India says will ensure that banks are well-capitalised

India has "good control" over stressed loans at state-owned banks and will ensure lenders are well-capitalised, junior finance minister Jayant Sinha said on Friday.

Speaking as senior officials from the banks, the Reserve Bank of India and the finance ministry held an annual meeting, Sinha said the government would allocate capital based on the banks' capital-adequacy ratios, performance and credit growth.

"We will provide more as necessary to ensure that our banks are well-capitalised," he told reporters.

"As far as the set of stressed assets is concerned, as far as the NPA (non-performing assets) situation is concerned, that we think we now have very good control over and of course (we are) working very closely with the RBI."

Some critics accused the government of skimping on a bailout for the ailing state banks after Finance Minister Arun Jaitley did not announce additional funding in his Feb. 29 budget.

He stuck to plans to provide state banks with 250 billion rupees ($3.7 billion) of new capital in the next financial year towards a sector-wide bailout that the government estimates will cost $26 billion over four years.

Stressed loans -- those that have already turned bad and those seen at risk of doing so -- amount to 8 trillion Indian rupees ($119 billion), or 11.25 percent of total loans, Sinha said on Friday.

A recent surge in bad loans at state-run lenders after their regulator ordered a clean-up has led rating agencies to suggest banks will need more capital support from the government to cover losses and meet Basel III global banking rules.

More than two-dozen state-run lenders account for over two-thirds of India's banking assets and some 85 percent of troubled loans in the financial sector.

($1 = 67.0630 rupees)

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Banks now have room to raise funds via tier 2 bonds: RBI

With the Reserve Bank of India (RBI) tweaking of banks’ core capital to include a part of real estate assets and foreign exchange, lenders will now have additional headroom to raise funds through tier 2 bonds, RBI deputy governor R Gandhi said on Thursday.

He told reporters on the sidelines of Gyan Sangam, a brainstorming session with financial sector players convened by the finance ministry, that Rs 25,000 crore of capital allocated for public sector banks in FY17 should be enough. “Banks can also go to the markets next year, so we believe it will be enough,” he said

On asset quality review, Gandhi said it is unlikely bad loans will spill over from FY16 to the next fiscal. “Spillover of bad loans unlikely in FY17 after the asset quality review,” he said. State-owned banks have been under severe stress arising out of delinquency in loans mostly belonging to infrastructure, power and steel sectors. As of September 2015, the stressed asset ratio — a combination of bad loans and recast assets — of public sector banks stood at 14.1%, versus 4.6% in private sector banks.

As per the RBI’s latest move, which is in sync with the Basel III capital norms, banks can account for 45% of their revalued real estate assets as tier 1 capital subject to riders.

The revised regulations on tier 1 capital include treating revaluation reserves, subject to conditions, as Common Equity Tier 1 (CET1) capital at a discount of 55%, instead of as tier 2 capital; treating foreign currency translation reserves, subject to conditions, as CET1 capital at a discount of 25%; and several directives on how to treat deferred tax assets vis-à-vis CET1 capital. These changes could improve the capital adequacy ratio of major PSBs by up to 100 basis points.

According to estimates, these relaxations, particularly that of treating revaluation reserves as CET1 capital, given the huge amounts of physical assets PSBs are sitting on, will free up capital upwards of Rs 30,000 crore-35,000 crore for them and upwards of Rs 5,000 crore for private sector banks.

Hinting that the RBI is looking at all such possible measures to augment the existing capital of banks, which would reduce the burden on them to raise fresh capital to a certain extent, governor Raghuram Rajan had hinted that the RBI is trying to identify non-recognisable capital, such as undervalued assets, already on bank balance sheets and could allow some of these to count as capital under Basel norms, provided a bank meets minimum common equity standards.

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Raghuram Rajan to wait until April to cut rates again

The Reserve Bank of India will wait a month to cut interest rates again, according to economists in a Reuters poll who mostly said New Delhi's latest fiscal deficit target looked optimistic.

Finance Minister Arun Jaitley committed to fiscal discipline in his Feb 29 budget, lowering the deficit target further for the fiscal year that starts next month, but offered little in the way of reforms investors have been waiting for.

Investors and traders in financial markets have been hoping RBI Governor Raghuram Rajan will follow soon with a rate cut, like he did last year.

But the majority of economists polled said he would not repeat the surprise cut of 25 basis points he delivered just a few days after last year's budget, with 20 of 28 saying a cut was unlikely before next month's policy review on April 5.

"Although we doubt the fiscal math, the fact that the government has been sticking to the stated math, in whatever way they are doing it, creates room for Rajan to cut rates soon," said Kunal Kundu, India economist at Societe Generale.

"They will probably bring the fiscal deficit down in a way that is not desirable, by cutting public capex, but Rajan has indicated that even if fiscal consolidation leads to lower growth he would still be OK with it," he said.

Asked what they thought about the fiscal deficit target for the next fiscal year, nearly two-thirds of the economists said Jaitley was being optimistic. The rest felt it was about right.

About two-thirds, 17 of 25, also predict the RBI will cut its benchmark repo rate by 25 basis points to 6.50 percent next month. Two predicted a deeper 50 basis point cut to 6.25 percent, while six saw no change.

After an April cut, the RBI is set to ease policy again in the last quarter of the year, according to the consensus view.

That is a very different outlook from what happened last year, when the RBI sliced 125 basis points off rates, twice unexpectedly and in-between meetings.

Last year's rate cuts came as inflation cooled rapidly around the world, triggering a wave of similar easier policy from major central banks. Consumer price inflation in India was 5.7 percent in January.

That exceeds Rajan's inflation target of 5 percent set for March 2017. Coupled with a weakening rupee, predicted to fall to record lows in the coming 12 months, rising inflation could stall the RBI's easing cycle.

There is a roughly one-in-three chance of the rupee falling to 70 per dollar, a Reuters poll of currency strategists showed on Thursday.

India is set to raise wages by almost 25 percent for its millions of public sector employees, a once-in-a-decade bonanza that will cost roughly $16.6 billion dollars, something that economists widely agree is inflationary.

Despite that extra expenditure, as well as planned outlays on farming and schemes to guarantee minimum employment for people in rural areas, Jaitley surprised investors by pledging to cut the fiscal deficit to 3.5 percent of gross domestic product in the 2016-17 fiscal year.

The RBI, however, is not yet convinced.

A possible source of revenue next fiscal year is sales of government stakes in public sector companies, the budget says.

But successive governments have had a poor track record selling off companies and it could be especially hard amid global stock market turmoil.

Three policymakers aware of the RBI's budget deliberations said they were combing the numbers to test how Jaitley struck a balance and whether the impact of the public pay rise had been fully accounted for.

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The World’s Top 8 Investment Banks

The easiest way to rank investment banks is through figures such as revenue numbers and employee headcount.

1. Founded in 1869, Goldman Sachs’ services include investment banking, institutional client services and lending. It reported net revenues of $34.2 billion in 2013 -- $6 billion from the investment banking division.

2. JP Morgan Chase reports net revenues of $2.2 billion, including $1.7 billion from investment banking. It operates in 60 countries and employs 260,000 while offering a diverse set of services.

3. Barclays reported a total income of £28.4 billion, with £10.7 billion from investment banking. Founded in 1896, the London-based bank has a strong presence in retail and commercial banking, as well as the card-processing business.

4. Bank of America Merrill Lynch operates in 40 countries, and in 2013 had global revenue of $6 billion. $1.3 billion came from investment banking. The company was formed when Bank of America took over Merrill Lynch after the 2008 financial crisis.

5. Morgan Stanley reported net revenues of $5.4 billion, with $1.2 billion from investment banking. It offers prime brokerage, custodian, settlement and clearing services in addition to the usual banking functions.

6. Germany’s Deutsche Bank reported net revenues of €31.9 billion. It’s one of Europe’s largest financial services firms, and it specializes in cross-border payments and international trade financing.

7. Citigroup traces its roots back to Citibank in 1812. It employs 251,000 people, operates in 160 countries, and had investment banking revenues of $1.4 billion in 2013.

8. Credit Suisse had a net income of 2.1 billion Swiss francs in 2013. It dates back to 1856 and now employs 46,000 people over 50 countries.

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Nabard likely to get nod for Rs 5,000 crore tax free bonds

The finance ministry is likely to allocate a tax-free bond quota of Rs 5,000 crore to National Bank for Agriculture and Rural Development (Nabard) this financial year — a quota which was earlier surrendered by the National Highways Authority of India (NHAI), according to two sources aware of the development.

The finance ministry is likely to allocate a tax-free bond quota of Rs 5,000 crore to National Bank for Agriculture and Rural Development (Nabard) this financial year — a quota which was earlier surrendered by the National Highways Authority of India (NHAI), according to two sources aware of the development.

“We have received a communication from the finance ministry regarding the allocation of the Rs 5,000-crore tax-free bond limit. We are yet to receive an official communication from the CBDT. If we get the official go-ahead, we will have to raise the entire amount by the end of March this year,” a senior executive from Nabard told FE.

NHAI, which was allotted a tax-free bond quota of Rs 24,000 crore for this year, had surrendered a quota of Rs 5,000 crore back to the government a few weeks back, according to sources.

The company has raised between Rs 13,000 crore and Rs 14,000 crore via tax-free bonds this fiscal year and may further raise Rs 5,000 crore according to bond arrangers. NHAI’s recently conducted public issue of tax-free bonds received considerable response from investors who bid more than twice the issue size of Rs 10,000 crore.

Bond market sources had indicated that close to eight entities had written to the finance ministry requesting to be allotted the newly freed-up limit.

If Nabard gets the final notification from CBDT, it will have to raise at least Rs 3,500 crore through the public issue of tax-free bonds while the rest could be raised through the private placement route, according to the government notification on tax-free bonds which says at least 70% of the allotted amount has to be raised through public issue.

In FY16, NHAI, Indian Railway Finance Corporation, Housing and Urban Development Corporation, Indian Renewable Energy Development Agency, Power Finance Corp, Rural Electrification Corp and NTPC had been permitted to raise a total of Rs 40,000 crore through tax-free bonds.

The instrument had made a comeback this fiscal after remaining absent in FY15. Tax-free bonds were introduced in 2011-12 with an overall limit of Rs 30,000 crore to boost infrastructure spending.

In 2012-13, the limit was doubled to Rs 60,000 crore.

However, companies just raised Rs 18,000 crore through these bonds which was way below the target. In FY14, the limit was kept at Rs 50,000 crore, against which companies had borrowed Rs 49,200 crore.

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Piramal Realty plans to invest Rs 16,000 cr in 4 years

Piramal said that the company is looking to increase its commerical portfolio as well in the coming years.

Piramal Realty, the real estate arm of Ajay Piramal-owned Piramal Group, plans to invest Rs 16,000 crore in development of real estate projects and acquisition of land, over the next 4 years.

Anand Piramal, executive director, Piramal Group told FE that while the company already has a roughly 9 million square feet of residential projects pipeline to be executed till 2020, the company is open to acquiring fresh parcels of land and distressed assets.

The company is also in the midst of developing an office project in Kurla, near Bandra Kurla Complex (BKC) ad-measuring 2.5 million square feet.

The company launched a luxury project at Byculla called Piramal Aranya, which will entail an investment of R4,300 crore over the lifecycle of the project.

The sea-facing 70-storey high rise residential project will be spread across 7 acres and is in close proximity to the 60 acre botanical gardens on the west.

In 2015, Goldman Sachs and Waurburg Pincus had invested a total of $434 million in Piramal Realty, giving the company a strong bandwidth to invest in real estate projects.

Piramal said that the company is looking to increase its commerical portfolio as well in the coming years. “As of now we just have one project, but going forward we would like to have a combination of both residential and commercial real estate.

With the expectation of 7%-8% growth in the Indian economy, the focus on commercial real estate will come back and we would like to have a healthy mix of both segments”.

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Large-value accounts responsible for rising NPAs: CBI chief

A group of "large-value" corporate accounts has pushed up non-performing assets (NPAs) and associated financial frauds in the country since 2008, CBI chief Anil Sinha said this week, at a time when dozens of Indian banks are swamped with bad loans.

The crisis runs deep, Sinha said at a financial conference in Mumbai on Wednesday, weeks after the Supreme Court asked the Reserve Bank of India (RBI) to provide details of companies that have each defaulted on loans of more than Rs500 crore.

However, the Central Bureau of Investigation (CBI) director did not give details of the accounts that are being examined by the agency.

India's banking sector, dominated by about two-dozen state-run lenders, has been bruised by its highest bad-loan ratio in years as lagging economic growth hit companies' abilities to service debt.

In August 2013, then CBI director Ranjit Sinha told a gathering of government officials that the "bulk of the NPAs is from the top 30 accounts, which is learnt to be running into thousands of crores."

A loan is recognised as a non-performing asset when the repayment is delayed beyond 90 days. This forces the bank to make provisions by setting aside funds, further restricting its lending capacity.

At the Mumbai meet, Anil Sinha said defaulters are not getting deterred because of "weak and diffused" accountability mechanisms in banks and financial institutions.

"Added to this is the unduly slow and long process by which such loans and advances are red-flagged, declared NPAs, then wilful defaulters and finally fraudulent," he said. It "allows large borrowers ample time to walk with the funds.to tax havens."

According to government figures, gross NPAs of 39 listed banks stood at Rs 4.43 lakh crore in December 2015, nearly ten times the 2009 level.

"The CBI has recently registered a case of cheating and fraud against Kingfisher and its erstwhile management involving allegations of defrauding banks to the tune of Rs 7,000 crore," Sinha said.

"This case was registered in July 2015, but the loans or advances were taken during 2004-2012. However, despite our repeated requests, the banks did not file a complaint with the CBI. We had to register the case on our own initiative."

RBI governor Raghuram Rajan has set banks a March 2017 deadline to clean up their balance sheets and treat some troubled loan accounts as bad and make provisions for them by the end of this March.

Sinha also underscored the need for pre-emptive action to thwart deposit scams that thrive in India's vast informal financial sector.

"The second case relates to PACL -Pearls Agrotech Corporation Ltd-which has reportedly collected over Rs 51,000 crore of illegal deposits from nearly 5.5 crore investors," he said, referring to the scandal that illustrated the risks faced by millions of low-income Indians who live outside the banking system.

"It needed the Supreme Court to step in to order investigations. Should not the regulator have suo moto (on its own) stepped in?"

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