The Week That Was

The key indices extended their losing streak for third consecutive week amid weakening rupee and rising government bond yields. Ambiguity from FED regarding tapering of monetary stimulus also led to uncertainty in the global markets.

November 22, 2013 8:22 IST | India Infoline News Service

India’s potential growth rate is 8% and above: FM

In his speech at "Opportunities and Challenges for Diaspora Investments in India", Union Finance Minister P. Chidambaram says "It is said that ‘you can take an Indian out of India, but you cannot take India out of an Indian’. Indians, anywhere in the world and irrespective of their citizenship, retain a lot of their ‘Indianness’. It is certainly true of overseas Indian workers and it is also true of first generation migrants. I find that it is also true of the children of first generation migrants. One would have to wait some more years to see whether this unique characteristic of Indians is preserved by the children of children of first generation migrants.

India’s potential growth rate is 8% and above. In the best year, the savings rate was 36.8 percent and the investment rate was 38.1 percent. In the worst years, the savings and investment rates were 30.8 percent and 32.8 percent respectively. Between 2005 and 2008, India achieved its potential – in fact exceeded it – and recorded growth rates of over 9 percent. During the 20-year period from 1991 to 2011, the average growth rate was 7 percent.

The key to sustain a high growth rate is investment. Other factors are also important. The fiscal deficit must be contained below the widely-accepted norm of 3 percent of GDP. The Current Account Deficit must be capable of being financed safely. Inflation, even allowing for the space required by a developing economy, must be moderate. The exchange rate must be resilient even while it is insulated against speculative attacks and excessive volatility. Any Government must be fully alive to these fundamental requirements of a stable and progressive economy. Given these fundamentals, it is investment that will determine the growth rate of an economy.

I believe that there is no country in the world that requires so much investment as India does in virtually every sector of the economy. On infrastructure alone, the 12th Plan document covering the period 2012-2017 envisages an investment of USD 1 trillion, of which one-half is expected to come from the private sector. A few examples will illustrate the magnitude of the need and the challenge. In the power sector, the 12th Plan document projects an addition of 88,577 mega watts of capacity during the period of five years. In railways, we intend to add 10,000 kilometres of rail track while doubling 5,344 kilometres of rail track. In steel, we plan to enhance capacity from the current level of 84.4 MnT to 142.3 MnT. In the port sector, total capacity of our ports will increase from 702.8 MnT in 2012 to 884.6 MnT by 2017. We are now engaged in building 34 non-metro airports.Read more

Fitch: India faces difficult transition after rupee decline

The sharp depreciation of the Indian rupee in mid-2013 highlights India's difficult transition following an extended period of low growth, high inflation and a widening in the current account deficit. Fitch Ratings says in a report published today that the spillover effects of a weaker rupee have not significantly hurt India's creditworthiness, and hence would not trigger any rating action as this point.

The economy has not lost much momentum, with both agriculture and exports remaining resilient and providing a cushion. Fitch therefore expects the economy to recover with real GDP forecast to rise 4.8% and 5.8% in FY14 (financial year ending March 2014) and FY15, respectively, compared with a 5.0% rise in FY13.

The modest economic recovery, however, will continue to undermine India's banking sector, which is facing a combination of weakening asset quality, eroding profit and declining capital. Nonetheless, these factors are likely to have only a moderate effect on the banking sector's ability to supply credit to the economy.Read more

RBI releases report on Trend and Progress of Banking in India – 2012-13

The Reserve Bank of India released the statutory Report on Trend and Progress of Banking in India 2012-13. This Report presents the performance and salient policy measures relating to the banking sector during 2012-13. The Report also provides an analysis of the co-operative banks and non-banking financial institutions.

The key messages of the Report are set out below:

Perspectives on the Indian Banking Sector

The weakening domestic macroeconomic conditions combined with the continuing subdued global growth posed challenges to the banking sector during 2012-13. However, the comfortable capital base continues to lend resilience to the Indian banking sector.

The regulatory and supervisory policy responses during the year pertained to initiatives for implementing risk-based supervision, enhanced oversight of financial conglomerates and steps towards improved co-ordination among regulators, besides positioning banks to meet the needs of inclusive growth.

Initiatives were undertaken to expand the banking system, increase competition, further strengthen the payments and settlement mechanism and fortification of capital.

Global Banking Developments

Globally, the banks continued their efforts to repair their balance sheets and improve their capital ratios, albeit at an uneven pace across countries

The growth in global credit was multi-paced. The return on assets (RoA) improved for banks in the US and some emerging market and developing economies (EMDEs), but declined in European countries.

Financial conditions in the global banking system improved following monetary easing measures by central banks in advanced economieS.

The global regulatory reforms initiated in 2009 to strengthen the financial sector and to support sustainable economic growth by reducing future risks progressed in many areas such as Basel III framework, systemically important financial institutions (SIFI) and financial market infrastructures.Read more

RIL may increase KG-D6 gas output

Reliance Industries is planning to increase KG-D6 block to boost output in the first quarter of 2013, according to media reports. RIL closed half of the 18 producing wells at the Dhirubhai-1 and 3 gas fields in the KG-DWN-98/3, or KG-D6 block. Report said that the company is mobilising a drilling rig for the D1&D3 fields "to commence a three-well workover programme. RIL produced 12.26 mmscmd from the D1&D3 gas fields and the MA oil and gas field in the block in the Bay of Bengal in the week ended October 27, according to media reports. RIL had shut two of the six wells at the MA field.

Jet Airways board approves issue of 27.3 mn shares to Etihad

Etihad Airways, the national carrier of the United Arab Emirates and Jet Airways announced that the airlines closed the transaction for the subscription of a 24 per cent equity stake by Etihad Airways in Jet Airways. All requisite Indian regulatory approvals had been obtained by November 12, 2013. Jet Airways has, on November 20, 2013, issued and allotted 27,263,372 equity shares of a face value of Rs. 10 each at a price of Rs. 754.7361607 per equity share on a preferential basis to Etihad Airways.

Consequent to the above allotment, the paid up share capital of Jet Airways stands increased to 11,35,97,383 equity shares of Rs. 10 each. Following this issue and allotment of the said equity shares on a preferential basis to Etihad Airways, Etihad Airways holds 24 per cent of the post issue paid up share capital of Jet Airways (on a fully diluted basis). Additionally, Mr James Hogan and Mr James Rigney, being nominee Directors of Etihad Airways, have been appointed as additional directors on the board of directors of Jet Airways as from November 20, 2013.

Naresh Goyal, Chairman of Jet Airways said: "The infusion of foreign direct investment in the aviation sector will result in economies of scale, grow traffic at our airports, and create job opportunities. I am confident that this investment will greatly benefit all our stakeholders whilst significantly benefitting our customers who will now have access to a more expanded global network."Read more

Financial Technologies arm sells stake in SMX

Financial Technologies (India) Ltd has announced that Financial Technologies Singapore Pte. Ltd., (FTSPL), a wholly owned subsidiary of Financial Technologies (India) Ltd. (FTIL) announced on November 18, 2013, the sale of 100% of its equity ownership in SMX (together with its wholly owned subsidiary SMX CC) to ICE Singapore Holdings Pte. Ltd., an entity owned by the Intercontinental Exchange Group, Inc. (NYSE: ICE) for US$150 million.

The transaction was approved by the Board of Directors of FTSPL and FTIL on November 18, 2013 with signing of definitive agreements and is subject to certain customary closing conditions and approvals. FTIL will primarily utilize the amount towards repayment of outstanding debt towards External Commercial Borrowings (ECB) and Foreign Currency Loan (FCL) to Banks sub}act to regulatory approvals, if any, pursuant to which FTIL will become debt/lien-free.

Indigo moves to top slot again

In terms of market share, IndiGo and spicejet Ltd were number one and two, according to reports. Report said that IndiGo continued to be the market leader with a 30.2% market share, while SpiceJet had a 20% market share. According to DGCA, Jet Airways had a market share of 23.8%, while GoAir had a 7.7% market share. Air India had 18.2% market share, says report.

Fitch: India to rely on next fiscal year's budget for Oil Subsidies

Fitch Ratings says that the Indian government will have to rely on its budget for the financial year ending March 2015 (FY15) to fund a part of the current financial year's oil subsidies bill. The government allocated Rs650bn for petroleum subsidies in FY14, of which Rs 450bn was used to pay oil marketing companies for the subsidy gap incurred in the previous financial year. This leaves the government with Rs200bn to meet its share of the shortfall between the subsidised price and the market price, known as under-recovery. This is likely to be insufficient, and it is likely that the state will have to tap around INR450bn from next year's budget.

For the first half of the current financial year, the total under-recovery from diesel, public distribution kerosene and household liquefied petroleum gas (LPG) was Rs609bn, with diesel accounting for INR283bn. Assuming the under-recovery in the subsequent two quarters is around INR400bn each, the total FY14 under-recovery would be Rs1,400bn (FY13: Rs1,610bn).

Bhartiya Mahila Bank will expand overseas branches: FM

Union Finance Minister P. Chidambaram has given the speech at the inauguration of Bharatiya Mahila Bank in Mumbai. "I am grateful to the Chairperson of the Bharatiya Mahila Bank for the warm welcome. I am happy to add my words of welcome to the Prime Minister, the Chairperson of the UPA, the Governor, the Chief Minister, Shri Sharad Pawar, Farooq Abdullah, Ministers, Members of Parliament and this distinguished gathering. I had asked M.B.N. Rao, former Chairman, Canara Bank, to head a committee to draw the blue print for the Mahila Bank. The report was submitted in a record time of two months and, six months later, after working

FM said "Empowerment of women is one of the articles of faith of the UPA government. The Bharatiya Mahila Bank is not – I repeat, not – a symbol of empowerment of women. It is the substance of empowerment of women, along with many other measures that the Government has taken and will take in the future. Only 26% of women in India admit to having a bank account. On the other hand, four public sector banks including State Bank of India and several private sector banks have a woman at the head of the Bank, and I am glad many of them are here today. The obvious conclusion is that, despite good intentions, there is deep-seated bias, at the institutional and individual levels, against women. Since fewer women than men have bank accounts, fewer women are able to get loans. Per capita credit in the case of women is 80 percent lower than in the case of men. Hence the need for a bank that predominantly serves women – from the self-help groups to the small business women and from the working woman to the high networth individual."

"Bank credit is expected to grow at a compounded annual growth rate of 16.5 percent during the twenty year period from 2010 to 2030. That will mean a twenty-fold increase from the level of credit in 2010. The deposit base is expected to grow at a compounded annual growth rate of 14.6 percent, that is 14 times the level of deposits in 2010. Assuming that the share of credit for women remains the same – which should not be the case and the share must increase – even at that level total credit to women will grow to Rs. 25 lakh crore. There is, therefore, an opportunity to reach more credit to more women. I am sure the Bharatiya Mahila Bank will seize the opportunity and multiply it manifold.:, says FM.

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