SBI bad loans balloon, post-merger provisioning may rise -The Total Investment & Insurance Solutions

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7 April 2017

State Bank of India's bad loans have ballooned approximately 50 per cent in the span of a year and those of its five associate banks by 170 per cent.

The bank will likely have to increase its provisioning for bad loans -- setting aside money to partly cover the non-performing assets (NPAs) following its merger with five subsidiaries.

SBI, which had a provisioning coverage ratio of about 59 per cent, said that after the merger it will revisit the NPAs and provide accordingly.

"Depending on the age of NPAs, we provide provisioning as per the norms. Hundred per cent provisioning is not a practice in the industry," SBI Managing Director Dinesh Kumar Khara told. The Total Investment & Insurance Solutions

SBI's gross NPAs in December 2016 were at Rs 1.08 lakh crore, an increase by 48.6 per cent from Rs 72,792 crore in the third quarter FY16. The bank's net NPAs rose by 52.6 per cent during the same period. The Total Investment & Insurance Solutions

SBI's five associate banks reported a 172.8 per cent increase in gross NPAs at Rs 55,164 crore in December 2016, as compared to Rs 20,218 in the same period in 2015-16. The net NPAs of these rose by 218.7 per cent in the same period.

The five associate banks with which SBI merged on April 1 were: SBBJ (State Bank of Bikaner and Jaipur), SBM (State Bank of Mysore), SBT (State Bank of Travancore), SBP (State Bank of Patiala), and SBH (State Bank of Hyderabad).

The Bharatiya Mahila Bank, which is not an SBI subsidiary, was also merged with it on the same day. The Total Investment & Insurance Solutions

The combined gross NPAs of SBI and its five associate banks as on December 31, 2016, stood at Rs 1.6 lakh crore or 8.70 per cent of the total assets, while the net NPAs were at 5.33 per cent.

"As far as the corporate books of associate banks are concerned, we started converging the NPA books of corporates from September quarter; so I don't envisage any surprises on that," Khara said. The Total Investment & Insurance Solutions

The Reserve Bank of India had asked the banks to clean up their balance sheets and had given a deadline of March 31 for asset quality review. Kumar said that SBI has been continuously declaring NPAs; so there will not be any extraordinary rise in the fourth quarter of 2016-17.

SBI Managing Director Rajnish Kumar told IANS, "We have been declaring NPAs from time to time. I don't expect any extraordinary hike in NPAs. The formation of NPAs has slowed, that is the fact, though we are still not out of the woods as of now."

From time to time there are meetings at the level of the government or Indian Banks' Association to find an acceptable solution as the recognition of NPAs has happened in the last two years, Kumar said. The Total Investment & Insurance Solutions

"All have realised the problem and are trying to work together to find a solution that is acceptable to all. NPA problem is (because of) corporates, or rather mid-corporates," he added.

He said that the NPAs would get reduced if the economy grows at a fast pace and profitability of stressed sectors sees an improvement. The Total Investment & Insurance Solutions

"For resolution of NPAs, the profitability of corporates should increase. For example, the steel sector has now suddenly started showing up, because there is an improvement in the profit margins. It is because of the pressure on the margins that the debt becomes non-sustainable. But if EBIDTA (earnings before interest, depreciation, taxes and amortisation) margins improve, synergy improves, problem would at least be partly solved," Kumar said.

Khara, however, said that the idea of bad bank could be considered, not as a repository of bad assets, but with the aim to turnaround these assets.

"There are some insolvency professionals coming in. But by the time the ecosystem gets created and starts delivering... it is still some time away. That kind of vehicle to identify such assets which can be turned around is needed," he said.

SBI has committees for NPAs depending on the size of the loans. There is also a committee under the bank chairperson which looks after stressed assets worth Rs 500 crore or more. Similarly, there are committees that regularly review NPAs and decide on the future course of action. The Total Investment & Insurance Solutions

After the merger, SBI, with a customer base of 450 million, has about a quarter of all outstanding loans of the banking sector.The Total Investment & Insurance Solutions

Nifty, Sensex May Try to Rally - Thursday closing report-The Total Investment & Insurance Solutions

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6 April 2017

Snapping the two-day winning streak, the domestic equity market ended in the red on Thursday after the minutes of the US Fed’s last policy review induced weakness in global equities and back home. The market recovered a bit after Reserve Bank of India kept the repo rate unchanged at 6.25%. The trends of the major indices in the course of Thursday’s trading are given in the table below: The Total Investment & Insurance Solutions

 

Major Indices (The Total Investment & Insurance Solutions)

The S&P BSE Sensex closed the session 47 points lower at 29,927 with ITC, ICICI Bank and SBI contributing most to the fall. The headline index, which opened at 29,946 against the previous day’s close of 29,974, hit an intraday high and low of 29,954 and 29,817, respectively. 

In the midcap space, the S&P BSE Midcap index closed 0.15% higher at 14,276 with Jindal Steel, Concor and M&M Finance being the major contributors in the surge in the index. The broader Nifty50 of the National Stock Exchange (NSE) ended at 9,261, down 3.20 points.

Benchmark indices ended the day on a lower note, but not before staging a recovery from the day’s low post the RBI’s policy announcement. The Street had factored in the central bank’s decision. A rally in real estate stocks could have helped in the recovery.

The Reserve Bank of India (RBI) kept the repo rate unchanged at 6.25% on Thursday, forecast robust 7.4% growth in 2017-18 aided by waning effects of demonetisation, although inflation risks remain in the medium term. The RBI hinted at a looming inflation threat over the next 6-12 months, obliquely leaving the door ajar for an interest rate hike in 2017-18. For 2017-18, inflation is projected to average 4.5% in the first half and 5% in the second half. “Underlying inflation pressures persist, especially in prices of services. Input cost pressures are gradually bringing back pricing power to enterprises as demand conditions improve,” the central bank said flagging weak monsoon, expected rise in government employees’ allowances and goods and services tax (GST) as the primary factors that could knock up prices in the short-term.

The status quo on rates, however, was accompanied by a string of regulatory changes including raising the reverse repo by 25 basis points to 6%, allowing banks to investment in real estate investment trusts (REITs), raising the minimum fund requirements of asset reconstruction companies (ARCs), allowing collateral substitution under repo that will give banks more funds to lend, and proposing the introduction of standing deposit facility (SDF)—another window for banks to borrow. The six member monetary policy committee (MPC), headed by RBI governor Urjit Patel, also reduced the liquidity corridor – the difference between the repo and reverse repo rates or the liquidity adjustment facility (LAF)—to 25 basis points with immediate effect. Likewise, the marginal standing facility (MSF) or the rate at which banks borrow from the RBI during periods of acute liquidity shortage, will stand reduced to 6.5%.

Rate sensitive stocks such as banks, real estate stocks rallied after the Monetary Policy Committee (MPC) decided to keep the policy rates and cash reserve ratio (CRR) unchanged. Real estate stocks rallied after the Reserve Bank of India (RBI) said that it plans to allow banks to invest in REITs and InvITs. The Total Investment & Insurance Solutions

Tata Power said electricity generation from all its plants collectively crossed 51,000 Million Units (MUs) in 2016-17. It also reported significant increase of 15.2% in output, with its total power generation capacity at 10,577 MW from various fuel sources such as thermal, hydroelectric power, renewable energy (wind and solar PV) and waste heat recovery. According to a statement by the company, it also has a significant presence in the clean energy space with a gross installed capacity of 3,141 MW. Toyota Kirloskar Motor is recalling 23,157 units of its sedan Corolla Altis in India, as part of the ongoing recall of 2.9 million vehicles globally for defective air bags. Bharat Forge hit fresh 52-week high, up nearly 3% after sharp jump in North America truck orders. The Total Investment & Insurance Solutions

On the global front, Wall Street ended lower on Wednesday after a late-afternoon reversal following signals from the Federal Reserve that it could change its bond buying policy this year, quenching a rally sparked by a strong private sector jobs report, said a Reuters report. Stocks in China bucked the trend as they extended gains on Thursday to hit a four-month high as investors continued to chase stocks which could benefit from the government's launch of a massive new economic zone near Beijing. Most of the Asian markets settled lower, as the region nervously watched for market-moving news from the first meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. European stocks opened lower.

The top gainers and top losers of the major indices are given in the table below:

 

Top Gainer (The Total Investment & Insurance Solutions)

The closing values of the major Asian indices are given in the table below: The Total Investment & Insurance Solutions

Asian Indices (The Total Investment & Insurance Solutions)

RBI keeps repo rate unchanged at 6.25%, ups reverse repo rate to 6%-The Total Investment & Insurance Solutions

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6 April 2017

 

RBI (The Total Investment & Insurance Solutions)

The Monetary Policy Committee (MPC) in its first review for FY2017-18 on Thursday kept repot rate unchanged while increasing reverse repo rate by 0.25%. The repo rate will remain at 6.25% with the MPC deciding to narrow the liquidity adjustment facility (LAF) the reverse repo rate will increase to at 6%. The marginal standing facility (MSF) rate and the bank rate also increased to 6.50%. The Total Investment & Insurance Solutions

In a statement, the Reserve Bank of India (RBI) says, "...the MPC decided to keep the policy rate unchanged in this review while persevering with a neutral stance. The future course of monetary policy will largely depend on incoming data on how macroeconomic conditions are evolving. Banks have reduced lending rates, although further scope for a more complete transmission of policy impulses remains, including for small savings/ administered rates. It is in this context that greater clarity about liquidity management is being provided, even as surplus liquidity is being steadily drained out. Along with rebalancing liquidity conditions, it will be the Reserve Bank’s endeavour to put the resolution of banks’ stressed assets on a firm footing and create congenial conditions for bank credit to revive and flow to productive sectors of the economy."

"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth," it added

As per the Reserve Bank, after moderating continuously over the last six months to a historic low, retail inflation measured by year-on-year changes in the CPI turned up in February to 3.7%. While food prices bottomed out at the preceding month’s level, base effects pushed up inflation in this category. Prices of sugar, fruits, meat, fish, milk and processed foods increased, generating a sizable jump in the momentum in the food group. In the fuel group, inflation increased as the continuous hardening of international prices lifted domestic prices of liquefied petroleum gas (LPG) during December 2016–February 2017. Kerosene prices have also been increasing since July with the programmed reduction of the subsidy. Adapting to the movements in these salient prices, both three months ahead and a year ahead households’ inflation expectations, which had dipped in the December round of the Reserve Bank’s survey, reversed in the latest round. Moreover, the survey reveals hardening of price expectations across product groups. The 77th round of the Reserve Bank’s industrial outlook survey indicates that pricing power is returning to corporates as profit margins get squeezed by input costs.

The MPC feels that there are several domestic factors that would drive acceleration in the economy. It says, "First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending. Activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganised segments has largely been restored. Second, significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations. Third, various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure all of which would invigorate economic activity. Fourth, the imminent materialisation of structural reforms in the form of the roll-out of the GST, the institution of the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board (FIPB) will boost investor confidence and bring in efficiency gains. The Total Investment & Insurance Solutions

Fifth, the upsurge in initial public offerings in the primary capital market augurs well for investment and growth." The Total Investment & Insurance Solutions

During the meeting, six members voted in favour of the monetary policy decision. RBI says, "...the MPC’s considered judgement call to wait out the unravelling of the transitory effects of demonetisation has been broadly borne out. While these effects are still playing out, they are distinctly on the wane and should fade away by the Q4 of 2016-17. While inflation has ticked up in its latest reading, its path through 2017-18 appears uneven and challenged by upside risks and unfavourable base effects towards the second half of the year. Moreover, underlying inflation pressures persist, especially in prices of services. Input cost pressures are gradually bringing back pricing power to enterprises as demand conditions improve. The MPC remains committed to bringing headline inflation closer to 4.0% on a durable basis and in a calibrated manner. Accordingly, inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored. At the same time, the output gap is gradually closing. Consequently, aggregate demand pressures could build up, with implications for the inflation trajectory." The Total Investment & Insurance Solutions

Here are the latest policy rates following MPC review… 

Repo Rate......................6.25%

Reverse Repo Rate.........6%

Bank Rate......................6.50%

Toyota Kirloskar recalls 23,157 Corolla Altis-The Total Investment & Insurance Solutions

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6 April 2017

Car maker Toyota Kirloskar Motor on Thursday said it is recalling 23,157 units of Corolla Altis over their faulty airbags. The Total Investment & Insurance Solutions

"23,157 units of Corolla Altis manufactured between January 2010 to December 2012 are affected," a company spokesperson told IANS.

The airbag vendor is Tataka Corporation and there is no impact on any other model as of now, the official added. The Total Investment & Insurance Solutions

The recall is part of global recall by Japan's Toyota Motor Corporation.

The Total Investment & Insurance Solutions

Traders want transaction charge on digital payments removed-The Total Investment & Insurance Solutions

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6 April 2017

The government should remove transaction charges on e-payments for the faster adoption of digital payments in the country, the Confederation of All India Traders (CAIT) said on Thursday.

"Transaction charges are one of the major deterrents in adoption of digital payments in the country. It is urgently required for the government to do away with the transaction charges so that neither the traders nor the consumers are burdened," CAIT National President B.C. Bhartia said in a statement. The Total Investment & Insurance Solutions

"On the other hand, the government may levy a nominal ATM usage surcharge in order to discourage people to withdraw cash from ATMs and motivate them to pay directly by cards," Bhartia added. The Total Investment & Insurance Solutions

The CAIT said the government should subsidise transaction charges levied on e-payments to the banks directly for faster adoption of digital payments.

The confederation also called for implementation of the drafted proposal floated by the government in August 2015 for incentivising traders who are willing to accept digital payments.

"The incentive could be in form of either tax benefits or waiver of transaction costs which would result into encouraging traders to embrace e-payments system," the statement said.

The confederation had organised a conference on "Digital Payments-Importance & Adoption for future business India" here extending support to the government's mission of increased digital payment adoption in the wake of fast approaching Goods and Services Tax (GST) regime.

"CAIT also announced its partnership with HDFC Bank to provide banking solutions to trading fraternity and help them achieve maximised business growth and expansion by way of championing into digital business operations," the statement said.

The CAIT launched a national campaign this year in association with the Ministry of Electronics and Information Technology (MeitY) to persuade non-corporate business sector for amplified adoption of Digital Payments, it added.The Total Investment & Insurance Solutions

Average US 30-Year Mortgage Rate Falls To 4.10 Percent -The Total Investment & Insurance Solutions

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6 April 2017 

Long-term U.S. mortgage rates fell this week for a third straight week, approaching their low points for the year. The Total Investment & Insurance Solutions

Mortgage buyer Freddie Mac says the rate on 30-year fixed-rate home loans declined to 4.10 percent from 4.14 percent last week. The benchmark rate stood at 3.59 percent a year ago and averaged 3.65 percent in 2016, the lowest level in records dating to 1971.

The rate on 15-year mortgages eased to 3.36 percent from 3.39 percent.The Total Investment & Insurance Solutions

Nifty, Sensex continues to head higher – Wednesday closing report-The Total Investment & Insurance Solutions

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5 April 2017

I have mentioned on Monday’s closing report that Nifty and Sensex will continued to rally and make considerable gains. Indian shares clocked a record closing high on Wednesday, helped by a rally in auto and realty stocks, while investors awaited a central bank policy meet on Thursday. The trends of the major indices in the course of Wednesday’s trading are given in the table below: The Total Investment & Insurance Solutions

 

Major Indices (The Total Investment & Insurance Solutions)

The Nifty ended 0.30% higher at 9,265.15. Earlier in the day, the index hit 9273.9, its highest ever. The Total Investment & Insurance Solutions

Indian shares climbed with key benchmarks registering new record high as foreign funds continue ramp up their investments in local equities. The S&P BSE Sensex gained 0.2% to 29,974.24 – a record closing for the 30-share benchmark. Intraday, the index crossed the 30,000 mark for the first time since March 2015. Meanwhile, the NSE’s Nifty 50 index rose 0.3% to 9,265 also a record close for the index. The 50-share index made an intraday high of 9,273. 

All the sectoral indices, barring the technology index, advanced on the BSE.  The market breadth was dominated by the bulls with three stocks advancing to every one stock that declined on the NSE. In the sectoral landscape, realty stocks surged the most, sending the S&P BSE Realty index 4% higher at 1671.21. The rally was fuelled by rise in shares of Sobha, Godrej Properties and Unitech. The domestic equity market continued its winning momentum for a second straight trading session of FY18 as benchmark indices hit fresh highs fuelled by heavy buying in bluechips such as Reliance Industries, Maruti Suzuki and L&T.

In stock-specific action, shares of Reliance Industries rallied for a fifth straight trading session on Wednesday to hit the Rs1400-mark for the first time since May 2008. The company is now just Rs14,000 crore away in market value from displacing TCS as the most-valued firm on Dalal Street. 

Unitech made a comeback with a bang as the shares of the company jumped over 15% after the company said on Monday its managing directors, Sanjay Chandra and Ajay Chandra, committed no fraud with any investor and the delay in project delivery was due to reasons beyond control of the company. The Total Investment & Insurance Solutions

Realty firm Sobha soared to a 2 year-high on upbeat operational update. Shares of the company closed at Rs399 a piece, up 16.24%. The Total Investment & Insurance Solutions 

Shares of the state-owned telecom company rose as much as 11% to Rs27.20, the highest since March 2015. MTNL is considering asset sale proposals to reduce debt, the company said in a regulatory filing. The Total Investment & Insurance Solutions

On the global front, oil hit a one-month high near $55 a barrel on Wednesday as a drop in US inventories raised hopes that OPEC-led supply restraint is clearing a glut, while an outage at a UK North Sea oilfield lent support. The Total Investment & Insurance Solutions

Chinese stocks ended higher led by the Shanghai benchmark posting its best day in eight months, as investors cheered Beijing's decision to launch a new economic zone in Hebei province. 

The top gainers and top losers of the major indices are given in the table below:

 

Top Gainer (The Total Investment & Insurance Solutions)

The closing values of the major Asian indices are given in the table below: The Total Investment & Insurance Solutions

Asian Indices (The Total Investment & Insurance Solutions)

Banks credit declines to 24% in real estate, PE funds grow: Report-The Total Investment & Insurance Solutions

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5 April 2017

With the declining bank credit to Indian real estate industry, private equity (PE) investors emerge as the major contributors to the sector by meeting around 75 percent of the funding requirement in the last couple of years, a report said on Tuesday.

"Analysis of Institutional Funding in Real Estate", released by Knight Frank India, said bank credit shrank drastically in the last few years from 57 per cent in 2010 to less than 24 per cent in 2016. The Total Investment & Insurance Solutions

"Around three-fourth of the real estate sector's funding requirement is met by PE players in the past couple of years; as against one fourth in 2010," it said.

The current environment for real estate is both challenging and opportunistic at the same time. Rising non-performing assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to significant reduction in credit offered by banks. PE players have replaced banks and are currently the biggest source of institutional finance for the real estate industry," said the research firm's Chief Economist and National Director, Research Samantak Das. The Total Investment & Insurance Solutions

According to the report, total funding in the Indian real estate sector increased by 40 per cent from $3.8 billion in 2011 to $5.4 billion in 2016.

The industry witnessed the highest amount of PE fund flow in 2015 with more than $3.6 billion investments across 100 plus deals, since 2010. 

The report said the year 2016 observed a 13 per cent drop in PE fund flow with less than 60 deals. "However the year 2016 has also recorded the highest amount of the average deal size amounting to $56 million," it noted. The Total Investment & Insurance Solutions

"Currently, PE funding is not just restricted to equity but has largely moved towards a quasi-equity type of structure," Das added.The Total Investment & Insurance Solutions