Industrial growth slows down to two-year low at 1.

9%
Sanjeev Sharma The Tribune News Service Published on November 12, 2011 New Delhi, November 11: There are clear signs of a slowdown emerging in India's economy with industrial output growth plunging to a two-year low of 1.9 per cent. The dip for September for the index of industrial production (IIP) is against a robust 6.1 per cent in September last year. During the April-September period this fiscal, IIP growth stood at 5 per cent as against 8.2 per cent in the same period last year. Chief Economic Advisor Kaushik Basu said the September IIP data was a matter of great concern and claimed the global economic situation was responsible for it. Commenting on the index of industrial production data for September which was released Friday, Federation of Indian Chambers of Commerce & Industry (FICCI) secretary general Rajiv Kumar said: "The industrial growth outlook in the country has deteriorated over the last few months. Uncertainty in economic environment has impacted business and consumer confidence which is reflected in the negative growth of capital goods sector and also the consumer nondurable goods sector". FICCI said there was need for pro-active reform measures from the government to reverse this trend and improve overall business sentiment. "The negative growth of (-)6.8% in the capital goods sector will find its manifestation in the growth of manufacturing sector in coming months with lag. There is a risk of growth further falling in manufacturing in next few months", the apex chamber noted. Negative growth of mining is also a cause of concern which not only impacts other sectors but is also the under-utilization of the mineral base. FICCI said the continuous negative growth of the textiles and apparels sector for the last few months would have serious implications for employment creation in the country as the sector was the second largest employer after agriculture. The Confederation of Indian Industry (CII) said the sharp decline in growth to a two-year low came as a surprise, especially in a month just preceding the festival season. CII director general Chandrajit Banerjee said the decline reflected the impact of the Reserve Bank of India's interest rate hikes together with the continuous rise in inflation.

"With the global economic scenario also deteriorating, the RBI should not only pause but begin to reverse its interest rate hikes", he added.

Small savings rates hiked; PPF limit raised to Rs 1 lakh

The Business Line Published on November 12, 2011 New Delhi, Nov 11: Interest rates on small savings have been hiked in the range of 4 per cent up to 8.6 per cent. The investment limit for Public Provident Fund (PPF) has also been increased by Rs 30,000 to Rs 1 lakh, as also the interest rate at 8.6 per cent from 8 per cent at present. Announcing the new norms on Friday, the Finance Ministry said the new rates will be applicable from the date of notification which will be announced soon. From next year, the rates would be notified before April 1, it added. The small saving schemes have been restructured on the basis of the recommendations of the Shyamala Gopinath Committee, which submitted its report in June. The rate of interest on small savings schemes will be aligned with Government Securities rates of similar maturity, with a spread of 25 basis points with two exceptions. The spread on 10-year National Savings Certificates (new instrument) will be 50 basis points and on Senior Citizens Savings Scheme 100 basis points. The maturity period for the post office Monthly Income Scheme (MIS) and National Savings Certificate (NSC) has been reduced to five years from six years at present.

Agents Disappointed Although this is good news for small savers, collection agents are disappointed. According to an office memorandum issued by the Finance Ministry, payment of commission on PPF at the rate of 1 per cent and Senior Citizens Savings Scheme at the rate of 0.5 per cent will be discontinued. Agency commission under all other schemes (except Mahila Pradhan Kshetriya Bachat Yojana) will be reduced by half, from the existing 1 per cent.

RBI sees FY12 growth at about 7.5-7.6%

The Reuters News Service Published on November 12, 2011 New Delhi, November 11 (Reuters): India's economy is expected to grow around 7.5 to 7.6 percent in the current fiscal year that ends in March, Subir Gokarn, deputy governor of the RBI, said Friday, adding the impact of rate hikes was visible on economic growth. He also said the economy is clearly in a slowdown mode. Earlier, India's industrial output grew at its slowest pace in two years in September, providing further evidence of deceleration in the economy and raising the odds of a pause in the central bank's 20-month-old policy tightening cycle. Production at factories, mines and utilities grew 1.9 percent from a year earlier in September, lower than a downwardly revised 3.6 percent growth a month ago and below the median forecast for a 3.5 percent rise in a Reuters poll.

Indian banks not facing any stress: RBI

The Business Standard Published on November 12, 2011 New Delhi, November 11: Amid contradictory ratings by global agencies, the Reserve Bank today said Indian banking sector is not facing any stress, though state-owned lenders need capital infusion. "Overall, we don't see any fundamental stress on the banking system as a whole. So we are nowhere close to the problem," RBI Deputy Governor Subir Gokarn told reporters on the sidelines of an Assocham event here. His comments come within days of ratings firm Moody's downgrading the outlook of the Indian banking system to 'negative', from 'stable'. Another rating agency Standard & Poor's, however, upgraded the ranking saying domestic regulations in India are in line with global standards. "There are of course long term issues of capital. If the system is growing at 20% a year, it needs the capital to grow at 20% at a year... It is not any indication of systemic threat," Gokarn added. He, however, admitted that there could be some pressure points on the banking system on account of high interest rates. The capital requirement of PSU banks, including SBI, for the fiscal has been estimated at between Rs 10,000-20,000 crore. The government has already made a provision to infuse Rs 6,000 crore in public sector banks in the current fiscal.

As regards the increase in non-performing assets (NPAs) of the banking sector, he said, "NPAs are increasing, but it is not dramatic". NPAs of state-owned banks have increased to 2.31% of their assets at the end of March 2011, from 2.27% in the year-ago period. As at the end of September quarter, the gross NPAs of country's largest lender SBI stood at 4.19%, higher than 3.38% in the year-ago period.

Banks see bad loans from farm sector rising

Shobha Roy The Business Line Published on November 12, 2011 Kolkata, Nov. 11: Banks have been witnessing a rise in slippages in agricultural loans during the second quarter of current fiscal. While a section of bankers attribute the rise in non-performing assets to banks moving to system driven identification of bad loans, some say it is because of higher defaults and poor recovery mechanism. The bad loans are to the tune of 3-5 per cent of total slippages, senior bank officials said. Cause for concern' The loans to the agricultural sector are under stress, whether this is due to poor recovery or genuine hardships we are yet to ascertain. But it is a cause of concern, Mr Pratip Chaudhuri, Chairman, State Bank of India, told Business Line on the sidelines of a bankers' conference in Chennai recently. State Bank's gross slippages, excluding those from restructured accounts, during the second quarter amounted to Rs 6,238 crore. The bank has been focusing on recovery from non-performing assets. The recovery is picking up. As farmers get money we will accelerate our recovery efforts, Mr Chaudhuri said while announcing the bank's quarterly performance in Mumbai recently. The rise in bad loans is due to a combination of factors, said Mr Vaibhav Agrawal, VicePresident, Research-banking, Angel Broking. Priority sector lending typically expose banks to higher NPAs, this has been compounded by system driven identification of bad loans. Moreover, the agricultural debt waiver announced by the Government has also affected the repayment culture to a great extent. Andhra Bank reported gross NPAs of about Rs 550 crore from the agricultural sector. The bank is however hopeful of recovering more than 50 per cent by the end of this fiscal. The rise in bad loans is largely because of banks adopting a system-driven approach for identification of such loans.

Earlier, small advances of Rs 1-2 lakh were not captured very efficiently, but it is being generated by the system now. We are, however, hopeful of recovering Rs 250-300 crore by December or latest by March of this fiscal, said Mr R. Ramachandran, Chairman and Managing Director, Andhra Bank. Last fiscal The slippages were lower during second quarter of last fiscal as the Government had cleaned the balance-sheet of banks by way of farm loan waiver to the tune of Rs 60,000 crore in 2008-09. The advances extended by banks thereafter will have a moratorium of 6-12 months and it takes another three more months for it to be classified into the category of NPAs. So, not too many cases of bad loans were reported last year, said Mr S. L. Bansal, Executive Director, United Bank of India.

Banks reluctant to bail out Kingfisher Airlines

The Times of India Published on November 12, 2011 New Delhi, November 11: A public pitch by civil aviation minister Vayalar Ravi on Friday for a financial bailout for Vijay Mallya-promoted Kingfisher Airlines appears to have failed to move lenders or the finance ministry. They seem unwilling to provide fresh support, arguing that the promoters first need to infuse capital. Although lenders led by the State Bank of India are meeting on Saturday, bankers are of the view that they may not be in a position to take a further hit and claim the loss-making airline has not fulfilled all the commitments it had undertaken when a debt restructuring was undertaken last December. The operational and financial troubles at India's second largest airline by market share prompted Ravi to take up cudgels on its behalf. He said he would speak to the finance minister to get some assistance from the lead banks for the airline.

The ways of rating agencies

Editorial, The Business Line Published on November 12, 2011 Moody's and S&P ratings matter not for what they are, but what they suggest about the real economy Rating agencies are known to move in sync, almost to the point of exhibiting herd behaviour. So, it is a little unusual to see the global top two Moody's and Standard & Poor's (S&P) taking diametrically opposite positions on the country's banking system, that too within a space of two days. On Thursday, Moody's downgraded its outlook for India's banks from stable' to negative', citing slowing economic momentum, high inflation and rising interest rates that could adversely affect (their) asset quality, capitalisation and profitability. The very next day saw S&P revise upwards its rating of the Indian banking industry by a notch, while drawing attention to its high level of stable, core customer deposits, which limit dependence on external borrowings and also the Government's commitment to provide timely financial support. What does one make of these two divergent rating actions? The Government will, of course, feel vindicated by S&P's upgrade, which may even be claimed as righting' a wrong' committed by its rival. This is more so, given that Moody's had, earlier last month, also downgraded the financial strength rating of State Bank of India (SBI). Such righteous indignation, however, misses the real point. The banking system is only a mirror and barometer of the functioning of the larger economy, which includes the way in which it is being managed. There can be no two views today that growth in the economy has weakened, even while inflation remains stubbornly high. What is equally indisputable is that the second tenure of the ruling United Progressive Alliance has been marked by policy paralysis, and so-called governance deficit that has, in turn, dented investor confidence. If the real' economy isn't doing all that great, is it not bound to reflect in the financial system as well? After all, what does the increasing trend of delinquent loans to the power sector represent other than the fact that stalled tariff and distribution reforms have bankrupted state electricity boards, just as the indecision on coal linkages and land acquisition have held up projects? One way to look at the actions of rating agencies is to laugh at them. There is some justification for that: It, indeed, beats reason how Italy and Spain or, till four months back, even Portugal enjoy better ranking on these agencies' scale than India. But then, like it or not, the markets place great store on their opinion about the creditworthiness of

a particularly country or company. And these opinions sometimes serve to bring the necessary market' pressure on recalcitrant governments. Take the example of SBI itself, where Moody's downgrade was based on the hazy picture with regard to capital infusion in the country's largest bank to enable it to meet regulatory requirements. This single rating action would probably be more effective in forcing a vacillating Government into doing something about it, than SBI's own Oliver Twist-like pleas and supplications.

8% growth pipe dream running out of steam

The Business Standard Published on November 12, 2011 New Delhi November 11: GDP outlook goes for a toss as industrial growth sinks to 2year low. It was a foregone conclusion the Indian economy would not clock nine per cent growth this year as expected at the time of preparing the Budget. But, now, even eight per cent looks extremely unlikely. The Reserve Bank of Indias (RBIs) tight monetary stance, coupled with problems in the coal sector and uncertain global recovery, led to industrial growth sinking in September. Growth hit a two-year low of 1.9 per cent, against 6.1 per cent a year ago. The central banks repeated interventions to tame inflation are also yet to yield results. Food inflation remained high at 11.81 per cent despite some moderation for the week ended October 29. In fact, industrial growth for August was also revised down to 3.59 per cent from the 4.1 per cent estimated initially, clearly showing signs of a slowdown. These figures are generally revised upwards after the provisional numbers. The industrial growth figures for October may come as a shock due to a high base effect of 11.3 per cent last year, analysts say, but the festival demand in the month may offset some of the negative impact. The dismal industrial growth data came on top of export growth witnessing a sharp decline to 10.8 per cent at $19.9 billion in October. The rate of growth in exports has been plummeting continuously since July, when it hit 81.79 per cent. In imports, the monthly growth rates have been highly volatile. The trade deficit has widened to $93 billion in the first seven months of this financial year and could even breach $150 billion.

However, policymakers do not rule out the economy clocking eight per cent growth this year, though their tone has turned relatively pessimistic. Indias economy could grow between 7.6 and eight per cent in the year to March 2012, news agency Reuters quoted Planning Commission deputy chairman Montek Singh Ahluwalia as saying. I wont comment on the 2011-2012 full GDP numbers, but one thing is sure, that all the earlier talk of 9-10 per cent GDP growth is unfounded, though the long-term growth prospects of the Indian economy remain fully intact, chief statistician T C A Anant said. However, a Deloitte, Haskins & Sells director pegged Indias economic growth for the year at 7.5 per cent against 8.5 per cent last year. Indias economy grew by a six-quarter low of 7.7 per cent in the first three months of this financial year. Signs of economic growth do not look promising for the second quarter either. Industrial production grew at a snails pace of sub-five per cent for the third month in a row in September. For the second quarter, industrial growth stood at just 3.07 per cent. Industry constitutes 18.50 per cent of Indias GDP. We now see a significant downside risk to our FY12 average IIP growth forecast of 6.7 per cent, said Shubhada Rao, chief economist, YES Bank. Industrial growth nose-dived in September as mining output contracted 5.6 per cent and manufacturing production grew just 2.1 per cent. Mining output declined for three months out of six this fiscal, dragged down by coal output, which registered a negative growth of 17 per cent in September. "Coal production contracted because of late withdrawal of the monsoon and strikes in Coal India," Rao said. Analysts also attributed the fall in coal production to problems related to environmental issues and a disruption in Singareni Collieries Company because of trouble in the Telangana region. An improved policy framework in the area of mining is required to incentivise large scientific mining in the country, Ficci secretary general Rajiv Kumar said. However, the biggest dent to industrial growth came from manufacturing, which constitutes over 75 per cent of the Index of Industrial Production, on the basis of which industrial growth is measured. Within this sector, capital goods production declined to 6.8 per cent, while consumer non-durables contracted 1.3 per cent. As consumer nondurables are generally the last to be affected by a slowdown, the story warns of things to come, analysts say. "The RBI should not only pause but begin to reverse its interest rate hikes," CII director general Chandrajit Banerjee said.