Govt will not crowd out corporate borrowing
The Hindu Business Line, July 8, 2009, Page 1
Divestment roadmap will have stakeholders’ input: Pranab.
Our Bureau, New Delhi
The Finance Minister, Mr Pranab Mukherjee, has assured the private sector that the proposed higher Government borrowing for 2009-10 would be planned in such a manner that it would not crowd out corporate borrowing.
Budget 2009-10 has projected a gross Government borrowing of Rs 4.51 lakh crore for the current fiscal, about Rs 89,000 crore more than what was forecast in the Interim Budget. This had raised concerns that the step-up in Government borrowing to fund increased spend on social programmes could raise interest rates in the economy and thereby raise the cost of borrowing for the private sector.
“We will plan our borrowing in such a way that the private sector does not suffer from that (huge increase in Government borrowing). The intention is not to crowd out the private sector from the market,” Mr Mukherjee told industry captains at a post-Budget meeting here today.
Micro details
On the issue of disinvestment roadmap not finding any specific mention in the Budget speech, Mr Mukherjee said, “Budget is not the platform to set forth micro details and minute aspects of the disinvestment roadmap.
Disinvestment roadmap should come only after good deal of discussions with all the stakeholders. I had made my intentions clear in my Budget speech and highlighted that people participation in PSUs will be encouraged,” he noted.
The Finance Minister also admitted that high fiscal deficit was a problem and that the Government would make earnest effort to cut fiscal deficit (as a percentage of GDP) to 5.5 per cent in 2010-11 and 4 per cent in 2011-12.
He said that it was a conscious decision of the Government to go for a big hike in Plan outlay in this year’s Budget even if it involved risking a higher fiscal deficit. “I had no option but to heavily depend on borrowed resources.”
The Finance Secretary, Mr Ashok Chawla, told Business Line that the debt management committee of Finance Ministry and the RBI would meet on July 17 to “fine-tune” the already declared calendar of Government borrowing for the first half of the current fiscal. “We will also plan for the second half.” He also highlighted that the RBI would conduct open market operations and nearly 50 per cent of the projected gross borrowing could be achieved through RBI support.
Wednesday, July 8, 2009
Govt will not crowd out corporate borrowing
Softer rate regime over, say bankers
Softer rate regime over, say bankers
Business Standard, July 8, 2009, Page 1
BS Reporters / Mumbai/new Delhi
Finance Minister to address RBI’s Central Board of Directors on July 11, may discuss the government’s borrowing programme
A day after the government announced record market borrowings to boost demand, bankers anticipate rising interest rates in the next six months.
The overall consensus was that the days of softer interest rates were over, since the government would be forced to pack in a dramatic increase in borrowing in the next three months, pressing the Reserve Bank of India (RBI) to buy more bonds from the market, crowding out borrowing by the private sector. Typically, demand for bank credit surges in the second half of the fiscal year.
Finance Minister Pranab Mukherjee will address the Central Board of Directors of the Reserve Bank on July 11 and is expected to discuss the government’s borrowing programme and other issues.
Most bankers are also pinning their hopes on a scheduled meeting between the finance ministry and the Reserve Bank of India on July 17 to finalise the revised borrowing calendar.
Bankers are also waiting anxiously for the first quarter monetary policy review scheduled for July 28, where the central bank is expected to announce its strategy to ensure that government borrowings would not affect corporate fund raising plans and interest rates.
The Budget document shows that the central government will borrow Rs 4,51,093 crore from the market in fiscal 2009-10, substantially higher than the Rs 3,62,000 crore planned earlier this year.
Today Finance Secretary Ashok Chawla said there was adequate liquidity in the market. He added that RBI would increase its subscription of government securities through open market operations (OMO), but declined to say how much the Centre wants the central bank to mop through this route. “Both RBI and various bank chairmen have said there is no liquidity problem to support the government borrowing programme,” he said.
In Mumbai, O P Bhatt, chairman of State Bank of India (SBI) told reporters after a pre-policy meeting with Reserve Bank of India Governor D Subbarao that interest rates could rise in the next six months on likely robust credit growth in October-March.
There was a discussion on how to manage the borrowing in a phased manner so that there is no pressure on interest rates, Bhatt said, adding, “my own view is that the interest rate scenario is soft. For some industries or for some sectors, further softening may take place. But six months down the line, when credit growth picks up and all the borrowing takes place, the rate could stabilise or harden a little bit,” Bhatt said.
Bond dealers have had a tough time ever since Finance Minister Pranab Mukherjee’s announcement of a higher fiscal deficit of 6.8 per per cent against 5.5 per cent stated in the interim Budget in February. The yield on the government bonds across maturities shot up by over 20 basis points on Monday.
What also added to the woes were signals that the government would front-load the borrowing programme as RBI announced auction of bonds worth Rs 15,000 crore last evening, against the weekly average of Rs 8,000-12,000 crore few weeks ago.
Soon after Mukherjee ended his speech, the yield on 10-year government paper shot up to 7.03 per cent. Yields have an inverse relationship with bond prices, so rising yields suggest that bond prices are falling.
But even before the fresh borrowing calendar was finalised, RBI and government officials have seen an increase in its workload.
With bond prices crashing, the first statement came from the finance ministry with Chawla telling reporters on Monday that at least half the Centre’s gross borrowing would be through open market operations.
Minutes later, RBI Deputy Governor Shyamala Gopinath said borrowings would be undertaken in the least disruptive manner. Even today (Tuesday) RBI told bankers that it will ensure that government borrowing programme is conducted smoothly.
While this had a comforting impact on the markets as seen from less volatile trading in bonds (the yield on 10-year bench mark paper moved between 7.06-7.08 per cent), it was not sufficient to allay fears.
“The demand-supply mismatch has made a comeback. There is no great appetite to absorb so much of borrowing as banks are sitting with comfortable SLR holdings…. The next direction will be known in the July monetary policy review and till then there will be pressure on yields,” said Moses Harding, Head Global Markets Group at IndusInd Bank.
In a report, Standard Chartered bank noted that the government and RBI were making comforting statements for the market, but said, “considering the negative headline print on overall GoISec issuance, the central bank may have to come up with more concrete measures to placate negative market sentiment.”
Though Chawla has said that at least 50 per cent of the borrowings would be through open market operations, what the market is looking for is how much would be the eventual borrowing.
In terms of options, RBI’s has fewer tools at its disposal but bankers such as Corporation Bank Chairman and Managing Director J M Garg said that the central bank would first look at unwinding the market stabilisation (MSS) bonds and open market operations before exploring the prospects of reducing the cash reserve ratio and the repo rate.
“At present, there is sufficient liquidity in the system and credit offtake is low. Instruments such as CRR and repo rate would only be used if the liquidity situation tightens,” Garg said.
Outstanding MSS bonds decreased to Rs 22,890 crore at the end of June from Rs 88,077 crore at the start of the year as RBI tried to ensure that government borrowed more without affecting the market. But open market purchases have increased to Rs 43,159 crore at the end of June 26 against Rs 14,642 crore in the corresponding period last year. The target for the first half of the current financial year is 80,000 crore.
“The focus will now also be on supportive measures from the central bank, notably its open-market operation (OMO) purchase programme... Moreover, WPI inflation remains in negative territory, and we anticipate another cut to both the reverse repo and repo rates in Q3-2009. This may provide some support for the bond market in what is otherwise likely to be a depressed environment in the near term,” Standard Chartered said.
Bankers ask RBI to extend deadline for NPAs restructuring to December
Bankers ask RBI to extend deadline for NPAs restructuring to December
The Financial Express, July 8, 2009, Page 13
fe Bureau, New Delhi
The bankers have asked the Reserve Bank of India (RBI) to extend the existing deadline for facilitating the restructuring of the defaulting accounts to December 30.
A day after the Budget, RBI governor, D Subbarao and all three deputy governors-Usha Thorat, Shyamala Gopinath and KC Chakrabarty- to take stock of the current situation and offer suggestions for the forthcoming announcement of first quarter review of annual credit & monetray policies on July 21.
Leading bankers who met the RBI officials are chairman, State Bank of India, OP Bhatt, managing director, ICICI Bank Chanda Kochhar, chairman & managing director, Canara Bank AC Mahajan, chairman & managing director, IDBI Bank Yogesh Agarwal, and discussed on range of issues including situation about non-performing assets, government borrowing programme and infrastructure finance.
Bhatt said RBI’s deadline for restructuring of accounts by banks ends by June 30. ``But, in case of consortium lending where there are dozens of banks, the process is taking a lot of time because bankers have to meet and they have to go back top their management committees or boards. On the other hand, the borrowers too have to go to their management on the issue. So, in some cases, the processes cannot be over by June 30, though the process has already commenced. So, there was a request that some more time could be given and it would be better if the time was extended until December as in case of agricultural relief which the government has already done.’’
According to him there is not much credit growth in the system.
``At least, during the first quarter of this year, there is not much credit growth. The consensus is that there are lots of signs available in the economy. And that despite business activities improving across multiple sectors, the economic activities are not showing up in bank lending. But, we believe that by the time lag, it is going to happen. So, more credit growth will take place now than the last quarter and in the second half of the year, it is going to be much, much better.’’ The bankers also discussed whether the NPA handling by the banking system have been good or something more needed to be done for it. Some discussion on liquidity also was a part of interaction between bankers and RBI deputy governors.
The bankers were of the opinion though currently, there is liquidity overhang in the system, it would be all sucked out once government borrowing programme, which is quite large during the year begins and possibly strain the system . The bankers are in favour of consensus on the time and overall management of borrowing programme.
However, the bankers urged the RBI to manage government borrowing in a phased manner so that there is no pressure on interest rates. By and large, it should be possible to manage it in a manner that it will not pose any huge stress on the system. “First, we discussed what can be done to create mid-term or long-term market for infrastructure issue and the NPA in the infrastructure which have become sticky assets because there is a delay in implementing the project because of land acquisition or environmental clearances. Whether these can be treated as special cases,’’ said Bhatt.
Commenting on the Budget, Bhatt said that if the government makes finances available to the bankers, then lending for infrastructure sector would be easier for bankers. On interest rate, Bhatt said that at the moment, the interest rate scenario is very soft. “Maybe for some industries and for some players, it could see further softening, which could take place. But down the line, when credit growth picks up and when all the borrowings take place, either it would stabilise there or it may even harden a little bit,’’ he said. IDBI Bank CMD Yogesh Agarwal said there are two kinds of interest rates. “While 10-year G-Sec yield will go up with market borrowings, interest rates on credit growth is essentially a function of demand and supply. So much of liquidity is there in the market right now and no much credit offtake was happening. So, I don’t see interest rates rising further,” he said.
Experts warn of higher tax regime
Experts warn of higher tax regime
The Financial Express, July 8, 2009, Page 13
fe Bureau, Mumbai
Noted tax consultant and Supreme Court lawyer, Homi Ranina has said that the next Union Budget of India, to be presented in February 2010, is expected to be worse than the recent one, as government would have no option but to take stringent measures to narrow the fiscal deficit of the country.
India would witness a high tax regime at least for the next 2-3 years.
While delivering a lecture on Implications of the Union Budget 2009-2010 at C H Bhabha Memorial Endowment Public Meeting at the Indian Merchants’ Chamber in Mumbai on Tuesday, Ranina said, “The proposed GST and direct taxes code announced in the recent budget are aimed at raising the revenues from people, while reducing huge government borrowings. I believe, most IT exemptions would get withdrawn under the proposed direct tax code.”
“To check fiscal deficit, we cannot afford to print more currency like what’s happening in the US. The government has no choice but to increase infrastructure spending, promote public savings and tax them more to narrow the fiscal deficit in the years to come,” he said.
Also in the next few years, the effective corporate tax rate in India is expected to rise to around 32% from 21% currently. Responding to a queries , he said that India, presently, cannot absorb huge disinvestment of the public sector units.
“If PSU IPOs try to suck over Rs 7,000 crore from the country in a year, than the secondary market would get severely hit,” he said.
Ranina did not welcome the recent budgetary announcement pertaining to the taxation disputes raised by the foreign companies operating in India. “The announcement is mainly aimed to earn foreign money through the taxation route,” he said.
Ajit Ranade, chief economist, The Aditya Birla Group said, “In the prevailing scenario where government spending is restricted and corporate spending is under sever pressure, the recent Union budget has made an effort to promote consumer spending in the country.”
Budget resurrects regulation for minimum 25%
The Economic Times, July 8, 2009, Page 1
THE DAY AFTER, ET DELVES DEEPER INTO THE BUDGET SPEECH TO READ THE MINUTIAE...
The market may have failed to register a weighty reform that the FM revived. Here’s that
move along with the other hits and misses & the full measure of the price impact...
Deepshikha Sikarwar NEW DELHI
PROMOTERS of some of India’s largest companies may have to initiate moves to bring down their stake to 75%, with the government planning to implement a rule stipulating minimum public shareholding in listed firms, a finance ministry official said.
State-run companies such as IOC, NTPC, NMDC and MMTC, and private firms such as Wipro, Reliance Power and real estate group DLF will have to take steps by December to raise public shareholding to the stipulated 25% over 3-5 years. The finance ministry had put out a proposal in this regard last February to deepen and broaden the stock market. The move could temper volatility in these stocks and the wider market by increasing the free float and reducing the concentration of shares in a few hands.
Software major Wipro is 80.63% owned by its promoters, the Premjis, while in the case of Reliance Power and DLF, the promoters hold nearly 85% and 88.55%, respectively.
The proposal, which had been put on the back burner after opposition from the Left and the global downturn that drove down valuations, has now received a fresh impetus with the finance minister Pranab Mukherjee making a statement in his budget speech. The budget clearly said the norm would uniformly apply to all listed companies, including PSUs.
The stock markets that crashed after the budget presentation as it failed to spell out a clear road map on disinvestment or fiscal deficit, may have missed to see the significance of the minister’s statement. Going by the norms, the government will have to dilute its stake in many blue-chip firms.
The proposed norms also have implications for listed companies from sectors such as IT, infrastructure, communication and entertainment that had been allowed to list with a 10% public float on account of a special exemption by the market regulator. The proposal also seeks to take away the regulator’s discretionary powers on this issue.
At present, public stake includes shares of individuals and FIs, foreign portfolio investors, MFs and NRIs, staff and others. The ministry will also decide on amending this definition. Its draft plan had said the threshold public holding must be calculated without accounting for non-promoter stakes such as foreign portfolio investors, institutional investors and MFs.
Tuesday, July 7, 2009
Realtors unhappy
Realtors unhappy
The Hindu Business Line, July 7, 2009, Page 7
Our Bureau, Bangalore
The Budget is not inspirational, at least for the real estate sector which was mainly looking up for some Governmental support for a speedier revival, says a section of the industry.
“There is nothing for the real estate sector. We were expecting some reduction in the taxes and duties for the housing sector, which is the most taxed sector with taxes accounting for about 40 per cent of the developmental costs,” said Mr Irfan Razack, Chairman and Managing Director, Prestige Estates Projects, a Bangalore-based real estate developer.
The Central Government needs to appreciate that one of its fundamental responsibilities to urban India is to provide good quality affordable housing, said Mr Ravi Ramu, Director – Finance, Puravankara Projects Ltd.
According to him, the tax revenues, sacrificed for the cause of some well-established industries through the extension of a further one-year tax-free status, should instead have been channelled towards providing financial incentives to housing developers build affordable homes in cities and towns.
Mr Navin M. Raheja, Managing Director, Raheja Developers, said that even if the Government efforts to implement, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) would not be workable as the allied services and activities were not supportive.
However, while the Budget is good under the circumstances, what has been left out is a policy-level pronouncement for the sector, said Mr Anurag Mathur, Managing Director, Cushman & Wakefield India, a real estate services firm.
“These announcements could have gone a long way not merely in standardisation, but also in bringing in transparency for the real estate sector,” he added.
With the infrastructure sector receiving a much-needed thrust with the proposed SPV (India Infrastructure Finance Company Ltd - IIFCL) and increased allocation of funds, the real estate industry is bound to benefit significantly from the developments, said Mr Mathur. He pointed out that the decision to enable IIFCL to refinance 60 per cent of commercial bank loans in PPP projects would offer great opportunities to developers and infrastructure companies in the long run.
For the construction sector, “a positive initiative has been the full exemption on goods manufactured at site, thereby decreasing the cost of construction for developers,” he said.
The Budget has ignored the wishes of both property-seekers and developers, said Mr Aditya Verma, Business Head and Vice-President, Makaan.com. While prospective buyers were expecting an increase in income tax exemption limit (on repayment of interest on home loans) from Rs 1.5 lakh to Rs 2.5 lakh a year, developers were looking forward to an announcement to boost affordable housing in India,” he added.
Road to rapid growth
Road to rapid growth
The Hindu Business Line, July 7, 2009, Page 21
Vidya Bala
If there is any sector that can boast of walking away with most goodies from the Budget 2009-10, it is infrastructure. Be it the allocation for highways or irrigation programmes, rural development or accelerated power reforms, the increased infrastructure spending has been the key highlight of the Budget. Clearly, the sector is being viewed as the key driver of economic growth .
The beneficiaries from such a massive infrastructure spending range from companies in the business of infrastructure development and contracting to even those that execute irrigation projects and power distribution and transmission lines.
Expedite road projects
In the road space, the allocation to the National Highways Authority of India has been stepped up by 23 per cent in the current budget compared with the Budget Estimates of 2008-09. Companies such as Gammon Infrastructure Projects, IRB Infrastructure Developers, Larsen & Toubro, Hindustan Construction and Nagarjuna Construction are some of key players in the road space. It merits note that all these players have participated in a number of projects that have been put up for bid so far.
Also, note that that the Government had, through its multiple stimulus packages, ensured reasonable funding for infrastructure projects through IIFCL; this was expected to translate into about Rs 1,00,000 crore of investment in infrastructure. The Budget has, in this regard, suggested another innovative scheme of ‘takeout financing’, wherein a consortium of banks in consultation with IIFCL, can break-up the full tenure of the loan in to shorter periods and take turns to hold the loan portfolio. This would not only help solve the asset-liability mismatch for banks but help fund high-value long-term projects too. Such a move would be crucial for projects in road and power, which are now of a larger ticket size.
The Finance Minister has also indicated the need to remove regulatory and institutional bottlenecks to expedite implementation of infrastructure projects; the UPA government in its previous regime has been criticised for slower implementation, especially of road projects. If this happens, not only would the order inflows of infrastructure companies pick up, it will also result in lower cost over-runs, a bane faced many a times by these companies.
Opportunity for smaller players
The 87 per cent increase in allocation under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) will translate into a bigger boost for smaller construction companies.
This scheme, with an allocation of Rs 12,887 crore, is expected to provide a plethora of opportunities to small and mid-sized companies such as Unity Infra Projects, Simplex Infrastructure, Tantia Construction and JMC Projects. Unlike, sub-contracted road projects from developers, urban development projects tend to hold superior profit margins. This apart, spending under the Bharat Nirman (rural roads and housing) is also likely to benefit the smaller players.
For transmission and distribution companies, the blessing comes in the form of a 160 per cent increase in allocation under the Accelerated Power Development and Reform Programme, to Rs 2,080 crore This would translate into orders for transformer and distribution companies that include Crompton Greaves, KEC international, Emco and Jyoti Structures. That the excise duty for this sector remains unchanged is yet another positive as profit margins have been thin for quite a few.
As has been the case in the past couple of years, the allocation to the irrigation space has only been increased, this time by over 70 per cent. IVRCL Infrastructure Projects, Jain Irrigation Systems and Pratibha Industries are likely to see enhanced order book from this spending.
Real estate
It appears that the special packages for the realty sector granted on earlier occasions may be nearing its end. In contrast to the earlier occasions, the Budget may have fallen short of expectations. While on the one hand, the allocation of Rs 3,973 crore towards housing for urban poor and eradication of slums could help broaden the opportunities for companies such as Akruti City and HDIL, on the other, the clarification made under sub-section 10 of Section 80-IB for availing of tax concession could be a drawback for contractors. According to the clarification, only the developer (one who bears the investment risk) can avail of the tax benefits; not the contractor who builds the project.
Similarly, tax benefits availed of for building low- and middle-income housing would be allowed only for sale of a single unit to a buyer (sale of multiple units to same buyer would not be allowed).
Another key limitation for the infrastructure and realty sectors could be the increase in the Minimum Alternate Tax.
Proposal to free up capital will come as a boon for real estate industry
Proposal to free up capital will come as a boon for real estate industry
The Financial Express – Corporate Impact Section II, Page 1
fe Bureaus
Following the announcement by the finance minister to raise Rs 1,00,000 crore for the development of the infrastructure sector by Infrastructure Finance Company (IIFCL) in Budget 2009-10, construction players feel that this is an indirect boom to the real estate sector as taking out finances will help free up capital in infrastructure. Meanwhile, top real estate developers are unhappy as they expected this year’s Budget to be aggressive and investment-led for the low and middle-income housing in metros and rural housing which was not addressed.
According to the new amendment in the Budget, a developer cannot sell more than one unit to the same person or his family. This is going to come into effect from April 1, 2010. The government had tightened the regulations for Section 80 IB to avoid its misuse. Under the section, developers get total tax concession for residential units of 1,000 sq ft in bigger cities and 1,500 sq ft in smaller ones.
Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, said, “Allocation for Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has been substantially increased. This is good news for urban infrastructure in general. JNNURM has been instrumental in proving road and rail connectivity in urban and suburban areas, and this will give a significant boost to mass housing schemes on the fringes of the metros.”
Meanwhile, announcement of infrastructure investment to exceed 9% of GDP by 2014 has been welcomed. However, Navin Raheja, managing director, Raheja Developers, said that the government’s efforts to implement JNNURM will not be workable as the allied services and activities are not supportive, such as availability of funds at cheaper rates, fiscal incentives such as restoration of Section 80 I B and treating integrated townships which has at least 25% of low cost housing units as infrastructure projects. The government has also not taken steps towards increasing disposable income such as enhancement of limits under Section 80 C and 24.
The finance minister has also stated that manufacturers of prefabricated concrete slabs will now have a tax relief and that goods made at construction sites now have their exemption reinstated. Puri added, “This spells good news for developers of lower income housing segment, who depend largely on low construction costs. Also, the fact that allocation for the National Highways Authority of India has been increased will mean improved and accelerated connectivity.
Industry players feel that the increase of funding for the Commonwealth Games will vastly enhance development potential in the Delhi NCR region and have direct positive implications for the hotel industry in this sector.
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