FM gives banks three weeks to slash rates
The Financial Express, June 11, 2009, Page 1
Economy Bureau, New Delhi
Finance minister Pranab Mukherjee told the public sector banks they must cut their interest rates within the next three weeks to spur investment, ignoring the banks’ plea for some more time to take a call. “You have your constraints, I have my compulsions”, the minister said in his summing up notes to chiefs of the public sector banks on Wednesday, according to a source who attended the meeting.
In his opening speech at the meeting, Mukherjee said, “The banks have to stand by to provide credit at reasonable rates. This is an area of concern in many quarters both within the government and outside.”
According to him, the reduction in key rates by RBI has not been reflected in the reduction of prime lending rates of the banks. “I would urge the banks to address these concerns expeditiously and in adequate measure. This will help restore the environment for rapid growth, and ensure that the growth process benefits all our people.”
To help the banks meet the required rate of credit delivery without running short of capital, he promised them of additional infusion of capital to ensure their capital adequacy ratio stayed at 12%. While the banks at the meeting said they had already cut rates, twice in April and earlier in February, the minister told them that the current economic situation warranted a further round of rate cuts. He left the decision on the quantum of cuts to the bank managements. The banks also explained that over 70% of their loans were made at sub-BPLR rates.
RBI data shows costly credit and a fall in demand have pulled down credit growth to a five-year low of 15.9% year-on-year as of May 22. The latest weekly statistical supplement of RBI shows deposits were up 22.6% from a year earlier. Bankers said as the signals from the government were clear, they would honour the ‘commitment’ sought by the FM on a ‘more benign plan of action’.
OP Bhatt, CMD of State Bank of India, the country’s largest lender, said the bank would decide on a cut by the month-end. “We expect credit to expand 20% in the first half. Our bank will decide on lowering interest rates by the end of June,” Bhatt said. Other banks such as Uco Bank, Canara Bank, United Bank of India and Central Bank of India said they would pursue a cut in rates by this month.
“As always, we expect interest rates to go down,” finance secretary Ashok Chawla said after the meeting.
Mukherjee endorsed the consolidation process among the public sector banks saying that would make them more efficient and competitive.
Prime lending rates of the banks have come down to the range of 12.00-12.25% against 13.75-14.25% six months back, Mukherjee said, while expressing hope that pro-growth measures taken by the government would ‘turn the economy around soon’. “We would continue to focus on public spending in employment-oriented growth sectors,” he said.
While promising adequate capital infusion into banks, Mukherjee also pressed the banks to improve the credit expansion in priority areas like agriculture, infrastructure, micro-, small and medium enterprises, and education.
Uco Bank CMD SK Goel said, “We have already called a meeting of our asset-liability committee on June 19 to take stock of how much deposit rates can be reduced, and accordingly, how much lending rates can be reduced. By a rough estimate, I think we would be able to reduce deposit and lending rates by 100 basis points.”
UBI’s CMD SC Gupta said his bank would first cut lending rate by up to 50 basis points in the next 2-3 weeks. Punjab National Bank CMD KC Chakrabarty said, “PSU banks have been reducing interest rates but non-PSU lenders have not. If we reduce our rates further, it would be difficult for us to compete.”
However, Corporation Bank CMD JM Garg said an across-the-board reduction in rates is likely only by March-end 2010. He added that a further reduction in rates would put pressure on public banks’ net interest margin, which ‘is already declining slowly.’
“I think deposit rates would come down across bank only by March 2010. Banks are lending below PLR and effectively rates are low. We have already reduced the PLR by 50 bps, effective April 1, even though the cost of funds has come down only by 17 bps to 6.85%. The cost of funds should come down before we reduce our lending rate further,” Garg said.
The FM also said banks should pursue the business correspondent model to give a fillip to ‘financial inclusion’. “The branchless banking initiatives and the model of business correspondents and business facilitators need to be pursued vigourously to enable the country to achieve inclusive growth.”
Thursday, June 11, 2009
FM gives banks three weeks to slash rates
BSE Sensex jumps 60% in 2009
BSE Sensex jumps 60% in 2009
The Hindu Business Line, June 11, 2009, Page 10
Sensex jumps 340 points, closes at 10-month high
Sensex jumps 340 points, closes at 10-month high
Times of India, June 11, 2009, Page 19
MUMBAI: The Bombay Stock Exchange benchmark Sensex on Wednesday surged by nearly 340 points to close at a 10-month high as funds remained aggressive buyers on expectations of higher spending in the Budget to boost economic growth.
The 30-share index, gained 339.81 points, or 2.25%, to settle at 15,466.81 points, a level last seen around mid-August 2008. It touched the day's high of 15,580.81 points.
The wide-based National Stock Exchange index Nifty soared by 104.30 points, or 2.29%, to 4,655.25, after touching the day's high of 4,688.95.
Marketmen said that expectations of high spending in the Budget to boost economic growth and the firming global stock markets remained a positive factor for the market.
Stocks in power, capital goods, consumer durables and banking segment were the major supporter to the rally. Metal shares spurted after the base-metal prices firmed up in global metal markets last night.
FII infusion tops $60bn
Times of India, June 11, 2009, Page 19
Kumar Shankar Roy TNN
Chennai: Total investments by FIIs in domestic equities have crossed the $60 billion mark — the first time since June 2008 — in what could be gauged as renewed commitment by overseas investors to the Indian stock market.
Since March this year, foreign investors have once again started aggressive buying as they have pumped in nearly $7 billion in just 60 days, according to Sebi data. Extrapolating the numbers would mean that the FIIs have invested (net) of around $120 million every day since March 9. This has led to the net investment position of FIIs increase from $53.3 billion in March 9 to over $60.3 billion till June 10.
The data pertains to all the activities undertaken by FIIs in Indian securities market, including trades done in secondary market, primary market (IPO) and activities involved in right/bonus issues, private placement, merger & acquisition. As on date, the number of registered FIIs is 1,660 and the number of registered sub-accounts has crossed the 5,000 mark.
The sheer pace of incoming foreign money has made FIIs net buyers to the tune of $5.2 billion in 2009 even as they were net sellers of nearly $12 billion in 2008, Sebi data showed.
Re rises over 10% from March
Re rises over 10% from March
Times of India, June 11, 2009, Page 19
Rupee ended at 47.24/25 per dollar, about 0.5% stronger than 47.48/49 at close on Tuesday. Foreign institutional investors inflows of nearly $7 billion since early March have helped the rupee climb about 10.5% from its low of 52.2 recorded at the same time.
Oil breaches $71 mark:
Oil breaches $71 mark:
Times of India, June 11, 2009, Page 19
Oil prices soared above $71 a barrel on Wednesday in Asia, reaching a 2009 high, as investors poured money into the commodity as a hedge against a weakening US dollar and inflation. PTI
Cement production up 12%, despatches grow 11%
Cement production up 12%, despatches grow 11%
Times of India, June 11, 2009, Page 19
Rajesh Chandramouli, TNN
CHENNAI: The new fiscal has begun on an optimistic note for the cement industry. Driven by residential and infrastructure construction, cement production and despatches maintained a higher clip in April and May.
While cement production grew by 11.9% in May 2009 to touch 166.7 lakh tonnes as against 148.9 lakh tonnes the industry produced in May 2008. Despatches grew by 10.7% at 164.5 lakh tonnes, according to CMIE data. In April, production was up by 9.9% over April 2008 and despatches increased by 10.5%for the same period.
The demand is still driven by individual houses in tier II and III cities and infrastructure projects. "The builder segment (which is constituted by developers and builders) continues to be tepid, largely because of tight liquidity conditions. But, with many developers raising funds through QIPs, liquidity situation might improve and half finished projects could get completed, thereby stoking up demand further," industry sources said.
The increased demand, has not translated into higher prices for the consumers, thankfully.
"Prices are stable. Thats probably because fresh capacities have come in the past few months. In Tamil Nadu, Madras Cements Ariyalur plant and Chettinad Cements' plant also from the same location started production. In Andhra Pradesh, Dalmia's Cuddappah plant and UltraTech's Tadapatri unit have gone on stream," Rakesh Singh, senior president (marketing), The India Cements, said. According to industry sources, cement demand in north and east is very strong and robust.
Container traffic rises 3.8% in May
Chennai: Container traffic handled by major ports is showing signs of stabilisation. There has been a moderate 3.8% rise to 538 twenty-foot equivalent units (TEU) as compared to April's 518 TEU, according to a report by Angel Broking which has collated figures of the Indian Port Association.
Experts say May data indicates that container traffic is stablising at current levels post bottoming out, in absolute terms, in January and February 2009.
Govt to build 10L affordable houses at Rs 5000cr
Times of India, June 11, 2009, Page 11
Mahendra Kumar Singh TNN
New Delhi: With President Pratibha Patil setting up an ambitious target of making India slum-free in five years, the housing ministry has launched a new scheme — Rajiv Gandhi Awas Yojana with an initial budget of Rs 5,000 crore. It aims to construct 10 lakh affordable houses.
The scheme, which envisages extending financial support under JNNURM to states “that are willing to assign property rights” to people living in slums, will dovetail existing schemes for affordable housing.
Under the scheme, being vigorously pushed by housing minister Kumari Selja, Centre will encourage states to increase the supply of land and construct 10 lakh affordable houses in the first phase by giving a grant of Rs 50,000 for every dwelling unit (EWS/LIG and MIG) or bearing 25% of the cost of all civic services proposed in the housing project.
“The central allocation will be partly to implement the project as well as an interest subsidy to enable people to actually buy these houses,” an official said. In order to get central funds, projects should have houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments. A minimum of 25% houses of 300 sq ft will be compulsory for economically weaker section in each project to be allotted by the government.
Wednesday, June 10, 2009
Reality check
Reality check
Business Standard, June 10, 2009, Page 9
The economic indicators still show a mixed picture
More and more people around the world are inclined to believe that the worst of the economic crisis is over, and that the signs of recovery are in the air. In India, the sense of optimism has been reinforced by the rather unexpected political outcome, which potentially frees the government of the many constraints it operated within during its previous term. Anticipation is building up about a breakthrough Budget, which will add momentum to the virtuous circle of evidence and expectations. However, before the book is closed on the meltdown, it would be prudent to do a reality check on the state of the economy, toting up the negative signals along with the positive.
On the positive side, the most visible indicator of a turnaround is the performance of the stock market over the past three months. The benchmark indices have risen by more than 80 per cent from their lows and, importantly, have not given up on their post-election spurt. Both domestic and global liquidity conditions are undoubtedly contributing to this, but underlying the sharp spurt is the view that the corporate earnings cycle too has bottomed out. The prospects of good economic policies being translated from paper into action also help.
Going beyond current expectations, there are some signs of real progress. The Purchasing Managers Index (PMI), which tracks the business cycle through data on procurement, has firmly crossed the dividing line between downturn and upturn. Two-wheeler sales are looking healthy, while some car manufacturers have also reported an increase in sales. Housing loan disbursements appear to be rising, suggesting a revival in this sector after developers have started offering reasonably priced options. Finally, the GDP data for the third and fourth quarters of 2008-09 suggested that not only were things not as bad as previously believed, they certainly weren’t getting any worse.
Against these, there are several indications on the flip side as well. While the Budget to be presented next month will reveal the government’s commitment to fiscal consolidation and reforms, the spreading resistance to disinvestment does not augur well on both fronts. If the government opts to present a politically expedient but economically weak Budget, expectations could spiral downwards as rapidly as they rose. Persistent fiscal pressures will keep interest rates higher than is consistent with a growth stimulus. Exports, which are amongst the country’s most labour-intensive activities, are declining sharply every month and will not stabilise until the affluent economies turn around. And, even if corporate earnings stabilise, companies are unlikely to have the appetite for any significant capacity expansion in the immediate future, which will affect growth.
When the positive and negative factors appear evenly poised, the economy’s vulnerability to new shocks should not be under-estimated. The monsoons may play a role though, at the moment, there is no particular cause for concern. Oil and other commodity prices are edging upwards, a development that could nip the incipient recovery in the bud. All in all, the best one can say is that the bottom has been tested, and that it could be a slow recovery in the initial phase.
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