAGR of over 25 per cent. The partnership with LIC would enable us to further expand our existing bouquet of offerings,” Axis Bank retail banking head, Rajiv Anand, said.

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India raises foreign shareholding limit in Indian stock exchanges

Jul 27, 2016 0

New Delhi– The Union Cabinet on Wednesday approved a proposal to raise foreign shareholding limit in Indian stock exchanges from 5 to 15 per cent, an official statement said.

The decision, taken at a meeting of the cabinet, chaired by Prime Minister Narendra Modi, will increase shareholding limits for foreign stock exchanges, depositories, banks, insurance companies and commodity derivative exchanges.

Jaitley-US“The cabinet has also approved the proposal to allow foreign portfolio investors to acquire shares through initial allotment, besides secondary market, in the stock exchanges,” the statement said.

“The move will help in enhancing global competitiveness of Indian stock exchanges by accelerating, facilitating the adoption of latest technology and global best practices which will lead to overall growth and development of the Indian capital market,” it said, adding that the approval was in pursuance of implementation of the union budget 2016-17 announcement made by Finance Minister Arun Jaitley regarding reforms in FDI (Foreign Direct Investment) policy in Indian stock exchanges.

The National Stock Exchange (NSE) welcomed the Union Cabinet’s decision.

“NSE has always aligned itself with global best practices. Exchange believes that government’s decision is in sync with the spirit of globalisation,” said its Managing Director and Chief Executive Chitra Ramkrishna.

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Capital needs of Indian public sector banks much higher

Jul 22, 2016 0

Chennai– The additional capital infusion of Rs 22,915 crore into 13 weak banks announced recently by the central government is positive for them but the actual capital needs were much more higher, said global credit rating agency Moody’s Investors Service.

In its sectoral comment on Indian public sector banks on Friday, Moody’s said as per its analysis an external capital requirement of about Rs 1.2 trillion for the rated 11 government owned banks as of the beginning of this fiscal far exceeds the remaining Rs 450 billion the government budgeted for disbursal to the banks by March 2019.

“Therefore, unless the government increases the planned amount of capital for infusion, the capital needs of public sector banks remain significantly above the amount budgeted by the government,” Moody’s said.

In August 2015, the government announced that Rs 700 billion will be allocated to public sector banks over a four-year period to help improve their capitalisation, Moody’s said.

Of this amount, the government has already allocated about Rs 250 billion in the fiscal year 2015.

For fiscal 2016, the government has budgeted another Rs 250 billion (from which the Rs 229 billion was disbursed) and consequently, the remaining amount of Rs 21 billion will be allocated to the banks at a later date, Moody’s said.

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