MORE PAIN FOR INDIAN BANKS AHEAD

CRISIL believes that loans restructured by Indian banks may increase sharply to Rs.3.25 lakh crore between 2011-12 and 2012-13, against the earlier estimate of Rs.2 lakh crore. Loans of Rs.1.6 lakh crore have already been restructured in 2011-12 and in the first quarter of 2012-13. The majority of restructuring will be in loans to the state power utilities (SPUs), and the construction and infrastructure sectors. The rise is a result of significantly higher funding challenges being faced by companies with large debt.

In recent months, availability of unsecured short-term loans from Indian banks has diminished. This is exacerbating refinancing and liquidity pressure, especially for the SPUs. This will lead to a significant increase in restructuring of SPU loans to nearly Rs.1.5 trillion. So far, SPU loans of Rs.0.6 lakh crore have been restructured. Furthermore, inability to raise adequate equity in a timely manner is straining the balance sheets and financial flexibility of developers in infrastructure and construction sectors, resulting in an increased likelihood of restructuring. Other vulnerable sectors include iron and steel, textiles, and engineering.

The proportion of restructured loans in this period will be high at around 5.7 per cent of banks’ advances as on March 31, 2013 according to CRISIL. Around Rs.0.50 lakh crore of these restructured loans may slip into NPAs, though this will depend on the terms of restructuring and fundamental viability of the projects and the companies. These slippages can aggravate the already stressed asset quality of banks by further increasing NPAs by 50 to 75 basis
points beyond March 2013. The loans to SPUs are unlikely to slip into NPAs, given the support expected from state and central governments.

Despite continued weak growth and profitability in the corporate sector, the large restructuring will help limit the increase in the banks’ NPAs in the near term. According to CRISIL’s estimates, the lower GDP growth of 5.5 per cent expected in 2012-13 may result in increase in banks’ gross NPAs to 3.5 per cent by end-March 2013 from around 3.0 per cent at the end of June 2012. The increase will be driven largely by delinquencies in the micro, small and medium enterprises, and agriculture and allied sectors.

An Economy is only as good as its statistica​l system

The government will announce the first quarter gross domestic product (GDP) numbers on Friday, and speculation is running high whether growth will be lower than the 5.3% notched up in the January-March 2012 quarter. What is very interesting is that in the meantime, the government has, rather quietly, revised downwards earlier GDP estimates for fiscal years 2009 and 2010.Recall that when GDP growth slipped to 5.3% in the January-March 2012 quarter, there was much adverse commentary about it being even lower than growth during the third and fourth quarters of fiscal 2009 (FY09), after the Lehman Brothers crisis. That didn’t reflect too well on the government, because while the lower growth in FY09 was the result of a global crisis, the current slowdown is largely a home-grown one.Well, growth in the fourth quarter of FY09 has now been revised downwards by the Central Statistics Office (CSO) from the earlier 5.9% to a much lower 3.5%. Gaurav Kapur, a senior economist at Royal Bank of Scotland NV in Mumbai, pointed out the revisions and drew attention to its magnitude. It’s a huge revision and once again calls into question the quality of data on which the GDP estimates are based.The CSO website says that the new series of the Index of Industrial Production (IIP) has been used for computing the data. But strangely enough, there’s been no revision in the GDP growth for the third quarter of FY09, which remains at 5.8%. The revised IIP data seems to have changed the GDP growth for the fourth quarter of FY09, but not for the third quarter.As the chart shows, growth for the first quarter of FY10 has also been revised down from 6.3% to 5.7%. That’s not such a big change, though, compared with some of the other revisions. Consider, for instance, the revisions for the first quarter of FY09 from 7.9% to 9.8%, or for the fourth quarter of FY10 from 9.4% to 11.2%.What was the reason for the big change during the fourth quarter of FY09? Well, they’ve revised down the growth rates in all three sectors—agriculture, industry and services. Growth in industry has been revised down from 0.8% to -3.6%.When the GDP growth numbers for the first quarter of FY13 are announced on Friday, if it falls below the 5.3% recorded during the previous quarter, as several economists believe it will, even then the growth rate won’t be lower than during the post-Lehman period. As an economist pointed out, we can now say that growth isn’t as bad as in the post-Lehman quarters, at least until the numbers are revised again.More importantly, when they announce the GDP growth numbers on Friday, where’s the guarantee it won’t be revised later by more than 2 percentage points, just as they did for the fourth quarter of FY09? And if the magnitude of error is so high, what’s the point of taking any decisions based on this kind of data? One can only express one’s sympathies to the Reserve Bank of India (RBI). Simply put, the credibility of the GDP data is at stake.

Rural Indians outpace urbanites in spending growth

For the first time since economic reforms began two decades ago, consumption in rural India is

growing faster than in urban India. Given the large size of India’s rural population, the value of goods

and services consumed has always been greater in rural India, but urban India had narrowed the

differential during most of the last decade by growing at a faster pace. Between 2009-10 and 2011-

12, additional spending by rural India was Rs.3,750 billion, significantly higher than Rs.2,994 billion

by urbanites. For sustaining the rural boom, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas.

Growth in rural consumption was fuelled by a rise in household incomes due to greater non-farm job

opportunities and government initiated employment generation schemes. NSSO data shows that

during 2004-05 to 2009-10 rural construction jobs rose by 88 per cent, while the number of people

employed in agriculture fell from 249 million to 229 million. In addition, migrants from villages to urban

areas who benefitted from job opportunities in infrastructure and construction projects increased

remittances to their families in rural India, which boosted consumption.

A notable phenomenon in rural consumption is a shift from necessities to discretionary goods. About

one in every two rural households now has a mobile phone. Even in India’s poorest states such as

Bihar and Orissa, one in three rural households has a mobile phone. Nearly 42 per cent of rural

households owned a television in 2009-10, up from 26 per cent five years earlier. Similarly, 14 per

cent of rural households had a two-wheeler in 2009-10, twice that in 2004-05. For India, a young

population, rising income and low penetration of many consumer durables means that rural

consumption has the potential to remain an important source of demand.

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) fuelled job

creation on an unprecedented scale and provided an opportunity to rural households to supplement

their traditional farm income. Nearly 27 per cent of rural households availed employment under

MGNREGS in 2009-10. Wages under MGNREGS increase with retail inflation: consequently, rural

wages have risen faster than inflation since 2007-08.

Source: CRISIL

Five Reasons Ayn Rand Is Bad for Business

For decades, CEOs have touted Ayn Rand as a "must-read" for staff and employees alike. Here are five good reasons that's a bad idea — if you want your business to be successful.

1. Rand focuses employees on money. Rand practically worshipped the almighty dollar  seeing the acquisition of wealth as a goal worthy in and of itself. Unfortunately, when that attitude spreads throughout an organization, a higher salary becomes the only motivation that really works. That means top workers will, of course, leave the moment they get a better offer elsewhere.

2. Rand encourages selfishness. For Rand, there is no higher good than pursuing one's own happiness. The problem with that philosophy is that it encourages workers to view their personal success as being far more important than the group's success — and that kind of self-centered thinking is fatal to getting team members to work together.

3. Rand creates fanatics. While some Rand fans have a nuanced view of her, there are plenty of people who glom onto her writing with evangelical intensity. Their quest to convince everyone else in the workplace that Rand was the greatest thinker and philosopher of the 20th century (or maybe of all time) is distracting, annoying and counter-productive.

4. Rand alienates the religious. Rand's value system is the antithesis of Judeo-Christian teaching. For example, while Jesus says "blessed are the poor," Rand calls them "moochers." Top-quality workers who value their religious faith might feel out of place in a work environment that seeks to canonize Rand's brand of atheism.

5. Rand discourages charitable giving.Rand devotees criticize CEOs who give to charity because "you have no moral obligation to 'give back,' because you didn't take anything in the first place." For many workers, though, an altruistic desire to "give back" is a strong motivator. Such workers respect leaders who know that others contributed to their success.

Source: Reports

IDBI PAVES THE WAY FOR MORE SGD BOND ISSUANCES

IDBI Bank made the first publicly listed benchmark Singapore Dollar bond issue from India on August 21, 2012.  The transaction received overwhelming response and the order book was oversubscribed by 12 times.  The SGD 250 million bond issue is for a 3 year maturity and carries a fixed coupon of 3.65% p.a. This landmark issue by IDBI Bank will pave the way for other SGD bond issuances by Indian issuers.
This transaction is significant to India and IDBI Bank on several counts:
i) It is the first benchmark public bond transaction by any Indian entity in the Singapore Dollar bond market.
ii) It has opened up a new source of funding and investor diversification for Indian issuers.
iii) IDBI Bank is the only issuer from India to have tapped the Dim Sum (CNH) and Singapore Dollar (SGD) bond markets and is the only bank from India to have accessed the Swiss Franc (CHF) Bond Market in FY 2013.
iv) The transaction received a record oversubscription of 12 times which is the highest for any Indian bank.
v) The issue achieved the tightest pricing for any benchmark 3 year senior bond issue by any bank in the SGD market during 2012 year till date.
IDBI Bank undertook road shows in Singapore on August 14 and 15, 2012 which were very well attended by a diverse set of SGD focused private banks, asset managers and banks who were eager to hear the India and IDBI Bank story.  The highly impressive and well received road shows led to some large accounts indicating initial interest in an issuance and IDBI Bank decided to capitalize on the same despite significant volatility in global credit markets. 
The transaction was announced in the morning of August 21, 2012 as a SGD benchmark 3 year bond in the 4% area.  The books grew rapidly and soared to over SGD 1 billion within 2 hours of opening.  This enabled the announcement of a significantly tighter final guidance of 3.70% area post lunch in Singapore.  The book continued to grow to over SGD 3 billion, allowing the final pricing outcome of 3.65% at the tight end of the
final price guidance.  This price tightening of 35 bps from the initial price guidance is unprecedented.
The transaction attracted interest from a diversified array of investors including private banks (65%), asset managers (17%) and banks (18%).  Around 78% of the book size came from Singapore, with the balance 22% being from Hongkong and other geographies. 
DBS Bank, HSBC Bank and Standard Chartered Bank acted as Joint Book Runners and Lead Managers to the transaction. 

RIVALRY BETWEEN CHIDAMBARAM AND SWAMY SPANS DECADES

It was 1977 and the Janata Party had astonished media pundits by coming to power on the distaste created by the Emergency for the Congress party. A slim lawyer from Tamil Nadu shyly came up to the Stormy Petrel of the period, Subramanian Swamy, who had just been elected to the Lok Sabha from Bombay, the city his Parsi wife Roxna regarded as home. During the Emergency, Swamy had stealthily entered Parliament House, quickly signed the attendance register, and vanished before policemen could apprehend him. Swamy was, because of his opposition to the Emergency, one of that period's Most Wanted.
Although regarded with less than affection by A.B. Vajpayee, he was a favourite of Morarji Desai, and had come back to India after giving up a teaching career at Harvard. Palaniappan Chidambaram, the lawyer from Tamil Nadu, was one of the editors (together with N. Ram of the Hindu) of the Radical Review, a left publication strongly in favour of nationalisation of private assets (the Hindu and the Chidambaram family's assets presumably excluded). Chidambaram reminded Swamy that he was one of his appreciative Harvard pupils, only to get a cold stare from the newbie celebrity, and a "who are you?" look
Although it failed with Swamy, Chidambaram's youth and clipped accent, so different from the denizens of Mylapore or Egmore, impressed Rajiv Gandhi. He was inducted into the Central Council of Ministers in 1984, as Minister of State in the Home Ministry, no less. Some of his joy at the elevation in his status was probably tempered by the sight of the forgetful Harvard professor, who seemed to have won the affection of the PM to an even greater degree than Chidambaram. What was Swamy doing, meeting the PM? Discreet warnings about the opposition element who had "opposed Indira Gandhi" had little effect on Rajiv Gandhi, who liked to surround himself with those who had taken a political line different from that of the Congress party. Swamy continued to meet with the PM regularly, and even do secret missions for him, tasks that were not confided to the Minister of State by either Swamy or the PM.
The situation was made intolerable for Chidambaram by (the then Rajya Sabha MP) Swamy raising the Hashimpura massacre in Parliament in 1987. The killing of more than 40 Muslim youth by the UP Provincial Armed Constabulary had sickened the nation, and both officials as well as politicians sought to distance themselves from the foul deed. Swamy did not allow Chidambaram such a luxury. He accused the minister of doing an "aerial reconnaissance" of the killing field, the implication being that the lawyer-turned-politician was behind the massacre. This was crossing a huge red line, and it was dangerous to be so foolhardy with Chidambaram, whose memory for slights rivals that of a Pathan tribal elder.

Although on the record, backers of the current Union Home Minister deny any role in Swamy's travails, others claim that Chidambaram waited for an opportunity to strike back. He was clearly patient, holding his fire when Swamy briefly became Commerce Minister in the Chandrashekhar government. The Tamil Nadu politician, whether because of the presence within it of Swamy or not, was one of the most persistent advocates of the Congress party withdrawing support to Chandrashekhar, advice that Rajiv Gandhi finally took in 1991, forcing the election that caused him his life.
Palaniappan Chidambaram is aware that he is a gift of nature to humanity, and is generous with advice to acolytes. It must rankle that Swamy has never, not even once, turned to him for guidance. To Chidambaram's chagrin, although he was Minister of State for Commerce with independent charge in the Narasimha Rao ministry, Swamy was made chairman of the GATT Commission set up to assist in the negotiations with that international trade body. Worse, he was given Cabinet rank, a slight that Chidambaram held against Rao thereafter, finally breaking with the PM in 1996 in the company of his old benefactor, Govindaswamy Karuppiah Moopanar. When H.D. Deve Gowda formed a government in 1996, Chidambaram became the Union Finance Minister.
Soon afterwards, a chance presented itself to send Subramanian Swamy to jail. The stormy petrel of Emergency days had taken over in 1997 as chairman of a trust set up by "spiritual guru" Chandraswamy, after Dr P.C. Reddy (the founder of the Apollo Group) resigned after Chandraswamy was targeted by the Finance Ministry for FERA violations, the godman's real offence being his closeness to one of Chidambaram's betes noire, former Prime Minister Rao. Although Swamy had just been inducted into the trust, and therefore had no role in any of the transactions being investigated, an arrest warrant was issued for him. Was it to be checkmate? Would Chidambaram succeed where Indira Gandhi had failed during the Emergency? Unfortunately for him, before Swamy could be arrested, Prime Minister Deve Gowda learnt of the warrant, and got it cancelled. Till recently, Swamy had been Gowda's nominal boss as president of the Janata Party, of which Gowda had been the Karnataka state boss, till he quit to join hands with the Janata Dal.
While Chidambaram may be a Pathan in his outlook, Subramanian Swamy is Sicilian. Soon after escaping from the prospect of jail in 1997, he filed a complaint against Chidambaram, alleging that the Finance Minister had misused his position to get promoters shares in Fairgrowth, an investment subsidiary of a nationalised bank. The Delhi High Court issued notice to the minister, who admittedly had been allotted the shares. However, masterful arguments by counsel Arun Jaitley led to the court asking Swamy for a fresh complaint, because of a technicality. Fortunately for Chidambaram, the Lok Sabha elections took place soon afterwards, in 1998, and Swamy lost interest in pursuing the case. Litigation is a full-time job in India, not a task one can attempt in one's spare time.
Although there were rumours that Chidambaram would join the BJP in 2003, a year later he re-emerged as Finance Minister in the Congress-led government headed by Manmohan Singh. From that lofty perch, he could perhaps afford to ignore Private Citizen Swamy, who by the 1999 polls was out of both government as well as Parliament. However, the converse was not true, especially after 2008, when a group of Telecom Ministry officials secretly called on Swamy at his New Delhi residence and gave him details of what they claimed was massive fraud in the allocation of 2G spectrum. By the beginning of 2011, Swamy became convinced that the scam had been perpetrated by both Raja and Chidambaram, with the Congress stalwart being the "senior partner". According to Swamy, it was Chidambaram who told Raja about the escape route that the companies that had been allocated spectrum could take to get over the three year lock-in period. Rather than sell the spectrum, they could sell the entire company, and thereby the spectrum.
as Chidambaram told in writing by then Home Minister Shivraj Patil about security concerns regarding Etisalat and Telenor, the two foreign companies that bought two of the Indian entities that had been given 2G spectrum by A. Raja sans an auction? Are there minutes of meetings between Raja and Chidambaram that show that the decisions taken were arrived at jointly, rather than (as numerous media plants claim) Chidambaram opposing Raja? Swamy says yes. On 26 August 2011, Swamy went to the Supreme Court asking for Chidambaram to be included as a culprit in the 2G scam. The very next day, the Crime Branch of the Delhi police (which directly reports to the Home Ministry, headed by Chidambaram since 2008) registered an FIR against Swamy for an article that he had written in DNA. The game of Catch between the two Tamil politicians thus goes on, so far with neither man succeeding in sending the other to jail.

Source: Reports

DICHOTOMY BETWEEN HOUSING PRICES AND LOAN GROWTH

HOUSING PRICES RISE BUT LOAN GROWTH SUBDUED

UP UP AND AWAY
As per a study conducted by the National Housing Bank housing prices have risen by up to 10.5 per cent in 16 major cities in India during the April-June period. NHB 'RESIDEX' tracks the movement in prices of residential properties on a quarterly basis since 2007. The maximum increase in housing prices was observed in Pune (10.5 per cent) followed by Bengaluru (8.7 per cent), Patna (8.6 per cent), Ahmedabad (6.4 per cent) and Ludhiana (5.3 per cent). Housing prices rose by 4.1 per cent in Lucknow, while homes became costlier in Mumbai by 3.7 per cent, Delhi and Kolkatta by 2.6 per cent each, Bhubaneshwar, Bhopal and Chennai by 1.7 per cent each, Surat and Guwahati 1.2 per cent each, and Vijaywada and Kochi by 1.1 per cent each. According to a recent Knight Frank report, Indian real estate prices rose 12% in the past year, the third highest in the world.

LOAN GROWTH SUBDUED
Reserve Bank data shows housing loan growth slowed to 12.1% for the year ended March 2012 from 16% in the previous year. Also, before real estate prices peaked in 2008, big lenders were managing to grow their home loan portfolio at an annual average of 25%. Loan growth at LIC Housing Finance slipped to 17% in 2011-12 from 28% a year ago, forcing the company to set a lower target of 20% for the current fiscal. State Bank of India's housing loan disbursement grew 15% in 2011-12 against its target of 20%. State Bank of India (SBI) has revealed that it has cut its annual home loan growth target by up to 10 per cent age points. The biggest lender of the country has to revise their target due to sluggish growth in property market. Bank management stated that earlier target was 25 per cent growth in its home loan book. However, due to constant drop in home registrations, they now expect that the home loan segment will grow by only 15-20 per cent.