Differences have cropped up between the Reserve Bank and the finance ministry over the guidelines for new banking licences, which are likely to be announced within the next fortnight.

Even as the RBI has the final say in framing the guidelines, it has been holding consultations with the finance ministry over the last few weeks to iron out the differences, but without much luck.

The Reserve Bank wants the rules to be framed in a way that large corporate houses and real estate giants are not able to corner these licences as their business interests may clash with the prudential norms needed to run banks.

The finance ministry is firm in its stand that the norms should not keep corporate houses out, but rather set up a barrier between owners and banking operations. >> Read More

The Reserve Bank should give preference to the non-corporate sector for new bank licences, Prime Minister’s Economic Advisory Council ChairmanC Rangarajan said. 

“It is possible for the Reserve Bank to start with initially non-corporate business and find out whether there are suitable applicants and thereafter proceed to look at the other applicants,” he said in an interview. 

The RBI is in the process of finalising the guidelines for giving new bank licences after Parliament approved Banking Laws (Amendment) Bill last month. 

The central bank, Rangarajan said, “should look at various types of financial institutions that are available currently and decide”. 

“…. many of the strong private sector banks today have been at one time or other in the financial system. They can look at it first and look at the other later on,” he said.  >> Read More

A glance at the balance sheets of corporate India shows an alarming increase in the levels of borrowings. Perhaps policies were not quite expected to come apart the way they have but the resultant sharp fall in industrial growth has left several business houses up to their necks in debt. One number puts this in perspective: a study by Credit Suisse (CS) shows that the ten groups that have been the top beneficiaries of bank loans, in the past five years, have an average group debt to Ebitda (earnings before interest, tax and depreciation) of a high 7.6 times. More worrying, as the CS study shows, four of the ten have an interest cover (Ebit/P&L interest cost) of less than one. Some of this is due to the largesse of banks who, between 2006 and 2008, let India Inc borrow aggressively.

A steep rise in debt levels of large business houses like Lanco, Adani, GVK, Vedanta and GMR groups in the past five years has led to a much higher ‘borrower concentration risk’ at Indian banks, as compared to their other Asian and emerging market peers.

Infrastructure major Lanco group has witnessed the steepest rise in its debt level in the past five years, followed by Adani, GVK group, Vedanta and GMR, as per an analysis of debt levels of top 10 corporate groups in the country by global financial services giant Credit Suisse.

While Lanco’s group debt has grown at an annual rate of 76 per cent in the past five financial years, the rise has been 74 per cent for Adani, 65 per cent for GVK, 58 per cent for Vedanta and 55 per cent for GMR group.

The combined debt of the top 10 groups grew over five times in last five years, from Rs 99,300 crore to Rs 5,39,500 crore, at a compounded annual growth rate of 40 per cent.

In comparison, the total banking system loans grew by just 20 per cent annually during this period. >> Read More

Exports expanded in November 3.87 percent year-over-year

India’s exports in November grew 3.87 percent to $22.32 billion year-over-year, the lowest growth rate in two years.

Total exports from April through November, the first eight months of fiscal 2011-12, increased 33.2 percent to $192.7 billion from a year earlier.

“The poor showing in November was mainly on account of the weak demand for Indian goods in the traditional markets such as the European Union and the U.S.,” a Commerce Ministry official said.

Imports for November expanded 25.6 percent to $35.9 billion year-over-year, creating a trade gap of $13.6 billion.

Overall imports during April to November surged 30.2 percent to $309.5 billion, expanding the trade gap for the eight-month period to roughly $116.8 billion.

Based on current indications, the trade deficit for fiscal 2011-12, which ends March 31, is expected to reach $155 to $160 billion. The ministry expects exports to in the fiscal year to grow 6.7 percent.

“To boost exports and arrest the trade deficit, the government should provide export finance at concessional rate of not more than 7 percent for small and medium export segment, and 9 percent for large business houses,” a representative of the Federation of Indian Export Organisations said.

India, one of the world’s fast-growing economies, exported $246 billion in goods in fiscal 2010-11, which ended March 31, and has set an export target of $500 billion by 2014.

Watch PANIC in AUTO Sector ,As expected Bank Stocks in pressure -ASR TEAM/BARODA

The government will roll back fiscal stimulus on more than 300 products as it feels the economy, which is expected to grow by nearly 9 per cent in this fiscal year, is now in a far better shape.

Top finance ministry officials said most business houses and chambers of commerce were lobbying the government for keeping the tax sops doled out to guard the economy from the global economic crisis in 2008. However, finance minister Pranab Mukherjee feels the time has come to start winding down the stimulus measures.

In the wake of the global financial crisis, Indian industry had contracted for a few months, throwing millions of workers out of their jobs in textile and garment factories.

To stop the trend, the government had, two years back, provided tax benefits of Rs 40,000 crore in three tranches.

Some of the sops, including duty drawback and interest subsidy on select manufactures, were withdrawn last year. Besides, excise duty, which had been slashed from 14 per cent to 8 per cent in December 2008, was raised by 2 per cent to 10 per cent.

“We cannot continue with crutches for industrialists for all time. Some concessions will continue for the export sector but most will be withdrawn,” said top officials. Automobile industry executives say their discussions with finance ministry officials indicate that taxes on compacts and sedans can go up by 2 per cent.

The textile industry has been similarly lobbying to retain all the fiscal benefits given to them but fear some of these will be withdrawn. However, the finance ministry will have to brace for a tough time as the ministries of commerce, industry and textiles are expected to vigorously oppose much of the rollbacks.

The government hopes to raise around Rs 7,45,000 crore indirect and indirect taxes in this fiscal and wants to raise this target for the coming financial year (2011-2012) to nearly Rs 8,50,000 crore.

“While the bulk of the increase will come from direct taxes, indirect taxes will continue to be an important source of revenue,” officials said.

Over the last few months, most car makers and consumer durables firms have raised prices by 4-8 per cent putting additional pressure on overall inflation, which stood at 7.48 per cent in November.

However, despite hiking prices, car sales increased by nearly a third between April and November 2010. Most car makers, including Maruti, posted double-digit percentage growth in December.

“If car makers and others see a rise in demand even after raising prices, we don’t see why the government should be denied its taxes,” said officials.

The Reserve Bank has already rolled back its stimulus by ending the cheap money policy last year.

The RBI increased its benchmark interest rates by 1.5 per cent last year, the most by any monetary authority in Asia, to curb inflation, raising lending rates all around.

The finance ministry, too, thinks it is time to exit most of the stimulus as India “is less vulnerable to risky parameters, which beset Western economies”.

The need to withdraw stimulus measures also stems from the high fiscal deficit.

Fiscal deficit for the current year is expected to stand a little below the targeted level of 5.5 per cent, thanks to gains from the auction of 3G telecom spectrum and the sale of stocks in public sector companies.

“However, to slash it down to 4.8 per cent in the coming fiscal, every paisa of tax revenues will have to be accounted for,” said officials.

The release of more than a 100 telephone conversations, allegedly of a prominent corporate lobbyist, by the Outlook magazine has given a glimpse into the close links between big business houses and political parties.

The conversations, which allegedly took place in mid-2009, seem to feature the who’s who of the Indian corporate world, going by the names and voice tones.

The tapes — if authentic — indicate that at least some in the media and legal circles felt that a prominent industrialist was trying to secure a favourable verdict in the Supreme Court, in one of the most closely-watched corporate legal battles. The tapes — posted on the magazine’s website — also allegedly show how the lobbyist tried to — and succeeded — in bringing together warring corporate houses to fight against the low-on-luck Anil Ambani.

“I know what he is doing on the Supreme Court front,” a prominent and well-connected journalist warned the lobbyist on her client, just before a big corporate battle was to be heard in the Supreme Court. He urged the lobbyist — perhaps the most powerful in the country due to her illustrious clients — to tell her client to be cautious. “What he’s doing is known to the rest of the world, which is not good… Just convey that the way he is going to the Supreme Court is not the right way,” the voice, allegedly of the prominent journalist, added.

While the voices do sound like those of the persons after whom the digital files seemed to be named, there is very little to vouch for the authenticity of the tapes themselves — or the identity of the eavesdropper. While papers found with the recordings seemed to suggest that the phone-tapping was done by central tax authorities, the home ministry has already issued a denial that it had “authorised” any such exercise. >> Read More