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Tue, 25th April 2017

Anirudh Sethi Report

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Archives of “lakh” Tag

Hit by rating downgrades, India Inc’s debt profile plunges

At ten a day since April last year it’s been raining downgrades for India Inc. Downgrades have now outnumbered upgrades every month for the past 18 months, save in January this year. Moreover, at 112, the number of companies that saw their ratings rise in February is the lowest since May 2016. After Lodha Developers, Reliance Comm and Tata Steel in January, IFCI and IDBI Bank saw their ratings drop last month.

Corporate India’s debt profile isn’t getting better and, in fact, maybe worsening. Sample this: More than R7 lakh crore of debt is with companies that have had an interest cover (PBIT/interest) of less than one for 12 straight quarters.

That’s roughly a fifth of all bank loans to the industry. For instance, Punj Lloyd and Kesoram Industries together owe lenders over R12,000 crore — the interest cover (PBIT/interest) at both companies has been less than one for 12 straight quarters now.

As Credit Suisse points out, more than a third of corporate loans remain on the books of chronically stressed companies. And at the end of the December 2016 quarter, 41% of the total borrowings belonged to companies with an interest coverage ratio of less than one. Unfortunately, these firms aren’t doing too well — their ebitda, or earnings before interest, tax, depreciation and amortisation, fell 10% in Q3FY17.

Again, as Credit Suisse points out, three ADAG Group companies — RPower, RInfra and RCom — have a gross debt of close to R80,000 crore but each of them reported an ebit (earnings before interest and tax) loss in the December 2016 quarter.

India : April-Jan fiscal deficit at 105.7% of FY17 target

Fiscal deficit in the first 10 months to January was Rs 5.64 lakh crore or 105.7% of the budgeted target for the fiscal year ending in March 2017, government data showed on Tuesday.

The fiscal deficit was 95.8% of the full-year target during the same period a year ago.

Net tax receipts in the first 10 months of 2016/17 fiscal year were Rs 8.16 lakh crore, the data showed.

The government’s tax receipts usually rise in the last two months of the fiscal year than its spending, thereby helping it meet the budgeted full-year fiscal deficit target.

The federal government reiterated earlier this month that it would meet the 2016/17 fiscal deficit target of 3.5% of gross domestic product, and had also set the next fiscal year’s target at 3.2% of GDP.

Telcos need to invest Rs 1 lakh cr each to provide seamless data services

With the government’s move for a less-cash economy, telecom service providers will have to invest around Rs 1 lakh crore annually for the next five years to build a robust infrastructure for providing seamless data services, experts say.

Airtel is best placed, as it has got a payments bank licence. And, Vodafone has the experience of its mobile wallet, M-Pesa, which enables transactions between merchants and customers, an analyst told this newspaper.

Aditya Birla Idea Payments Bank, a subsidiary of Idea Cellular, and Aditya Birla Nuvo would also offer these services, with the latter having got a banking licence for digital payments. The new entrant, Reliance Jio, has also started its JioMoney e-wallet, to enable its users to pay from their bank accounts through the platform.
“The industry needs to invest Rs 5 lakh crore in the next five years to improve the overall infrastructure, including the data infrastructure,” said Rajan S Mathews, director-general, Cellular Operators Association of India.
Since 2010, he said, telecom companies had invested Rs 3.27 lakh crore in spectrum auctions to support growth.
According to Prashant Singhal, global telecom leader at consultancy E&Y India, an investment in the range of $10 billion (Rs 68,000 crore) is needed over the next two-three years by telecom operators to make data services more seamless. “There is need for more investment for better coverage and capacity.”

Maharashtra’s Manchester hit hard, 70% of units shut; 80,000 workers affected

Exactly a month after demonetisation, powerlooms in Ichalkaranji, better known as the Manchester of Maharashtra, are struggling to come to terms with the effects of the currency ban. Over 70% of the units in the town are shut and more than 80,000 workers engaged in the looms and yarning, sizing and processing units are either leaving town or are reluctant to come back after Diwali as there is no cash for payment their wages.

Most of the workers come from Uttar Pradesh and Bihar. “The last two years have been very difficult for the industry and we have been barely managing to survive despite making losses because of high rates of the raw material. Powerlooms have been running at barely 30% capacity in the last 8-9 months because production lines cannot be shut. The scrapping of the Rs 500 and Rs 1,000 currency notes has brought the industry to a halt.

“Traders have cancelled orders and the units now have nothing to work on,” Satish Koshti, president, Ichalkaranji Powerloom Weavers Cooperative Association said. From a daily turnover of Rs 45-50 crore, business has sharply dropped down to barely Rs 10-15 crore, he said.

Demonetisation has affected the entire cycle of production and supply. Ichalkaranji has over 1.25 lakh powerlooms some 25,000 semi-auto looms and 7,000 shuttleless looms providing employment to over 80,000 people. Ichalkaranji produces some 1.5 crore meters per day generating revenues of Rs 45-50 crore crore per day.

Ichalkaranji has some 25,000 small units in this sector. Around 15% of this is direct exports while another 40% is exported indirectly. Located around 200 km from Pune, Ichalkaranji has been a major textile hub in the country and sends ready cloth to Ahmedabad, Mumbai, Madhya Pradesh, Delhi, West Bengal and Karnataka. According to Koshti, the season usually begins after Diwali and continues till June every year and this time after a two bad seasons, the industry was looking forward to a good season because of good monsoons.

“Initially for a fortnight, traders were forcing the industry to accept the demonetised notes.

New Currency Is Not 100% ‘Made In India’, RBI Is Sourcing ‘Raw Materials’ From Other Countries

The ‘Make In India’ drive has been considerably promising and futuristic in the past couple of months. Modi too had been a notable zealot about inducing this process in almost every system. 

On the website, the campaign defines itself as a “Major national initiative, designed to facilitate investment, foster innovation, enhance skill development and build better best-in-class manufacturing infrastructure.” 

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However, the drive is not all that successful when it comes to the management of latest currency hoopla. 

As reported by India Today, around 16 million tons of paper is being imported from the UK. 

RBI is sourcing the specialised security thread used in new notes from centres across Italy, Ukraine and the UK.

Thus, the note that we have now is not completely made in India. Due to the high demand of currency in the market and poor capacity of its production material, the RBI is working on a 50:50 ratio of sourcing paper from UK and Hoshangabad(MP). 

The intaglio ink, which is used to print the notes is supplied from Madhya Pradesh, Sikkim and Rajasthan, however, it’s now being produced abroad, and then being sourced through local centres. 

India : Gross NPAs of PSBs jump nearly Rs 80,000 cr in Jul-Sep

Public banks have seen nearly Rs 80,000 crore increase in gross non-performing assets (NPAs) in the three months ended September 2016. As on September 30, gross NPAs of public sector banks rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June end.

This works out to an increase of Rs 79,977 crore on quarter on quarter basis. “The government has taken sector-specific measures (infrastructure, power, road textiles, steel etc) where incidence of NPA is high,” Minister of State for Finance Santosh Kumar Gangwar said in a written reply to the Rajya Sabha.

He listed measures like enactment of the Insolvency and Bankruptcy Code (IBC) and amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and the Recovery of Debt due to Banks and Financial Institutions (RDDBFI) Act aimed at improving resolution or recovery of bank loans.

Besides, he said, RBI has come out with a number of tools such as corporate debt restructuring, formation of Joint Lenders’ Forum, strategic debt restructuring scheme and sustainable structuring of stressed assets to fight NPAs.

In another reply, Gangwar said that out of Rs 2.80 lakh crore loans to the iron and steel sector at the end of June, Rs 1.24 lakh crore has gone bad, which works out to 44.54 per cent. Replying to another question, Gangwar said no corporate loan waiver has been done by the government.

India : Credit and deposit ratios in banks falls to 6-year low at 72.7 per cent

The credit-deposit ratio (CDR) of the banking system, or the proportion of deposits deployed as loans, dropped 155 basis points to 72.7%, the lowest in six years, in the fortnight ended November 11, data released by the Reserve Bank of India (RBI) showed.

The non-food credit growth during the fortnight hit an at least four-year low of 8.25% on a year-on-year basis, while food credit fell 14.3%.

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The last time the CDR had seen a sharper drop was during the fortnight ended April 29, when it fell by 1.65% from the fortnight ago to 75.93%.

The sharp fall in the ratio was primarily because of a jump in the denominator, or a sharp increase in deposits with the banking system, which negated a fall in the credit outgo. During the fortnight under review, total deposits with banks rose by Rs 1.3 lakh crore, or 1.3%, whereas bank credit declined 0.8% to Rs 73.53 lakh crore.

The cash in hand with banks rose nearly 275% from the end of the previous fortnight to Rs 2.47 lakh crore, the highest in at least seven years.

The money parked by banks with the RBI through reverse repo operations under the central bank’s liquidity adjustment facility hit a record high of Rs 4.3 lakh crore as on November 22.

India -In a first, Bank deposits cross Rs 100 lakh crore

India’ banking system reported total deposits of Rs 100 lakh crore for the first time ever in September, data released by the RBI show, reports Shakti Patra in Mumbai. With demand deposits crossing R10 lakh crore and time deposits crossing the Rs 90 lakh crore mark, the month saw the highest-ever monthly rise of Rs 5.32 lakh crore — more than the total deposits in the banking sector 20 years back.

Although Rs 100 lakh crore is a big milestone, historical data reveal deposit growth slowed down considerably over the last five years. While banks’ deposits grew at a CAGR of 12.88% in the last five years, they had grown at a CAGR of 19.9% in the previous five years. The slowing down in the pace of deposit growth was in line with the slowing down of M3 or broad money supply in the economy. An analysis of historical data suggests that while M3 in India grew at well over 20%  (y-o-y) for several years in the middle of last decade, it has been growing in the sub-teens in recent years.

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In the fortnight ended September 16, M3 stood at R121.9 lakh crore, having grown by 10.9% over the same quarter last year.

Reliance Jio loses its advantage; Airtel, Vodafone can easily counter it now

Top three telcos — Bharti Airtel, Vodafone and Idea — have secured adequate 4G spectrum during the recently-concluded auction to counter Jio, making them more competitive to poach subscribers, analysts said today.

The spectrum auction, which was touted as the largest sale of mobile airwaves, ended in a whimper yesterday, with just Rs 65,789 crore of bids coming in over five days as against an expectation of Rs 5.6 lakh crore.

Nearly 60 per cent of airwaves, including premium 4G bands, remained unsold.

“We now believe that the top three telcos have adequate 4G spectrum to counter Jio, making it more competitive to poach subscribers. We now also see faster consolidation among smaller telcos, given lack of data spectrum,” Bank of America Merrill Lynch said in a report.

It added that the top three operators, however, still lack a sub-1 GHz 4G band that Jio has and therefore, there is a possibility that these companies may purchase spectrum in the 700 MHz in future.

The appetite may be driven by improvement in capacity utilisation, led by data growth.

Here’s why RBI has room for rate cut now, not December

With inflationary pressures ebbing and likely to fall further after a good monsoon, the Reserve Bank of India (RBI) could well trim the key repo rate by 25 basis points when it reviews monetary policy on October 4.

The central bank last cut the repo rate by 25 basis points to 6.5% on April 6, taking it to the lowest level in six years. The cut would be aimed at getting banks to drop loan rates thereby boosting demand for credit at a time when growth has been subdued.

Consumer inflation for August came in at 5.1% year-on-year and is expected to nudge closer to 4.5% y-o-y by December, well within the RBI’s comfort zone. While there are those who believe the central bank might hold off till December so as to get a better idea of the kharif output, others believe fairly good visibility on inflation would persuade the RBI to trim rates now. That’s because banks have not lowered their lending rates meaningfully even though borrowing rates have dropped sharply in the money markets—both at the long and short ends.

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Samiran Chakraborty, chief economist at Citibank, observed the August CPI had opened up the possibility of a 25 basis points rate cut in the October 4 policy. “The upside risks envisaged by the RBI to its March 2017 CPI target have substantially diminished now,” Chakraborty wrote in a recent report. A good monsoon, he believes, should keep food prices in check estimating an average 0.5% month-on–month seasonally adjusted increase till March next year which is marginally lower than in the corresponding period of FY16. “These factors can push headline inflation closer to 4% by December,” he wrote.