Moody’s Investors Service announced today that it has downgraded the subordinated debt (subdebt) and junior subordinated debt ratings of 11 Indian banks. The banks’ senior obligation ratings and their stand-alone baseline credit assessments were not affected.
Moody’s removed one to two notches of the two to three notches systemic support uplift previously incorporated in the public sector banks’ subdebt and junior subdebt ratings, concluding a review started on 3 June 2013. Moody’s also removed the one notch support uplift incorporated in the private sector banks’ subdebt and junior subdebt ratings.
The 11 banks affected are 8 public sector banks (with a minimum 51% government shareholding) and three private sector banks:
Public Sector Banks
– Bank of Baroda (deposits Baa3 stable, BFSR D/BCA ba2 negative)
– Bank of India (deposits Baa3 stable, BFSR D/BCA ba2 negative)
– Canara Bank (deposits Baa3 stable, BFSR D/BCA ba2 negative)
In 1Q FY14 YoY sales growth for Nifty companies (excl. oil PSUs) slowed further to 4%. Four of the eight companies that saw 20%-plus growth were private sector banks. The moderation in their growth (slowing credit growth, falling NIMs) should offset the gains of a falling INR (45% of Nifty sales are not in the INR). EBIT growth turned positive (+2% YoY) but mainly due to private banks: this is unlikely to sustain. Also, sales and EBIT growth of utilities does not flow down to net profit.
■ Macroeconomic read-through unchanged. Wages for Nifty companies still grew ~16% YoY. Almost three-fourths of the rise though came from SBI, Infosys, TCS, Tata Motors and Coal India: for the IT majors new hires as well as off-shore salaries contributed. Discretionary consumption should stay weak in India, though volume growth picked up for many discretionary companies for specific reasons (link). Investment demand remains weak. Interest coverage worsened (see link).
■ FY14E Nifty EPS still has 5-6% potential downside. Overall earnings missed by 2%. Disappointments in industrials and energy offset positive surprises elsewhere (IT, Metals). Post results FY14 EPS for the CS basket fell 1%, though if not for PSU banks seeing ~20% cuts, the number would have risen. Nifty FY14E consensus is now down 10% since Jan-12, and we expect another 5-6% downside. These should stay localised to materials, industrials and financials.
Government may delay Rs 14,000 crore fund infusion in the public sector banks in view of volatile market conditions. As per the plan, the government wanted to infuse funds by the end of September but it may wait for market to stabilise.
Capital infusion may now not happen in September because of stock market volatility. It is advisable to invest when market stabilises, sources said. Once the stock prices reaches a stable level, the likely chances of losing substantial amount of money is lower, sources said. The Finance Ministry will finalise the bank-wise fund allocation by the end of this month. However, disbursement may not happen in September.
With fall in share prices of banks, the government will get more number of shares. Consequent to this, government holding will be more than what was envisaged. Capital will be injected by issue of preferential shares. Since fresh shares are issued, the shareholding of the government goes up. The BSE banking index comprising of 13 stocks of various public and private sector banks rose marginally by 0.75 per cent to close at 10,511.30 points. Read More
The Reserve Bank today sought to downplay the money-laundering allegations against three private sector banks, saying the country has a “perfect” system to prevent such offences and that not a single such transaction took place in the sting operation.
The country’s three largest private banks – ICICI bank, HDFC Bank and Axis Bank – were last week accused of indulging in money laundering both within and outside with an online portal, Cobrapost, claiming that the sting operation conducted by it had revealed a scam.
“Allegations do not mean flouting norms. There is not a single transaction which has taken place. KYC violations will happen in any system. These are all transactional issues and have nothing to do with money laundering,” Deputy Governor KC Chakrabarty told reporters after a meeting with bankers here.
He was responding to a question on the issue.
The senior most Deputy Governor further said, “there is no scam (that) has happened…as no transaction has taken place.” Read More
The Reserve Bank of India has initiated the process of carrying out comprehensive scrutinies covering both, Head Office and branches of three private sector banks, namely, ICICI Bank, HDFC Bank and Axis Bank. Apart from this, the Reserve Bank has also undertaken a thematic study in respect of banks that are active in selling gold coins / wealth management products to examine whether there are systemic issues and to plug deficiencies and legal loop-holes, if any. Read More
There were stray incidents of violence at the start of a two-day strike called by trade unions to protest against high prices and policy changes, including foreign investment in supermarkets, that they said could hurt employment.
Many banks were closed and public transport was disrupted in several parts of the country.
As many as 11 trade unions, including the ruling Congress party affiliated Indian National Trade Unions Congress (INTUC), said the first day of the protest that they had called jointly was successful in putting pressure on the government to listen to them.
“At least 95% of our workers from steel, manufacturing, mining and transport sectors came on the road to protest,” said G. Sanjeeva Reddy, president of INTUC. “The government and the party (Congress) have to listen to the just demand of the poor workers. Economic growth has no meaning unless it trickles down to the common workers,” Reddy said. INTUC has 20 million members.
C.H. Venkatachalam, general secretary of the All India Bank Employees Association (AIBEA), said the strike was a success at state-owned banks. Read More
India’s latest interest rate cut won’t revive growth. The central bank’s quarter-percentage point reduction in the policy rate, to 7.75 percent, is just as futile as the last one almost a year ago.
GDP will pick up when New Delhi curbs its own profligacy and improves the investment climate. The February budget may be the current government’s last chance to do both.
If companies aren’t investing, it isn’t because monetary policy is too tight. With 10.6 percent consumer-price inflation, the base rate for borrowing in 10-year bonds was already negative in real terms before this last rate adjustment. Rather, the government’s quest to fund itself is crowding out the private sector. Banks are forced to buy up government bonds, meaning two-thirds of what households save in a year is reinvested in public debt.
Bottlenecks choking growth are also in need of attention. A debilitating coal shortage is hurting electricity production. 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
*The growth chart is led by the largest financial institution LIC which has paid 10 per cent more at Rs. 1,297 crore in advance tax payout for the third quarter compared to Rs.1,166 crore in the same period a year ago.
*Similarly, housing lender HDFC said it has paid Rs. 560 crore in advance tax against Rs. 475 crore in the year ago period, a growth of 18 per cent.
*Leading private sector banks like ICICI Bank and HDFC Bank have seen their tax payouts increasing. While ICICI Bank has paid 35 per cent more at Rs. 675crore up from Rs.500 crore, the second largest private sector lender HDFC Bank has paid Rs. 1,000 crore in the third quarter of this fiscal as against Rs. 900 crore in the same period last fiscal.
An analysis of the results of 360 top manufacturing and services companies, which have announced their July-September quarterly results, showed that a sharp 42% jump in other income, including gains from foreign exchange, boosted their combined net profit by 36% on a yearly basis. For example, net profit of RIL, the most valued company in the country, jumped nearly 92% due to increase in other income on an annual basis.
The analysis by Crisil Research also showed that there was clear stress on asset quality of public sector banks (PSBs). With a 47-basis-point (100 basis points = 1 percentage point) rise in gross non-performing assets (NPAs) on a quarterly basis, this number for PSBs now stands at 3.28%. “This could be attributed to continued stress in sectors like infrastructure, construction, aviation and textiles. In contrast, private sector banks have been able to maintain their asset quality, due to a higher exposure to the retail segment as well as stringent credit appraisal and recovery mechanisms for corporate loans. On an annual basis, gross NPAs of PSBs have risen by an alarming 95 basis points. Read More