Banks may not take RBI’s call
The Economic Times, July 29, 2009, Page 13
While A Few May Cut Lending Rates Marginally, Most Banks Likely To Hold Rates At Current Levels
Our Bureau MUMBAI
AFEW lenders may fall in for RBI’s moral suasion and cut their lending rates marginally, but most banks are likely to maintain status quo. The general consensus seems to be that rates are likely to go up from the next calendar year.
RBI governor D Subbarao has been categorical that lending rates have to come down even without a revision in policy rates. “There is scope for reduction of lending rates within the policy rate adjustment already done by RBI... The lending rate should have come down to 9.5% but they are now at around 10.5% and above so there is scope for banks to reduce lending rates. We have also said that as deposits contracted at higher rates mature and get repriced, the cost of funds will go down for banks and they can reduce lending rates further,” he said.
Incidentally, a host of bankers made it clear to the governor on Tuesday that there was no scope for bringing down lending rates from their current levels. During an interaction with the RBI governor, CEOs of some of the bigger banks said that net interest margins were under pressure. They also told him that while banks had lowered the interest rates for borrowers, corporates have refrained from lowering the cost of their products. In fact, bankers pointed out to RBI that the first quarter results declared by companies clearly indicate that their expenses on account of ‘interest paid to lenders’ have come down over the preceding and year-earlier quarters. This indicates that the cost of funds for corporates has come down.
“Banks have passed on the benefit of easing interest rates to borrowers,” MV Nair, CMD of Union Bank of India, told ET. “Going forward, interest rates are not likely to fall from their current levels.”
Chanda Kochhar, MD & CEO, ICICI Bank, said, “We have cut our prime lending rate by 1.5%, the maximum by any private sector bank. Going forward, the rates would be dependent on credit growth. The rates currently are likely to be stable with a very minimal downward bias.”
Adds Neeraj Swaroop, regional CEO (India & South Asia), Standard Chartered Bank, “Over 90% of our lending is not linked to BPLR and judging our interest rates by BPLR doesn’t reflect the actual situation. Our rates have come down as much as the market rates have come down. We keep reviewing our BPLR from time to time.”
However, some bankers, on condition of anonymity, said they expected any reduction in lending rates to be marginal, at 25 bps. “We do not expect any changes in interest rates immediately. Historically, there is a time lag in terms of repricing of deposits. Therefore, a reduction in lending rates can happen only at a later date. Meanwhile, we feel that rates have almost bottomed out, given that inflation is expected to rise in the second half coupled with high chances of pick-up in credit,” said M Narandran, ED, Bank of India.
Most bank CEOs told the governor that there has been a pick-up in credit. Private and foreign bankers point out that BPLR has lost its relevance. “The borrower owes us no loyalty. If our rates are not competitive, they will go to some other bank. There are very few loans which are linked to the BPLR,” said an official from Axis Bank.
Wednesday, July 29, 2009
Banks may not take RBI’s call
‘There is scope for banks to reduce lending rates’
‘There is scope for banks to reduce lending rates’
The Economic Times, July 29, 2009, Page 13
As Deposits Mature And Get Re-Priced, Banks’ Cost Of Funds Will Go Down And They’ll Have Room For Cutting Lending Rates
Unlike his predecessors, RBI governor D Subbarao is quite direct on what action banks should take place on the interest rate front. The governor has repeatedly stressed on the central bank’s efforts to work in a transparent manner. Following his monetary policy meeting with chairmen of banks, Mr Subbarao addressed the media on RBI’s take on the economy and what transpired in his meeting with bankers . Excerpts:
On the scope for bank lending rates to come down…
There is scope for a reduction in lending rates within the policy rate adjustment already done by RBI. Even if we take into account the inflation rate and returns to depositors, the lending rate should be around 9.5%, but they are 10.5% and above… so there is scope for banks to reduce lending rates. We have also said in the policy statement that as deposits mature and get repriced, the cost of funds will go down for banks and they will have room for reduction of lending rates.
On when can the market expect a reversal of the exapansionary monetary policy…
We will look at non-oil imports, we will look at credit growth, we will look at inflation and we will look at manufacturing. However, it will be inappropriate and improper to speculate on the future. We have been debating to exit strategies in our internal meetings, but are not in a position to give any more details. In fact, central banks around the world have been talking of exit strategies… you must have heard Fed chairman Ben Bernanke’s statements and US president Barack Obama’s roadmap.
On the math behind RBI’s 6% growth rate estimate…
We debated a lot internally on the growth rate for the economy. Besides numbers, we also looked at when the forecasts were made. Several of the forecasts were made before the monsoon situation became clear. But let us first consider the risk factors for the economy. A lot will depend on agriculture. We all know the rainfall situation at present is 19% below normal. The foodgrain production-weighted rainfall index number is at 69 against 129 at this time last year. The agriculture performance could spill into industry and services, with a lag effect. Exports have been negative for the past eight months. Although exports only account for 15% of the economy, they are significant, but they will depend on the state of the global economy. Lastly, investments (in the economy) also have to pick up, although some bankers said credit from the housing and retail side have picked up.
On RBI’s stance on open market operations…
We will follow the calendar that we have laid out in respect of OMOs and MSS desequestering. But let me clarify that the calendar is only indicative. It is very difficult to predict liquidity, but we do try to estimate it regularly. Should the numbers deviate from our estimates, we will tailor the OMO programme accordingly. But, by and large, we will stick to the calendar. We want to give the market as much certainty as we have, but cannot give you what we do not have.
On the need for a government roadmap for fiscal consolidation…
The government has given a number of 6.8% for the current year and I believe in the mediumterm policy document, there are numbers for the next year and the year after.... we have said it will be good for the economy, the government, the central bank for everybody if those numbers are fleshed out. They have to be backed up by expenditure and revenue numbers. Also, in the process, the focus is on the quality of fiscal adjustment, i.e, how much do you spend on capital expenditure and how much do you spend on plan expenditure. Since I have been with the finance ministry in the past, now I can step back and speak more comfortably about fiscal adjustments from the Centre. But, it’s really the quality of fiscal adjustments that will be important. We do not expect market borrowings to be higher than what was mentioned in the Budget. Even the fiscal implications of the measures announced this week are small. Having said that, should there be any increase in borrowings from the government, RBI should (be able to) manage that.
On analysts’ concerns that restructuring is dressing up of books…
The focus on restructuring is not to hide anything. It is to provide liquidity to sectors that would have found it otherwise unviable. It’s so that they can get over difficult conditions and get back to business. Besides, its not that restructuring does not require provisioning. In fact, we are providing floating provisioning facility to banks for the restructured assets. So, the risk management systems are still in place. Some of the restructured loans could turn sour, but bankers tell us these are at acceptable levels. However, there is no proposal to extend the restructuring deadline from hereon. On continuation of floating provisions facility, we have an open stance and are awaiting international norms.
On the weakening correlation between CPI and WPI inflation indices…
Historically, the CPI has tracked WPI. The last time when I had come for the April policy, we had done some research which showed that the tracking has somewhat lagged. Now, we find that the correlation between CPI and WPI is further weakening. I had said earlier that all four CPI indices are at an elevated level and in the past month have moved up. So there is concern over prices that ordinary consumers are seeing in the market and that is a concern that we have kept in our mind while formulating this policy.
FM's new subsidy prompts realtors to promise more sub-Rs 20 lakh homes
Business Standard, July 29, 2009, Page 16
Raghavendra Kamath & Neeraj Thakur / Mumbai/ New Delhi
Property developers plan more launches in the sub-Rs 20 lakh category of homes, after yesterday’s Budget concession.
The finance minister had said there would be an interest subsidy of 1 per cent for one year on loans up to Rs 10 lakh for properties worth less than Rs 20 lakh. This is expected to boost this housing segment.
Developers such as Unitech, Omaxe, Puravankara, Lodha Developers and Ansal had already moved into the sub-Rs 20 lakh category, as the economic downturn, coupled with fear of job losses and salary cuts, slowed sales of premium housing projects, lowering their cash flows.
''We will try to cater to the whole demand that would arise after the government's decision. Our Uni Homes project will benefit from this project," said R Nagaraju, general manager, corporate planning, Unitech, the country's second largest developer.
Unitech has recently launched a new brand, Uni Homes, for low income projects in the Rs 10-30 lakh range and is planning to launch projects in seven cities, including Noida, Greater Noida, Chennai, Bangalore and Kolkota. The first such project would be announced next week.
Ravi Ramu, director of Bangalore-based Puravankara, which has set up Provident Housing to launch affordable housing projects, said the extra savings made by home loan borrowers (due to the Budget decision) is expected to drive sales of its housing projects. Provident is planning to launch a few thousand homes in the Rs 14.9-18.9 lakh category this week in Bangalore.
The company is planning to launch around 12 million sq ft of projects under this category this fiscal in many parts of the country, he said.
The Delhi-based Raheja Developers and Mumbai-based Sunil Mantri Realty say they’re planning to launch 20,000 homes and 10,000 homes, respectively, in the sub-Rs 20 lakh categry in the next one year.
The FM's announcement is expected to save Rs 60 for every Rs 1 lakh on a home loan borrowing per month.
"The announcement has come in at the right time, when sentiment in the realty market is turning positive and home buyers and investors are returning. With developers moving to affordable housing from premium housing and government announcing incentives, the momentum is building. I feel it is a good opportunity for developers to focus on this segment now,'' said Sanjay Dutt, chief executive, business, at property consultancy Jones Lang LaSalle Meghraj.
However, developers are not enthused by the FM's announcement to give tax holiday for developers under section 80 1B (10) of the IT Act on profits from projects approved between April 1, 2007, and March 31, 2008.
"Tax holiday for 2007-08 is historical. We cannot take the benefits from this announcement as we have sold our projects. Otherwise, we would have tailormade our projects and passed on the benefits to buyers,'' Ramu of Puravankara said.
More malls vacant in cities as retail pace slows
More malls vacant in cities as retail pace slows
The Hindu Business Line, July 29, 2009, Page 13
Where are the crowds?
Our Bureau, New Delhi
Even as demand seems to be returning slowly to the residential space, the retail real estate market continues to look disappointing.
The average vacancy across malls in major cities shot up to 19 per cent during the second quarter (April-June) of 2009 against 10 per cent in the last quarter. It is also expected that over 50 per cent of the estimated mall supply planned for 2009 will be delayed due to slowing construction and deferment of mall space, and also withdrawal of previously-announced retail projects.
According to global property consultant Cushman and Wakefield, the Delhi NCR (National Capital Region) is expected to see the maximum deferment of mall supply in this regard at 3.9 million sq ft, followed by Kolkata at 2.5 million sq ft.
According to the quarterly report by the consultant, this quarter too was marked by subdued retail activity, as retailers continued to remain cautious about expansion. “Mall supply was only marginally higher by 3 per cent from the previous quarter and was recorded at 1.14 million sq. ft. Expected mall supply by the end of 2009 is reduced to 8.55 million sq. ft — about 50 per cent lower than what was estimated at the beginning of the year,” it said.
Surge in supply
The vacancy rates rose on the back of a slowdown in uptake of mall space and churn among existing clients. This, in turn, prompted a further correction in the mall rentals. Surge in supply but a relatively slower absorption of malls space in the NCR led to vacancy of nearly 26 per cent in the second quarter of 2009. The vacancy level in Mumbai continued at nine per cent, while Chennai — in the absence of fresh mall supply and restrained churn — witnessed mall vacancy of only one per cent.
New malls
Hyderabad witnessed the largest infusion of mall supply of about 450,000 sq. ft., followed by Bangalore, which saw an addition of 300,000 sq. ft. in fresh mall supply. Kolkata (215,000 sq. ft.) and the NCR (175,000 sq. ft.) were the other markets that saw fresh additions to mall supply. “Many upcoming malls have been deferred or in certain cases withdrawn given the rather lukewarm response from retailers,” the report said.
The demand for mall space across most micro-markets remained slow due to conservative approaches from retailers and overall slowdown in consumer demand, it said. Slowing retail demand in many micro-markets led to rental values either remaining stable or correcting marginally, in the range of 5-10 per cent, over the previous quarter.
According to Mr Jaideep Wahi, Director, Agency, Retail Services, Cushman & Wakefield, there could be more corrections as a result of renegotiations. “Retailers are looking at changing their business understanding with upcoming malls into a revenue share or minimum guarantee model as an alternative to the fixed rental model previously employed,” Mr Wahi said.
India’s first housing price index
India’s first housing price index
The Economic Times, July 29, 2009, Page 12
The launch of NHB Residex in India is arguably the maiden attempt by a developing country to capture the price movements in the residential properties on such a comprehensive scale, says Raj Pal
MOVEMENTS in prices of real estate, particularly residential housing, is of vital importance to the macroeconomy as well as to individual households. For most Indians, a house is the single largest component of wealth and one that has been acquired with considerable efforts and possibly, some sacrifice. Besides the obvious wealth effect and implications for households, at the macro level, housing prices have emerged as a good indicator of output, inflation and financial health, which can be useful in developing appropriate monetary policy responses and establishing financial stability framework. It has acquired added importance in the light of increase in property prices in the resent past (till 2007). In the context of the perceived overheating of the housing market during the past few years as well as the recent slump in the housing market, a number of questions arise. What are the determinants of the housing prices? Can we assess a housing bubble? How do we measure the role of liquidity in housing price increases?
Most of the developed countries and some developing countries have housing price indices. These indices have multiple uses and are utilised by planners, real estate developers, building material industries, financial institutions as well as the individual home buyers. Measuring house prices accurately over time is not simple or straightforward. The complex nature of markets for real estate is one of the major challenges towards constructing a representative house price index. The housing market is generally illiquid, the resale transactions are generally negotiated and actual transaction price is often not reported. Houses are sold infrequently and the composition and quality of houses transacted in the market changes over time.
Being a heterogeneous good in terms of qualitative and quantitative attributes — like location, covered area, quality of construction, etc, — determination of housing prices is an outcome of complex interaction of various factors. Such characteristics pose a challenge in choice of appropriate methodology, selection of sample basket of houses and collection of data for construction of a house price index.
There are numerous methods for constructing house price indexes, each with their own advantages and disadvantages. Some of these methods are based on simple summary measures (averages), such as the median price of houses transacted in a particular period. The advantage of these methods lies in their relative simplicity, both in terms of computation and the interpretation of results. However, such simple measures are likely to suffer from compositional and quality problems. Recent advances in more sophisticated methods (such as hedonic regression and repeat sales methods) have enabled price statisticians to adequately account for compositional and quality changes. However, these methods are data intensive.
Keeping in view the prominence of housing and real estate as a major area for creation of both physical and financial assets and its contribution in overall national wealth, a need was felt for setting up of a mechanism, which could track the movement of housing prices in India. Accordingly, National Housing Bank (NHB), at the behest of the Union ministry of finance undertook a pilot study to examine the feasibility of preparing such an index at the national level.
THE pilot study covered five cities, viz., Bangalore, Bhopal, Delhi, Kolkata and Mumbai. Besides, a Technical Advisory Group (TAG), with adviser, ministry of finance, as its chairman and comprising expert members was constituted to deal with all the issues relating to methodology, collection of data and also to guide the process of construction of an appropriate index. NHB launched an index for tracking prices of residential properties in India, in July 2007, as the first official housing price index of India. The index has been named NHB RESIDEX. The launch of NHB Residex in India is arguably the maiden attempt by a developing country to capture the price movements in the residential properties on such a comprehensive scale.
NHB Residexis based on actual transactions prices. Initially, it covers residential properties. Year 2001 was taken as the base year for the study and year-to-year price movement during the period 2001-2005 were captured, and subsequently updated up to 2007. NHB Residex has been expanded to cover ten more cities, viz, Ahmedabad, Faridabad, Chennai, Kochi, Hyderabad, Jaipur, Patna, Lucknow, Pune and Surat. At the time of last updation and expansion of coverage of NHB Residex to 10 more cities, the base year has been shifted from 2001 to 2007 and has been updated up to December, 2008, with two half yearly updates (Jan-June and July-Dec) during 2008.
In the compilation of NHB Residex, the cities/towns have been divided into tax/administrative zones/municipal wards or any other criteria according to availability of the data for different cities/towns. The lowest level of the stratification has been the colonies/localities. In order to ensure true representative character of the index, the housing units are grouped into three categories based on built-up area — less than 500 sq ft, 500-1,000 sq ft and more than 1,000 sq ft. Data on housing prices is being collected from 20-30 colonies for each city/ town, which are fairly distributed across all the tax/administrative zones. The sample size of price observations consists of 500-600 observations for each city/town. The index has been constructed using the weighted average methodology with Price Relative Method (Modified Laspeyre’s approach). For the present NHB Residex is proposed to be updated on half-yearly basis.
At present, NHB Residexhas covered 15 cities, in the first phase is it proposed to cover 35 cities having million plus population. The proposal is to expand NHB Residex to 63 cities, which are covered under the Jawaharlal Nehru National Urban Renewal Mission, to make it a truly national index, in a phased manner. It is envisaged to develop a residential property price index for select cities/towns and subsequently an all-India composite index by suitably combining these city/town level indices to capture the relative temporal change in the prices of houses at different levels. Index methodology would be examined periodically for further improvement.
(The author is an IES officer presently on deputation as Principal Adviser to the NHB)
Govt to make short work of SEZ nods
Govt to make short work of SEZ nods
The Economic Times, July 29, 2009, Page 11
Zonal Authorities May Get More Activities To Okay
With more zonal sway, plight of SEZ developers who move the Board of Approval for every little permit may end
Amiti Sen NEW DELHI
SETTING up ancillary services such as effluent treatment plants and Wi-Max facilities inside a notified special economic zone (SEZ) may be shifted from under the purview of the central board to regional authorities concerned, according to a government move aimed at faster completion of such projects.
The proposal, mooted by the commerce department, is up for review by the SEZ Board of Approval (BoA), a panel comprising officials from various government ministries that gives permission to such tax-free industrial zones.
A department official pointed out that approaching BoA, which is bogged down with loads of such applications from across the country, is a time-consuming process that slows down the implementation of these projects.
“It increases the BoA’s work load too,” the official said asking not to be named.
Currently, activities inside the notified area for building roads, water supply lines and treatment plants, setting up electricity, gas and PNG distribution networks, boundary walls and telecom and other communication facilities don’t need BoA nod.
The latest proposal seeks to include rail-heads for steel and power, police posts, security offices, fire stations, fire protection systems, play zones, bus bays, effluent treatment plants and pipelines and Wi-Fi, Wi-Max services in that list, said the official.
“The reason it takes several months for SEZ projects to get implemented after being approved is because the developer has to approach the BoA for every step,” the official added.
To cut the work load, the government is also looking at setting up a sub-committee of the BoA to look at approval applications for authorised activities in zones. Both proposals will be taken up at the BoA meeting slated for August 11.
“If a sub-committee is formed to share the workload with the BoA, it will definitely help in expediting all clearances,” the official said.
The BoA includes senior officials from key ministries such as commerce, finance and home, its meetings are spaced out. The frequency of meetings is determined more by the number of new proposals that are to be cleared rather than the authorised activities to be given a go-ahead.
Of course, next month’s meeting will approve fresh SEZ proposals.
The last BOA held on 19 June had approved two fresh proposals, ratified extension of time to 23 developers, including Satyam Computer Services, for implementing tax-free enclaves.
Till date, 576 formal approvals have been granted for setting up of SEZs, of which 319 have been notified, as per commerce ministry records.
QUICK FIX
PRESENT APPROVAL PROCESS
First stage: Gives in-principal clearance to projects that do not possess land
Second stage: Gives formal approval to projects after land is acquired
Third stage: Notifies SEZs after the zones get all required clearances at the state level
Fourth stage: Approves authorised activities in the zones
THE PLAN
List of activities for which developers get approvals from zonal authorities may be expanded
These activities include setting up play zones, bus bays, effluent treatment plants and pipelines and wi-fi, wi-max services
Govt is also looking at setting up a BoA subcommittee to look at approval applications for authorised activities in zones
Tuesday, July 28, 2009
RBI pegs growth at 6.5%, projects 5.4% inflation
The Times of India, July 28, 2009, Page 21
Mumbai: Revising the growth projection to 6.5% from the earlier 5.7% for 2009-10, Reserve Bank on Monday said it expected inflation to go up to 5.4% by this fiscal end. In its macro economic review, RBI, however, said indications are that dampened growth impulses may continue due to significant delay in monsoon in certain parts of the country and persistence of global recession.
It said that recovery in export growth could be weak in the near-term, coupled with lagged impact on manufacturing growth. The review, ahead of the quarterly review of RBI's annual monetary policy on Tuesday, quoted the central bank's Professional Forecasters Survey to indicate that the average inflation in the fourth quarter of 2009-10 will be around 5.4%.
On the inflation outlook, the review said, while certain indicators suggest possible firming up of inflation over time, other developments could also help in keeping the inflationary presures subdued. The indication of inflation firming up by this fiscal could be due to high base-effect, increase in commodity prices, especially oil and global recovery, RBI said.
Noting that the global econoic environment continues to be uncertain, RBI said the conduct of the monetary policy had to contend with the scale and pace of external shocks and their spillover effects through the real, financial and confidence channels.
“The thrust of the various policy initiatives has been on providing ample rupee liquidity, ensuring comfortable US dollar liquidity and maintaining a market environment conducive for continued flow of credit to the productive sectors,” RBI said. PTI
India’s external debt at $230 billion:
India's external debt went up by $5.3 billion or 2.4% to $229.9 billion as of March 2009, RBI said. The debt denominated in US dollar accounted for 57% of total external debt. PTI
Revenue deficit will be at its highest:
Revenue deficit would be at its highest-level ever while primary deficit would both be at its highest in India’s post-reform period, RBI said, adding the rise is due to higher growth in revenue expenditure. PTI
Confidence, growth estimates better: RBI
The Financial Express, July 28, 2009, Page 1
fe Bureau, Mumbai
Two key pieces of data released by RBI on the eve of announcing its position on interest rates for the July-September quarter shows a higher growth estimate for the economy and a turnaround in business sentiment. The data is part of the Macroeconomic & Monetary Developments: First Quarter Review 2009-10.
The latest survey of professional forecasters conducted by RBI in June 2009 indicates most estimates converging on a 6.5% rate of GDP growth, higher than the 5.7% in the March survey. Average inflation in the fourth quarter is also expected to rise to 5.4% from the current negative 1.31%.
Similarly, the business expectation indices of private sector manufacturing companies has improved both for the April-June quarter and expectations for the July-September quarter. Company expectations are 20.3% and 14% more for better performance, compared with the previous quarters. The indices had dropped to their lowest level ever in the January-March quarter of 2009. RBI, however, cautioned that early indications suggest the revival impulses need to strengthen further to boost consumer and investor confidence.
Analysts, therefore, said it was difficult to take a call on possible repo and reverse repo rates the central bank would announce on Tuesday. These are the rates at which RBI respectively sells and buys surplus cash from banks, and provide a benchmark for interest rates at which banks provide credit.
Based on the RBI assessment, bond yields moved up in the debt market. The benchmark ten-year 6.90% maturing in 2019 ended at 6.95%, above Friday’s close of 6.92%, but volumes were moderate at Rs 7,640 crore after traders hedged their bets.
Yes Bank chief economist Shubhada Rao said RBI may revise its inflation forecast upwards on Tuesday, but would wait until early 2010--the fiscal fourth quarter--to drain liquidity by lifting cash reserve ratio requirements. “We believe RBI will provide comfort on the liquidity front. The fourth quarter is the one where we expect RBI to remove the ‘froth’ in liquidity,” she said.
RBI has cut repo six times since last October, lopping 425 basis points off to the present 4.75% as it tried to guard against economic deceleration in the middle of the global financial crisis. It also slashed reverse repo by 275 basis points since early December and brought down the cash reserve requirement by 400 basis points to 5% to keep credit flowing.
“The growth outlook for 2009-10 (therefore) needs to be assessed in the context of indications emerging from lead indicators so far… Indicators such as the higher growth in core infrastructure sector, positive growth in IIP, gradual revival in demand for non-food credit, improving performance of the corporate sector in terms of both sales and profitability, gradual return of risk appetite in the capital market, more optimistic business expectations and forecasts could be viewed as signs of recovery from the slowdown,” says the report.
Factors that could dampen the growth outlook, according to RBI, are the delayed progress of the monsoon, decline in exports due to the persistent global recession and the lagged impact of negative growth in manufacturing in the last quarter of 2008-09. But according to the central bank, chances of these happening are weaker.
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