India will not lower guard on global financial threats

Jul 5, 2016 0

New Delhi– India will not lower its preparedness in dealing with external economic vulnerabilities, including those arising from the recent British vote to exit the European Union, the Financial Stability Development Council (FSDC) chaired by Finance Minister Arun Jaitley said on Tuesday.

The FSDC convened here for its 15th meeting since inception in December 2010 to discuss India’s macro-economic situation, as well as financial developments globally.

Indian Finance Minister Arun Jaitley

Indian Finance Minister Arun Jaitley

Its members include heads of financial sector regulators — the Reserve Bank of India, Securities and Exchange Board of India, Pension Fund Regulatory Development Authority, Insurance Regulatory Development Authority and commodity futures markets regulator Forward Markets Commission.

Among the subjects discussed at the FSDC meeting was the rising bad loans of state-run banks.

In this connection, gross non-performing assets (GNPAs), or bad loans, of commercial banks may rise to 8.5 per cent of total assets by March 2017, from 7.6 percent in March 2016, the RBI said last week based on “stress tests” it has conducted.

“Risks to India’s banking sector have increased since the publication of the last Financial Stability Report (FSR) in December 2015, mainly on account of a further deterioration in asset quality and low profitability,” RBI said in its latest FSR 2016.

“The gross non-performing advances rose sharply to 7.6 per cent of gross advances in March 2016 from 5.1 per cent in September 2015, largely reflecting re-classification of restructured advances to NPAs following an asset quality review (AQR).

“If the macro situation deteriorates in the future, the GNPA ratio may increase further to 9.3 per cent by March 2017,” the report said.

Banks are currently focusing on cleaning their balance sheets following the AQR that showed up around $35 billion of new bad loans since September, pushing gross bad loans to 7.6 per cent in March from 5.1 per cent in September 2015.

Overall stressed assets – consisting of bad loans as well as restructured assets – rose to 11.5 per cent in March from 11.3 percent six months earlier.

“The stress in the banking sector, which mirrors the stress in the corporate sector, has to be dealt with in order to revive credit growth,” RBI Governor Raghuram Rajan, who had ordered the banks’ AQR last year, wrote in the report. (IANS)

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India falls to 75th rank by money of citizens in Swiss banks

Jul 3, 2016 0

Zurich– With Swiss francs (CHF) 1.2 billion (around Rs 8,392 crore) held by its citizens in Switzerland’s banks, India has slipped to the 75th position, its lowest since the Swiss National Bank began releasing such data in 1997, as per latest figures released earlier this week.

The data for 2015 placed India at 61st place, while it used to be among top 50 countries in terms of holdings in Swiss banks till 2007.

Swiss FlagIndia was also lowest ranked among the BRICS countries – Russia was ranked 17th (CHF 17.6 billion), China 28th (CHF 7.4 billion), Brazil 37th (CHF 4.8 billion) and South Africa 60th (CHF 2.2 billion).

Britain and America were the only two countries that accounted for Swiss bank holding of double-digit percentage share each.

While Britain accounted for the largest chunk at about CHF 350 billion, or almost 25 per cent of the total foreign money with Swiss banks, the US came second with nearly CHF 196 billion or about 14 per cent.

The total money held in Swiss banks by all their foreign clients from across the world fell by nearly 4 per cent, by over 58 billion Swiss francs to 1.41 trillion Swiss francs ($1.45 trillion).

India was ranked 75th with CHF 1.2 billion, which is not even 0.1 per cent of the total foreign money in Swiss banks.

India was ranked among the top 50 continuously between 1996 and 2007, but started declining thereafter – 55th in 2008, 59th in 2009 and 2010 each, 55th again in 2011, 71st in 2012 and then 58th in 2013.

Pakistan was placed higher at 69th place with CHF 1.5 billion, while others ranked higher than India included Mauritius, Kazakhstan, Iran, Chile, Angola, Philippines, Indonesia and Mexico.

Indian-held funds in Switzerland banks fell by 596.42 million Swiss francs to 1,217.6 million Swiss francs at the end of 2015, marking the second straight year of decline.

Last year also marked the lowest amount of funds held by Indians in the Swiss banks ever since the country started making the data public in 1997.

Total funds held in Swiss banks by Indians directly at the end of 2015 stood at 1,206.71 million Swiss francs, which was down from 1,776 million Swiss francs the year before.

Further, money held by Indians through fiduciaries or wealth managers was down at 10.89 million Swiss francs, from 37.92 million Swiss francs at the end of 2014. The total, at the end of 2014, stood at 1,814 million Swiss francs.

The funds, described as “liabilities” of Swiss banks or “amounts due to” their clients, are official figures released by the central bank. (IANS)

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India’s auditor favours RBI review, says fraud main reason for bad loans

Jul 1, 2016 0

New Delhi– India’s top official auditor on Friday made a case for an audit of the Reserve Bank of India (RBI) as a “thought for the future” and said a large part of the bad loans of commercial banks was the result of fraud, the bulk of which appeared irrecoverable.

“The Comptroller and Auditor General (CAG) of India doesn’t audit the RBI. In view of the large incidents of financial frauds, it is a thought for the future — whether we should consider the financial factors, effectiveness of the bank,” CAG Shashi Kant Sharma said here on Friday.

Shashi Kant Sharma

Shashi Kant Sharma

“The objective should be to achieve the effectiveness and functioning of the financial sector and to reduce the risk and vulnerabilities of the financial system in public interest — to enhance the capability to deal with financial frauds,” Sharma told an Assocham conference here.

He said in Britain a legislation pased this year requires the Bank of England to not only consult the CAG, but also authorises the audit agency to examine the efficiency and effectiveness with which the British central bank uses its resources and report its findings to the House of Commons.

As regards the bad loans commercial banks, often referred to as non-performing assets, which has also become a matter of grave concern, Sharma felt a large part of it was due to exposure using fraudulent means.

“There is a significant part of NPAs that amount to fraudulently obtained advances,” the auditor said at the conference on financial and corporate frauds.

“There is also the belief that a large part of these advances may have been transferred abroad and may never be recovered,” said Sharma, as growing non-performing assets of commercial banks have become a matter of grave concern in recent months.

“In recent times, there have been frauds against institutions, frauds committed against banks, especially public sector banks that are struggling. Banking fraud can be related to technological flaws related to both the employees and the customers of the banking system,” Sharma added.

The top auditor also mentioned chit funds regulated by the state governments and the non-banking financial companies (NBFCs) as other areas of “big risks” due to their vulnerability to easy frauds.

Ten state-run banks suffered losses of over Rs 15,000 crore in the fourth quarter of 2015-16 due to provisioning to cover for bad debts. Punjab National Bank, for instance, made an operational profit of Rs 12,000 crore in 2014-15, but declared a record loss because of such provisioning.

As per a study by Assocham, commercial banks will need to write off their losses between 40 and 70 per cent in at least 240 companies, which are under heavy debt, mostly in steel, construction, power, textiles and infrastructure.

The study, conducted jointly with India Ratings and Research, also suggested asset reconstruction to cut their losses with the help of revamped asset reconstruction companies (ARCs) sector to help banks achieve a sustainable level of bank debts.

The Reserve Bank of India (RBI) estimates that the gross non-performing advances, which rose to 7.6 per cent of gross advances in March 2016 from 5.1 per cent in September 2015, could even top 8.5 per cent of total assets by March next year.

Finance Minister Arun Jaitley has said that the new bankruptcy code and debt recovery legislation will significantly help the banks deal with stressed assets. The government allocated Rs 25,000 crore in 2016-17 for the revamp of public sector banks.

 

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India’s foreign debt up by $10 billion to $485 billion at end- March

Jun 30, 2016 0

Mumbai–India’s foreign debt at the end of March 2016 was at $485.6 billion, up by $10.6 billion from that at the end of the same month last year, the Reserve Bank of India (RBI) said on Thursday.

“India’s external debt at end-March 2016 witnessed an increase of 2.2 per cent over its level at end-March 2015, primarily on account of a rise in outstanding NRI deposits,” RBI said in a statement here.

The increase in the size of external debt was partly offset by valuation gain resulting from the appreciation of the US dollar vis-a-vis the Indian rupee and other major currencies, it added.

The debt at the end of the last financial year was up $5.4 billion from the $480.2 billion registered at end-December 2015.

RBI placed the valuation gain, due to appreciation of the US dollar at $5.9 billion.

“Excluding the valuation effect, the increase in external debt would have been higher by $16.4 billion at end-March 2016 over the level at end-March 2015,” RBI said.

The share of residual maturity short-term debt at end-March 2016 constituted about 42.6 per cent of the country’s total external debt, compared with 38.2 percent at end-March 2015, and stood at 57.4 per cent of the total forex reserves, it added.

“US dollar denominated debt continued to be the largest component of India’s external debt with a share of 57.1 per cent at end-March 2016, followed by Indian rupee (28.9 per cent), SDR (5.8 per cent), Japanese Yen (4.4 per cent) and Euro (2.5 per cent),” the statement said. (IANS)

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Indian banks need to write off losses between 40 and 70% in 240 firms: Study

Jun 30, 2016 0

Mumbai– Banks would need to write off their losses between 40 and 70 per cent in at least 240 companies, which are under heavy debt mostly in steel, construction, power, textiles and infrastructure, a study said.

The study, jointly conducted by Associated Chambers of Commerce and Industry of India (Assocham) and India Ratings and Research (Ind-Ra), also suggested asset reconstruction to cut their losses with the help of revamped asset reconstruction companies (ARCs) sector.

This will help banks achieve a sustainable level of bank debts, going down as non-performing assets (NPAs), said the study, which will be released at an event here on Friday, according to an Assochamstatement.

The study noted that the gross non-performing advances rose sharply to 7.6 per cent of gross advances in March 2016 from 5.1 per cent in September 2015.

“Asset reconstruction companies need re-positioning; the issue of bad debt amounting to Rs 6 trillion would need ARCs to re-orient themselves, if they are to facilitate the resolution process,” the study said, adding that the current capital position of ARCs can at most take care of 10 per cent of the bad debt in the Indian banking system.

“The number of ARCs has been inadequate vis-a-vis the need. However, that scenario is about to change. In the Union Budget 2016-17, 100 per cent foreign direct investment (FDI) has been allowed for ARCs which is expected to substantially improve their capital base,” said Assocham President Sunil Kannoria..

“Moreover, the introduction of the Bankruptcy Code has now positioned ARCs as a very important intermediary between lenders and borrowers,” he said. (IANS)

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Consolidation in Indian banking sector risky: Moody’s

Jun 28, 2016 0

Chennai–The multiple downside risks in the proposed consolidation in the Indian public sector banking (PSB) space far outweighs the potential benefits, said global credit rating agency Moody’s Investors Sevice.

In a statement issued on Tuesday, Moody’s said the proposal to consolidate the country’s public sector banks (PSBs) creates risks that — in the current weak economic environment — could offset the potential long-term benefits.

Alka Anbarasu

Alka Anbarasu

“India’s banking system has witnessed an increase in stressed assets since 2012, with the result that no PSB currently has the financial strength to assume a consolidator role without risking its own credit standing post-merger,” Moody’s Vice President and Senior Analyst, Alka Anbarasu said.

“Barring significant government support to boost the banks’ capitalisation, we believe the risks arising from the potential consolidation currently outweigh the potential longer-term benefits,” added Anbarasu.

Moody’s has released a report on Indian banks entitled ‘Banks — India: Consolidation of Public Sector Banks Will Face Challenges Under Current Conditions’.

Referring to Union Finance Minister Arun Jaitley’s budget speech, Moody’s said the consolidation in the Indian PSB space is gaining policy momentum.

Recently, the State Bank of India (SBI) announced its decision to merge six banks with itself-including five of its associate banks.

“From a credit perspective, industry consolidation would strengthen the banks’ bargaining power, help save costs and improve supervision and corporate governance across the banking system,” Moody’s said.

These potential benefits, however, are outweighed by multiple downside risks, the rating agency added.

According to Moody’s, the banks’ weakened metrics since 2012 and weak performance mean that many have difficulties meeting minimum regulatory requirements without regular capital injections from the government.

As a result, few public sector banks have the excess capital required to acquire meaningfully sized peers.

Adding to this financial pressure, all listed PSBs are trading at a significant discount to their book value, limiting their ability to attract external capital to support acquisitions.

“Therefore, Moody’s believes government support will be a crucial driver of the credit outcome of potential mergers, particularly in the form of the equity capital required to shore up capital buffers,” the rating agency said.

As to the challenges in consolidation in the PSB sector Moody’s cited the potential opposition from employee unions, which could hamper merger efforts and drive up costs.

For example, SBI estimates that its merger with the associate banks will cost up to Rs 30 million due to differences in employee pension schemes.

The Indian government’s ultimate aim is to reduce the number of PSBs to about eight to 10 from the current 27. (IANS)

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India raises financial powers of ministries

Jun 28, 2016 0
Jaitley-US

Indian Finance Minister

New Delhi–The union government on Tuesday upwardly revised the financial limits of its ministries and departments, empowering ministers to clear projects worth up to Rs 500 crore — up from the earlier Rs 150 crore.

“The financial power of the minister-in-charge for approval of non-plan schemes/projects has been enhanced and schemes/project costing less than Rs 500 crore can now be approved at his/her level,” a Finance Ministry statement said here.

“Earlier, the minister could approve projects costing less than Rs 150 crore. The Finance Minister shall be the competent financial authority for approving scheme/projects with financial implications of Rs 500 crore and above, but up to Rs 1,000 crore.

“The proposal with financial limits of Rs 1,000 crore and above shall require the approval of the Cabinet/Cabinet Committee on Economic Affairs,” it said.

Non-plan projects of less than Rs 300 crore can now be appraised by the ministry or the standing finance committee of the ministry concerned, the statement said.

“As per the revised delegation, the Committee on Non-Plan Expenditure (CNE), which serves as an appraisal forum for all non-plan proposals of the central ministries or departments, will now appraise proposals involving expenditure of Rs 300 crore and above from the earlier limit of Rs 75 crore,” it said.

Financial limits regarding appraisal and approval of increase in cost estimates have also been revised, the Finance Ministry said.

“Increase in cost up to 20 per cent of the firmed up cost estimates can now be appraised by the financial adviser and approved by secretary of the administrative department, if the absolute cost escalation is up to Rs 75 crore, and by the minister-in-charge if absolute cost escalation is above this amount,” the Finance Ministry said.

The government said the financial limits for approval of plan and non-plan projects of its ministries and departments have been brought almost at par with this move, aimed at expediting the appraisal and approval process.

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For Rajan, clean up in banks more important than growth

Jun 22, 2016 0

Bengaluru– Clean up of a bank’s balance sheet was more important than growth, as evident from the lesson every other country that had faced financial stress has learnt, Reserve Bank of India (RBI) Governor Raghuram Rajan said on Wednesday.

“To the question of what comes first, clean up or growth, I think the answer is unambiguously clean up!” Indeed, this is the lesson from every other country that has faced financial stress,” Rajan said at an interactive session with captains of industry and trade here.

Raghuram Ranjan

Raghuram Ranjan

Terming the slower credit growth as a silver lining message, Rajan said banks have not been lending indiscriminately in an attempt to reduce the size of stressed assets in an expanded overall balance sheet, which bodes well for future slippages.

“It is important that the clean-up proceeds to its conclusion, without any resort to regulatory forbearance once again, Rajan said addressing about 300 members of Assocham trade body on ‘Resolving Stress in the Banking System’.

Asserting that the regulator (RBI) cannot substitute for the banker’s commercial decisions or micro-manage them or even investigate them when they (decisions) are being made, the governor said in most situations, the regulator could at best warn about poor lending practices when they were being undertaken and demand that banks hold adequate risk buffers.

“The important duty of the regulator is to force timely recognition of NPAs (non-performing assets) and their disclosure when they happen. Forbearance may be a reasonable but risky regulatory strategy when there is some hope that growth will pick up soon and the system will recover on its own,” Rajan reiterated.

Regretting that bankers sometimes turn around and accuse regulators of creating the bad loan problem, the governor said the truth was bankers, promoters and circumstances created it (bad loan problem).

“Everyone – banker, promoter, investors, and government officials – often urge such (risk) a strategy because it kicks the problem down the road, hopefully for someone else to deal with. The downside is that when growth does not pick up, the bad loan problem is bigger, and dealing with it is more difficult,” the governor noted.

As a regulator, the RBI has the difficult task of bringing the system back on track when a bad loan is allowed to accumulate through forbearance or non-recognition.

Clarifying that the slowdown in public sector bank lending in certain sectors since early 2014 was a consequence of the past build-up of stressed loans, the governor asserted that the cessation of the regulator forbearance and the asset quality review in mid-2015 were not responsible for it (slowdown).

“High distressed exposures in certain sectors were already occupying PSB (public sector banks) management attention and holding them back. The only way for them to supply the economy’s need for credit, which is essential for higher economic growth, was to clean up and recapitalize,” Rajan affirmed.

Referring to the proposal for easier monetary policy to reduce the bad debt problem, the regulator said such a policy would bring no relief to a heavily indebted promoter.

Sometimes, easier monetary policy is proposed as an answer to reducing the bad debt problem. For the heavily indebted promoter, however, easier monetary policy will typically bring no relief.

Even with lower policy rates, the bank has no incentive to reduce the interest rate the borrower can pay. And few banks are competing for that borrower’s business, so there is no competition to force down loan rates. The bottom line is that easier monetary policy is no answer to serious distress, contrary to widespread belief,” Rajan added. (IANS)

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Absence of collateral with startups results in bank funding denial: Rajan

Jun 22, 2016 0

Bengaluru–Reserve Bank of India Governor Raghuram Rajan on Wednesday said startups lacking collateral is the main reason for not being able to get funded by banks.

“Across the world startups don’t have collateral. The banker wants to see what he can take as a collateral which is non-existent for the startups,” said Rajan at an interactive session organised by industry body Assocham.

Rajan said those who want to start a taxi service can go take a loan against the fleet of cars they have as security but for startups that is not the case.

He said a bank will lend to a kirana shop owner or an auto repair shop owner but shy away from startups for the reason they do not have assets or collateral.

The governor said a software programme written by a startup hanging around somewhere in the cloud might be hard for a bank to readily understand its value and thereby lead to backing off from funding.

However, Rajan highlighted that startup funding in India exploded 30 to 40 times through a variety of sources like venture capital and angel funding among others. (IANS)

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Text of Raghuram Rajan’s letter to RBI colleagues on 2nd term

Jun 18, 2016 0

Following is the text of the letter written by Reserve Bank of India Governor Raghuram Rajan in which he has made it clear that he is not interested in a second term, and that he will return to academia when his term ends in September:

Dear Colleagues,

I took office in September 2013 as the 23rd Governor of the Reserve Bank of India. At that time, the currency was plunging daily, inflation was high, and growth was weak. India was then deemed one of the “Fragile Five”. In my opening statement as Governor, I laid out an agenda for action that I had discussed with you, including a new monetary framework that focused on bringing inflation down, raising of Foreign Currency Non-Resident (B)

Raghuram Ranjan

Raghuram Ranjan

deposits to bolster our foreign exchange reserves, transparent licensing of new universal and niche banks by committees of unimpeachable integrity, creating new institutions such as the Bharat Bill Payment System and the Trade Receivables Exchange, expanding payments to all via mobile phones, and developing a large loan data base to better map and resolve the extent of system-wide distress. By implementing these measures, I said we would “build a bridge to the future, over the stormy waves produced by global financial markets”.

Today, I feel proud that we at the Reserve Bank have delivered on all these proposals. A new inflation-focused framework is in place that has helped halve inflation and allowed savers to earn positive real interest rates on deposits after a long time. We have also been able to cut interest rates by 150 basis points after raising them initially. This has reduced the nominal interest rate the government has to pay even while lengthening maturities it can issue – the government has been able to issue a 40 year bond for the first time. Finally, the currency stabilized after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013. Today, we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five.

We have done far more than was laid out in that initial statement, including helping the government reform the process of appointing Public Sector Bank management through the creation of the Bank Board Bureau (based on the recommendation of the RBI-appointed Nayak Committee), creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (AQR). We have worked on an enabling framework for National Payments Corporation of India to roll out the Universal Payment Interface, which will soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff. We are strengthening the specialization and skills of our employees so that they are second to none in the world. In everything we have done, we have been guided by the eminent public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award winner Ela Bhatt of the Self Employed Women’s Association. The integrity and capability of our people, and the transparency of our actions, is unparalleled, and I am proud to be a part of such a fine organization.

I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished. While all of what we laid out on that first day is done, two subsequent developments are yet to be completed. Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term.

While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed.

Colleagues, we have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit. We have made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event. Morale at the Bank is high because of your accomplishments. I am sure the reforms the government is undertaking, together with what will be done by you and other regulators, will build on this platform and reflect in greater job growth and prosperity for our people in the years to come. I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together!

With gratitude

Yours sincerely

Raghuram G. Rajan

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