Bonds beat bank loans

Borrowing through corporate bonds and commercial paper (CP) has exceeded loans disbursed by banks so far in FY16, reports Bhavik Nair in Mumbai. Bank loans include those to individuals and therefore, the data suggests a whole host of companies may have stayed away from banks. Typically, banks lend more in a year than is borrowed in the bond and money markets.

However, money raised via CPs and corporate bonds have touched Rs 3.55 lakh crore thus far in FY16, which is higher than the non-food credit by banks which is approximately Rs 3.03 lakh crore. Companies have tapped the bond markets primarily because it is cheaper to borrow there. The difference in borrowing rates has been anywhere between 50-100 basis points. Shashikant Rathi, EVP, capital markets, Axis Bank, points out the shift in borrowings to the corporate bond market from the banking system has been seen across sectors.

Banks are seeing subdued demand for term loans and project finance given investment activity is sluggish.

Moreover, the sharp drop in prices of commodities and lower inflation has brought down the demand for working capital too.

Moreover, their loans are priced higher than bonds and CPs prompting companies to opt for the latter.

In 2015, banks reduced their base rates close to 60-70 basis points. For example, State Bank of India brought its base rate down to 9.70% from 10% at the beginning of the 2015. However despite this their loans remained more expensive than borrowings in the bond market since yields fell more sharply. For example, immediately after the cut in the repo rate by 50 basis points on September 29, by the central bank, short-term CP rates fell by 50-75 basis points. Primarily, companies which enjoy a rating above AA- have moved to corporate bond market since, as Rathi points out, yields here are lower by 150-200 basis points.

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RBI orders probe into alleged frauds in loans to farmers

The Reserve Bank of India (RBI) has ordered a probe into allegations of irregularities committed by public, private and foreign banks to claim achievements of targets in lending to farmers and the agro-sector, an official said on Friday.

The probe has been ordered following a detailed memorandum listing the alleged frauds, submitted by the Vasantrao Naik Sheti Swavalamban Mission (VNSSM), a state-run body, in December.

The finance ministry had forwarded the VNSSM complaint to the Chief Vigilance Officer of RBI after which the probe was initiated, said VNSSM President Kishore Tiwari, who enjoys the rank of a minister of state.

"It is shocking that due to failure of banks to implement the RBI Targeted schemes, farmers and agro-sectors are suffering and the country has witnessed lakhs of farmland suicides, including over 25,000 in Maharashtra alone, in the past decade," Tiwari said.

He said that as per RBI's guidelines, all banks in the country were given a specific target of lending 18 percent of Adjusted Net Bank Credit or credit equivalent of Off-Balance Sheet Exposure, whichever is higher, to the agro-sector and farmers.

However, a study by the VNSSM revealed the massive alleged irregularities and frauds perpetrated by the concerned banks merely to tom-tom achievements of targets and sub-targets, thereby defeating the purpose of benefiting the farmers and agro-priorities sectors, Tiwari said.

The modus operandi reportedly involved forming fictitious farmers' Joint Liabilities Groups with fraudulent documents in the name of the farmers. The disbursements of crores of rupees of agro-credits never reached them though the targets were shown as 'achieved'.

Similarly, paper-borne schemes of agro-finance against collaterals of agricultural lands of the farmers at subsidized interest rates were shown, but immediately the entire amounts were turned and put in fixed deposits at higher interest rates, Tiwari said.

"Hence, though it was shown as disbursed on paper, in reality the money never reached the farmers and while the banks 'enriched' themselves, the poor farmers resorted to suicide. This is virtually a white collar crime," he said.

Another paper-borne scheme pertains to Agro Warehousing Receipt finance through Urban Cooperative Socieites by way of Cash Credit against agro-produce, said to be stored in warehouses against which the societies claimed finance for farmers at low interest rates. Again the entire amount was converted into FDs and did not reach the famers, according to Tiwari.

The VNSSM listed other methods to defeat the agro-sector and farmers with big Cash Credits made available at low interest rates to corporate houses for their farming businesses to show achievement of targets.

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India can deliver two-third of world growth: IMF

Appreciating continuing reform process in the country, IMF chief Christine Lagarde today said “India’s star shines bright” amid global economic challenges and can deliver nearly two-thirds of the worldwide growth over the next four years despite a slowing momentum.

The world’s fastest-growing large economy, she said, is on the verge of having the largest and youngest-ever workforce and, in a decade, set to become the world’s most populous country.

“So, India stands at a crucial moment in its history — with an unprecedented opportunity for transformation. Important reforms are already under way,” the IMF Managing Director said at a conference on ‘Advancing Asia: Investing for the Future’ here.

“Think, for example, of Make-in-India and Digital India. And with the promise of even more reforms to come, India’s star shines bright.”

The conference is being organised by the Ministry of Finance and IMF, which was attended by Prime Minister Narendra Modi.

Recalling that India and IMF go back a long way together — India was a founding member of the Fund more than 70 years ago — Lagarde said Asia is the world’s most dynamic region and today accounts for 40 per cent of the global economy.

“Over the next four years, even with a slightly declining momentum, it stands to deliver nearly two-thirds of global growth,” she added.

Lagarde, who got reelected for the second term as chief of the Washington-headquartered International Monetary Fund (IMF), pointed to the global economy facing many challenges.

These challenges, she said, include volatile markets and capital flows, economic transitions and financial tightening in many countries, the large drop in commodity prices, including oil and escalated geo-political tension.

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Crisil downgrades debt instruments of eight public sector banks

Rating agency also revises outlook of 5 other banks to ‘negative’ on loan quality concerns

Mumbai, March 10:  

Expecting the asset quality problems being faced by public sector banks to remain acute and continue through most of the next fiscal, Crisil on Thursday downgraded its ratings on the debt instruments of eight banks and revised its outlook on five other to ‘negative’ from ‘stable’.

The credit rating agency warned that the earnings profile of most PSBs has deteriorated with many expected to report a full-year net loss this fiscal. Further, many PSBs may report a loss even for the next fiscal.

The eight public sector banks (PSBs) whose debt instrument ratings have been downgraded are — Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank, and UCO Bank.

The five PSBs whose outlook has been revised by Crisil to ‘negative’ are — Andhra Bank, Bank of Baroda, Canara Bank, Punjab National Bank, and Punjab & Sind Bank.

In the case of Syndicate Bank, its rating has also been placed on ‘rating watch with negative implications’.

Continued stress

Crisil said the continued asset quality problems will have its impact on PSBs’ profitability, and capitalisation can further dent the credit profiles over the medium term.

The agency estimated that significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to Rs. 7.1 lakh crore by March 31, 2017 (11.3 per cent of total loan book) from about Rs. 4 lakh crore as on March 31, 2015 (7.2 per cent of loan book).

Over the next few quarters, Crisil expects slippages to non-performing assets (NPAs) to remain high, driven by stretched cash flows of highly-leveraged corporates (mainly in vulnerable sectors, such as infrastructure, metals and real estate), continued proactive recognition of stressed assets by banks, and limited ability of banks in the current environment to recover from exposure to large corporates that have slipped into NPAs.

With the banking system having to migrate to the marginal cost of funds-based lending rate, or MCLR, regime from April 1, 2016, and the proportion of zero income-generating bad assets in the loan book of PSBs rising, net interest margin will come under fresh pressure in the near term.

“This, coupled with loan loss provisioning at a number of PSBs surpassing pre-provisioning profit due to increased slippages and rising inventory of ageing NPAs, could result in many PSBs reporting a loss even for the next fiscal,” said Crisil.

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Real estate regulator now a reality

The bill aims to empower home buyers and make developers accountable.

The upper house of the parliament on Thursday passed the long-pending Real Estate (Regulation and Development) Bill 2015, paving the way for setting up of regulatory bodies to monitor projects and bring transparency and accountability in real estate transactions.

The bill aims to empower home buyers, make developers accountable toward their promises and put in place mechanism to check malpractices in the sector. The law is of immense value to home buyers who have long suffered with builders changing project plans without the consent of buyers or diverting funds from one project to another. 

 “This is a major reform that promises to bring in much-needed transparency and accountability to the rather opaque sector. It will create a much-needed consumer right protection umbrella for buyers of real estate, thereby increasing consumer confidence as well as creating lasting developer brands strong on quality and timely delivery of their projects,” said Anuj Puri, chairman and country head, JLL India.

The bill’s chief objective is to set up regulatory authority on the lines of other sectors like banking and telecom and also form appellate tribunals in states and union territories. The authority will appoint abjudicating officers to settle disputes, which will be taken up by the appellate tribunal. 

The regulator will work as a nodal agency and co-ordinate efforts regarding development of the sector with key stakeholder and the government.

Among other key features, all projects including commercial and residential starting from 500 square metres or eight apartments are to be registered with the regulator, against the earlier mandate of 1,000 square metres or 12 apartments. It will be applicable retrospectively across ongoing projects too. 

However, in a discussion on the bill in the parliament, Union Urban Development Minister Venkaiah Naidu said clarity is yet to emerge if the current framework will be applicable on ongoing projects as well. He also said state governments have the flexibility to lower the project size threshold for mandatory registration. 

All real estate agents who intend to sell plot, apartment or building also have to register with the regulator. with the regulator.

With a view to promote timely completion of projects, the bill makes it compulsory for developers to keep at least 70 per cent of customer advance, including land cost in a separate escrow account, to meet construction costs. This is up from the previous requirement of 50 per cent.  

The government has also brought in parity on interest payment in case of default. Now, builders will have to pay same interest as home buyers in case of default or delays—earlier home buyers were accountable for this. It has also increased the liability of builders from two years to five years in case of structural defects.  

In case of violation of orders of the appellate tribunal, builders will be charged with three years of imprisonment while agents and buyers will have to face one year of imprisonment or monetary penalty or both. It also advocates that disputes should be resolved within 60 days.

Impact
Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt Ltd, said it will have a far reaching implication for the real estate and construction sector. “It will help regulate the sector and promote transparency. If implemented in the right spirit, it could facilitate greater volumes of domestic as well as overseas investment flows into the sector. Home buyer confidence in the property market is also likely to revive.” 

Experts believe that this will go a long way in reviving the confidence of home buyers. Sales in housing market has softened over the years as end users and investors have stayed away due to high prices and unchecked construction delays in the sector. This has taken the unsold stock to an alarming level with some cities sitting on a huge pile-up of inventory.

The bill aims to boost the confidence of home buyers with more transparency and accountability from the developers.

JC Sharma, vice chairman and managing director at Sobha Ltd, said this is a step in the right direction. But he added that the bill made no mention of time-bound approvals by various central, state and local agencies, which is critical to the sector’s growth.

It is expected that developers will also benefit once the law is implemented as they can access cheaper and wider source of financing. However, on the other side, it will also gradually weed out a lot of fly-by-night and non-serious players from the market. 

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Flat-to-negative opening expected on ECB stance

Markets are likely to make a flat-to-negative opening on ECB comments. The European Central Bank (ECB) has cut interest rates on Thursday to boost the euro zone economy, surprising financial markets by dropping its main refinancing rate to zero from 0.05%.

The early indicator, SGX Nifty is trading flat at 7,487 mark. Meanwhile, the International Monetary Fund (IMF) might revise its estimate for global economic growth in its spring meeting but India is better placed than other emerging market countries, said its financial counsellor and director, José Viñals, on Thursday.

Further, the government will announce Index of Industrial Production data for January today.

Foreign portfolio investors (FPIs) bought shares worth a net Rs 1063.11 crore yesterday, as per provisional data released by the stock exchanges.

Among overseas markets, the euro held hefty gains in Asia on Friday after the European Central Bank eased aggressively but suggested it was running out of room to cut interest rates, even if other stimulus options remained.

The muddled message sent European bond yields surging and snuffed out a nascent rally in risk sentiment, leaving Asian share markets at a loss on how to react.

MSCI's broadest index of Asia-Pacific shares outside Japan was off a slight 0.08%, while Australia dipped 0.2%. Japan's Nikkei took a bigger blow from a rise in the yen and slipped 1.5%.    

CORPORATE NEWS

Real Estate stocks will be in focus as the Rajya Sabha passed the Real Estate (Regulation and Development) Bill, 2015.

Reliance Industries (RIL) declared an interim dividend of Rs 10.50 per fully paid-up equity share of Rs 10 each.

Five serving and former executives of IDBI Bank and a few executives of Kingfisher Airlines have been summoned by the Enforcement Directorate in connection with a Rs 950-crore loan the bank sanctioned to the airline in 2009.

Jindal Steel & Power (JSPL) is in the process of rescheduling its debt with foreign lenders.

HDFC Bank has chosen five start-ups it will work with to strengthen their web, mobile and payment offerings.

BSNL is in discussions with Bharti Airtel for sharing in four circles -- Rajasthan, UP (West), Bihar and Assam.

The government cancelled award of Ratna & R-Series oil and gas field to Essar Oil and Amguri oilfield in Assam to Canada's Canaro Resources and revert them back to state-run Oil and Natural Gas Corp (ONGC).

Country's largest private sector lender ICICI Bank Thursday launched a credit-linked subsidy scheme for home loans under Pradhan Mantri Awas Yojana (PMAY).

BHEL on Thursday said it has commissioned a 500 Mw unit at Anpara-D thermal power plant in Uttar Pradesh.

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Andhra Pradesh presents a tax-free budget

Plans expenditure of Rs. 1,35,689 cr; State sees revenue deficit to be around Rs. 4,568 crore.

Balancing development with social welfare, Andhra Pradesh Finance Minister Yanamala Ramakrishnudu today presented a tax-free budget which has planned an expenditure of Rs. 1,35,689 crore during 2016-17.

While the non-Plan expenditure is pegged at Rs. 86,554 crore, up 10 per cent, the Plan is projected at Rs. 49,134 crore, an increase of about 43 per cent over the revised estimates this fiscal. The Budget for 2016-17 entails an outlay of over 20 per cent over the budget estimates of 2015-16.

Fiscal deficit

The State has projected a revenue deficit to be around Rs. 4,568 crore, at 2.99 per cent of the Gross State Domestic Product (GSDP), the fiscal deficit is expected to be Rs. 20,457 crore, 0.71 per cent of GSDP, according to the Finance Minister.

In his 120-minute speech, the third Budget presented after the bifurcation of the State, Ramakrishnudu said, “The Budget will contribute to the growth momentum and ensure a sustained double-digit growth for many years to come. Apart from opening new vistas, it will fuel construction boom, especially housing for the economically and socially weaker sections, infrastructure development and launch of Amaravati capital city.”

Looking to Centre

He said the State was banking on the Centre to extend necessary financial support to develop the Polavaram irrigation project and the new capital city of Amaravati.

The State registered a growth of 10.9 per cent in spite of adversities and the hardship caused due to bifurcation. The Minister hoped the State would strive to ensure a double digit growth on a sustained basis. However, it continues to carry the revenue deficit of Rs. 13,897 crore inherited in 2014-15, as a consequence of “irrational bifurcation.”

Under the debt redemption scheme, the State has disbursed Rs. 7,433 crore to 54.06 lakh accounts benefiting 35.15 lakh farmer families. It is proposed to disburse another Rs. 550 crore for horticulture crops. A provision of Rs. 3,512 crore has been made for further debt redemption.

The services sector constitutes 46.6 per cent of the GDSP and the focus is to expand its contribution to the economy.

The development of the infrastructure, including industrial corridors of Vizag-Chennai, Chennai-Bengaluru and Kurnool-Bengaluru, Peninsular Regional Corridor of Donakonda, Mega Industrial Hub, rail freight corridors, ports and waterways, he hoped would accelerate the growth of the economy.

The setting up of National Investment Manufacturing Zone in Prakasham, on 14,231 acres, is expected to attract Rs. 43,700 crore, and another one proposed at Chittoor is likely to attract Rs. 30,000 crore, he said.

Seed equity for Amaravati

Andhra Pradesh has provided Rs. 1,500 crore for development of the Greenfield capital city of Amaravati towards seed equity of the State government.

This equity contribution would enable the Capital Region Development Authority to mobilise additional resources required for the construction of the capital from the infrastructure financing institutions and the markets. This would be in addition to the assistance from the Centre for capital city works.


The Finance Minister hoped the Centre would provide Rs. 3,500 crore for the construction of Polavaram and Rs. 1,000 crore for Amaravati.

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