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Banking News 02.03.2017

Banks need incentives to clean up

bad loans: State Bank of India

 

The Economic Times

Published on March 2, 2017

 

 

New Delhi, March 1 (IANS): The State Bank of India (SBI) on Wednesday said that the Reserve Bank of India (RBI) needs to give some incentives to banks for resolution of bad loans in terms of provisions or extending the deadline of March 31 to clean up their books.

 

"Wherever resolution is being attempted, some kind of incentivisation from RBI in terms of NPA (non-performing assets) recognition date of March 31, 2017, or in terms of provisions should be given. If this relaxation can be given, banks will be encouraged for faster resolution," SBI MD Dinesh Kumar Khara told BTVi in an interview.

 

"Various professional agencies have got into the process of resolution. I think consultants are also coming up for managing the stressed assets. Things are happening but one month is too short for definite results," he said.

 

Khara said that though the banking sector is prepared for the worst, whatever be the regulatory guidelines, it is also putting forth its viewpoint.

 

He also notes that in every case, the public sector banks are assured of government support.

 

"The budget statement was clear that if required the government would not hesitate to support the banks. They will find the means and ways to fund banks. I don't expect problem on this count provided banks have justified reason for additional capital," he said.

 

Meanwhile Finance Minister Arun Jaitley had sidelined the idea of bad bank on the account that the taxpayers' money should not be used to pay for corporate defaulters to banks.

 

"Creation of a bad bank or a public sector agency is one of the suggestions. Any mechanism eventually supported by the Budget should be avoided. If a private company doesn't pay the bank, then taxpayer should not pay the bank for it," Jaitley had said on Tuesday.

 

Khara however said: "Bad banks are not essentially expected to pick up bad assets, but also turnaround these and make them profitable. Bad banks will have investors who see the turnaround of these assets."

 

He said that banks had made assessments based on judgement and assumptions, many of which didn't turn out the same way but all decisions were not bad. "All banks make assessment. Not all decisions could be bad. Banks can segregate such assets and focus on justified lending," he added.

 

 

From E-Group, Banking-News

 

 

India's banking credit growth remains sluggish

 

Palak Shah

The Economic Times

Published on March 2, 2017

 

 

Mumbai, March 1: The banking credit growth is struggling in India. It continued its decelerating trend and was recorded at 3.5% year on year at the end of January 2017. Even though, there was a marginal month-on-month improvement of 0.7% as seen from the Reserve Bank of India’s monthly sectoral deployment data for Jan'17, the overall growth remained subdued as industrial credit de-grew by 5.1% year on year during January, brokerage house Prabhudas Lilladher said in a report.

 

The year on year growth momentum slowed in agri, retail & services sector. Retail loans saw a slowdown to 12.9% year on year versus 13.5% in December 2016 and 14.8% in Nov 2016. Industry credit offtake was mixed, but large capex heavy segments continued to show higher de-growth.

 

“We believe loan growth will be slower than anticipated at 5-6% year on year in FY17 as banks re-adjust from de-monetisation effects in retail & services segment, while lower project capex & UDAY repayments will keep industrial segment offtake under pressure,” the report said.

 

Retail growth momentum derailed mainly from housing segment. It came off mainly due to slower offtake in housing loans (54% of retail segment). Vehicle loan growth remained stable at 18.2% year on year, while all other retail segments saw better pick up especially in the unsecured segment.

 

Services sector offtake was mixed with subdued demand from NBFCs. Services credit grew at 8.1% year on year on muted offtake in de-monetisation (-0.6% YoY), transport operators (4.6% YoY) & CRE (0.9% YoY). But growth was supported from wholesale trade segment where it improved to 7.6% YoY versus 4.1% YoY from the previous month (where effect of demonetisation was visible) and strong growth in professional services which grew by 21.8% YoY and 5.4% MoM.

 

Industry Segment – Capex sectors de-growth continues:

 

Industry credit which is 39% of overall credit in India contracted to 5.1% year on year led by slower offtake in capex intensive sectors (34% of industry credit) especially in infra & textiles. Under infra, power sector witnessed sharper decline (11%) due to higher repayments under UDAY scheme and risk aversion by banks.

 

Metals sector too continues to slow (0.5% YoY growth). However, after a long time cement sector saw marginal credit growth (0.5% YoY), construction (8.2% YoY and 1.1% MoM growth) while all ancillary segments were mixed with no specific trends.

 

Large industry segments saw sharp decline in credit growth at 4.4% year on year (flattish MoM & decline of 5% year to date). Medium industry segment witnessed a decline of 10.2% year on year and 2.2% month on month. Agriculture growth was subdued too. Agriculture credit growth was largely stable with 8.1% YoY growth with 1% MoM growth.

 

Lower capex activity, UDAY repayments and risk aversion by banks towards large credit is likely to keep overall growth muted.

 

 

From E-Group, Banking-News

 

 

Post-amalgamation, 1,500 branches of

State Bank of India, associates will be merged

 

The Business Line

Published on March 2, 2017

 

 

Will happen in the second half of next fiscal, says SBI MD

 

Mumbai, March 1:  About 1,500 branches of State Bank of India and its five associate banks will be merged following amalgamation of the latter with their parent bank, said a top official.

 

According to government orders issued on February 22 under the State Bank of India Act, 1955, the entire undertaking of State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala, and State Bank of Hyderabad will stand transferred to and vested in State Bank of India from April 1, 2017.

 

The branch rationalisation will happen in the second half of the next financial year, said Rajnish Kumar, Managing Director (National Banking Group), State Bank of India.

 

“Branch rationalisation will happen wherever the retail branches are in close proximity. For example, in Tirupati, in a single building we have State Bank of India on the first floor and State Bank of Hyderabad on the second floor. We don’t need two outfits in one building or in close proximity,” said Kumar.

 

To expand network

 

But, at the same time, the bank, which is India’s largest, has plans to expand its network because the country’s population is increasing, newer localities are coming up, and newer demands arising, explained Kumar.

 

He elaborated: “So, what will happen is some of these branches will get merged and new branches will be opened. Post-merger, we will have 24,000 branches.

 

“And what I believe is that in the next two years, new branches will be opened and some of the existing branches will be merged. But the overall number of branches would remain around the current level.”

 

Emphasising that customer experience will be better and a lot of inefficiencies will be removed as a result of the amalgamation, Kumar said SBI’s retail book will go up to about Rs. 10 lakh crore (post-merger retail portfolio) from about Rs. 6.75 lakh crore (the bank’s standalone retail portfolio now).

 

On retail loan growth, the SBI MD said, “Retail loan growth has been good in February. I think, the retail growth story still remains intact; people are buying cars, there is activity in the housing loan market.”

 

 

From E-Group, Banking-News

 

 

If banks refuse to exchange soiled

notes, they can be fined Rs10,000

 

Vivina Vishwanathan, The Mint

Published on March 2, 2017

 

 

The RBI has clarified that currency

notes with scribbles are legal tender

 

Mumbai, March 1: In a world of fake news and viral WhatsApp messages, you may end up believing the rumour that currency notes that have something scribbled across them are no longer legal tender. Your heart may sink if an ATM spits out yet another note with “Sonam Gupta bewafa hai” (Sonam Gupta is unfaithful) written on it.

 

Don’t believe such rumours. The Reserve Bank of India (RBI) has clarified that currency notes with scribbles are legal tender. “There is no RBI instruction to anyone not to accept any currency note with scribbling on it even though we do, from time to time, keep appealing to people not to write/staple/fold currency notes as these things lessen the life of currency notes,” the central bank said in an email to Mint.

 

While scribbled-on notes continue to be legal tender, there are exceptions. According to a July 2013 RBI notification, any note with slogans and messages of a political nature cease to be legal tender. So, refrain from pouring your heart out on currency notes.

 

In 2014 too, the RBI had issued circular asking people not to heed rumours and to go on using the scribbled notes.

 

Banks including State Bank of India, Kotak Mahindra Bank Ltd, HDFC Bank Ltd and Axis Bank Ltd did not respond to a query on whether they are accepting notes with handwriting on them.

 

RBI had introduced the clean note policy in 1999, periodically urges people to not write on the notes. Banks are instructed to provide facilities for exchange of soiled and mutilated notes.

 

In 2002, the RBI has also issued a circular asking banks to do away with stapling of note bundles and to introduce banding, so that the life of currency notes is increased.

 

In July 2016, the central bank again stated in a master circular that in keeping with the objectives of its clean note policy, it had formulated a scheme of penalties for bank branches, including currency chests, to ensure that all bank branches provide better customer service to the public for exchange of notes and coins.

 

According to the RBI circular, if any bank branch refuses to exchange soiled notes from any member of the public, the bank has to pay a penalty of Rs10,000.

 

But there are some restrictions. According to a July 2016 RBI circular, if you exchange more than 20 notes, or notes worth Rs5,000 per day, banks may levy a service charge.

 

 

From E-Group, Banking-News

 

 

Is Indian GDP data turning a little too Chinese?

 

Mihir Sharma (Bloomberg)

The Economic Times

Published on March 2, 2017

 

 

New Delhi, March 1 (Bloomberg): Being the fastest-growing large economy in the world is India’s destiny, and even the most poorly conceived economic policy imaginable can’t stop destiny.

 

At least, that is, if you believe the government’s statisticians, who said on Tuesday that India’s GDP grew at 7 percent in the very quarter that the government withdrew high-value currency notes from circulation.

 

Is India becoming another China, with incredible growth momentum and statistics nobody quite believes? One hopes not. But the government should be careful to see the new numbers for what they are -- and aren’t.

 

To say the data is startling is an understatement. The IMF had predicted that India would grow at around 6 percent in the half-year after “demonetisation,” as it’s called. Most independent economists forecast GDP growth would come in somewhere between 6 and 7 percent. Those economists naturally assumed that withdrawing 86 percent of the country’s currency and reducing access to bank accounts would dampen private consumption.

 

Yet if one believes the government’s numbers, taking away most of India’s cash overnight didn’t hurt private spending at all. In fact, private consumption rose by 10.1 percent over the quarter. That’s the highest growth in spending in over five years, and it came at a time when consumer confidence was falling sharply.

 

India's Aspirations

 

That’s right: The best stimulus, according to India’s GDP data, is taking away people’s money. I’m not sure why the government isn’t planning to do it every quarter.

 

After all, the new GDP release also predicts that giving cash back to people will reduce private consumption expenditure growth. From over 10 percent between October and December, when the government took the currency away, growth in private spending is supposed to fall to 6.4 percent between January and March, when they’re busy giving it back.

 

Other data is equally puzzling. Bank credit growth fell to a decades-long low in December. Yet somehow investment -- which in India is dependent on bank finance -- reversed direction sharply.

 

After three-quarters of accelerating decline -- down 1.9 percent, 3.1 percent and then 5.6 percent -- it grew at 3.5 percent precisely when every bank employee was stocking ATMs instead of handing out loans.

 

The data says manufacturing grew at 8.3 percent in the quarter, even though an index of manufacturing production produced by the same government statisticians said it shrank 2 percent in December.

 

On the other hand, using alternate measures to judge the pace of growth, as Chinese Premier Li Keqiang famously did when he doubted his own GDP numbers, does provide some reassurance. Rail freight and power generation -- two of Li’s main indicators -- were both up.

 

And there may be reasonable explanations for some of these anomalies. After two bad monsoons, India finally enjoyed a good one last year, which tends to drive up demand and growth. Companies may have delayed cutting production after the note ban; there’s some evidence that inventories were allowed to build up first. So the impact on manufacturing may not be apparent yet.

 

Demonetisation also hit the rich least, which may have propped up corporate revenues and thus growth. India’s largest car company, Maruti Suzuki, showed only a 3.5 percent increase in sales volume last quarter, but a 12 percent increase in revenue. Bigger cars sold more; two-wheelers sold less. And some sectors, like steel, have seen more than 20 percent increases in revenue following the imposition of tariffs on Chinese imports.

 

An even deeper divide runs between the informal and formal economy. The formal economy is what the statisticians can easily measure. But perhaps half of India’s output comes from the informal sector, one of the highest proportions in the world. The informal economy depends more on cash and was hit harder. The GDP numbers thus don’t catch the full effect of demonetisation. Look out for “revised” estimates six months from now, when formal-economy indicators begin to reflect informal-economy reality.

 

Till then, India’s government would be wise to take its own numbers with a grain of salt. As many questions should be aired within the government as are being raised outside.

 

 

From E-Group, Banking-News

 

 

SBI files analysis report on GDP numbers

 

The Business Standard

Published on March 2, 2017

 

 

New Delhi, March 1 (ANI): After GDP figures were released earlier this week, Dr. Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, State Bank of India (SBI) has expressed his views on the aforementioned figures.

 

In his report titled 'Deciphering the GDP Numbers,' Ghosh highlighted a number of areas which have shown improvement in the past year, the most significant one being the manufacturing sector, which posted an increase of 8.3 percent year-on-year.

 

"Cash intensive sectors, as is widely perceived amongst analyst fraternity, may not find the results surprising. Sectors such as Diamonds, Gems and Jewellery, Mining, Realty, Construction, Refineries etc. were no surprise. It only reiterates the belief that such sectors may not only strengthen the formal economy but galvanise economic activity to consolidate the operations in such sectors," the report read.

 

According to Ghosh, demonetisation was a crucial opportunity to consolidate mainstream operations into formal sector. "The way forward, as is now expected, is that these sectors continue on this path and not disappoint its stakeholders post demonetisation," added Ghosh. The report also talks about the growing wedge between GVA and GDP, due to higher collection of indirect taxes. "In Q3 FY17, the gap between GDP and GVA was 35 bps compared to the gap of merely (-)2 bps during Q3 FY16.

 

In FY17, all the three quarters exhibited large gap (even upto 70 bps) between GDP and GVA compared to the corresponding quarter's last fiscal. This is primarily due to huge increase in indirect tax collections during FY17. Going forward as this component of taxes is going to increase the gap between GDP and GVA will also increase. Hence it is better to see GVA instead of GDP," the report suggests.

 

 

From E-Group, Banking-News

 

 

GDP data intriguing, figures

don't add up, say economists

 

The Press Trust of India

Published on March 1, 2017

 

 

New Delhi, March 1 (PTI): Government data showing a surprise 7 percent GDP growth in the October-December quarter has left many economists puzzled who say the figures 'do not add up' and may be "masking" the real impact of demonetisation.

 

The economists finding the data intriguing include those from public sector giant SBI as well as global majors like Nomura and Bank of America Merrill Lynch. They believe that the key reason behind such a high growth rate could be "a steep downward revision" of the year-ago base period. Besides, they said that many companies might have showed their cash in hand as sales, while the official data may have been unable to capture the negative growth effects of demonetisation on the unorganised sectors.

 

In a report published today, Nomura went on to question whether India's growth statistics was "fact or fiction" and said the "official data are underestimating the reality as they rely largely on organised sector data".

 

SBI Chief Economic Adviser Soumya Kanti Ghosh said the third-quarter estimates, released by the government yesterday, was crucial in the sense that it should have given the impact of what happened in the economy during those two months of demonetisation, announced on November 8.

 

"The steep downward revision of Q3 FY16 has in turn led to higher growth in Q3 FY17, thus masking the impact of demonetisation in the Q3 figures. Some of the numbers beneath the surface however signify the impact of demonetisation. "Despite the upward revision of Q1 FY16 and Q2 FY16, GDP estimates for Q1 FY17 and Q2 FY17 have been revised upwards indicating improvement in economic activity in first half of current fiscal," he wrote in a report.

 

According to official statistics, demonetisation hardly dented economic momentum and India's GDP growth slowed only marginally to 7 percent year-on-year in the fourth quarter from 7.4 percent in the third quarter of 2016.

 

"This does not add up. High frequency real activity data released since demonetisation suggest that consumption and services were hit after demonetisation because they are more cash-intensive," Nomura said. It further said "there could be three reasons for this discrepancy. First, the inability of official statistics to capture the negative growth effects on the unorganised sectors; second, positive base effects created by the 0.8 pp upward revision in fourth quarter 2015 GDP growth; and third, companies may have showed their cash in hand as sales. "In our view, official GDP statistics are significantly underestimating the growth impact of demonetisation," Nomura added.

 

Kotak Institutional Equities said "the demonetisation impact was inconspicuous as data signalled mixed trends. However, the data coverage is not yet holistic as unorganised sector remains to be completely factored in." The domestic brokerage firm said that even as the print had more informed inputs at hand, specifically IIP, revised crop production estimates and listed companies' financials until third quarter of this fiscal, "the data coverage is still incomplete".

 

Specifically, the cash-sensitive unorganised/SME segment is still not covered, implying that FY2017 estimates do not give a holistic picture, it added.  It further said that a more complete picture of the economy will be reflected only in the first revised estimate of FY2017 due to be released in January 2018.

 

Private sector lender IDFC Bank said services sector has been hit the hardest by the demonetisation exercise, but the economy was able to show a 6.6 growth on GVA basis due to an uptick in agricultural activity and industrial sector. "Services sector did see an impact of demonetisation with growth sliding to 6.8 percent from 8.2 percent in Q2 FY17. The decline in services growth is attributable to financial, real estate and professional services category," a note from the bank said.

 

According to Bank of America Merrill Lynch (BofAML), demonetisation hit growth by over 100 bps. "Although December quarter (GVA) growth, at 6.6 percent, surprised on the upside, it is still lower than the 7.5-8 percent projected by us in the second half of 2016-17 before the demonetisation shock. In the old GDP series, growth continues to stagnate at 4.5-5 percent levels," it said.

 

Echoing similar sentiments, analysts at Capital Economics said in a note: "Official GDP data showing only a gradual slowdown in Indian growth in Q4 is hard to square with other more reliable monthly data which show activity slowed sharply towards the end of last year following the introduction of demonetisation in November."

 

The Congress party also dubbed the GDP numbers as "surprising" and "highly suspect" saying that it could dent India's global credibility and accused the prime minister and the finance minister of "misleading" the public. "The GDP numbers that have been released are surprising and highly suspect. The GDP growth as projected is questionable and will also undermine the credibility of Indian data globally," Congress spokesperson Anand Sharma said.

 

However, Finance Minister Arun Jaitley said that third quarter GDP data belies the exaggerated claim by many that rural sector was in distress as agri growth is at record high. Jaitley further said that remonetisation is up substantially and its combination with economic resilience has shown some signs of return of growth. "The Indian economic growth is likely to pick up further in coming quarters," Jaitley said.

 

 

 From E-Group, Banking-News

 

 

Oct-Dec GDP at 7%: Five questions the

CSO needs to answer in the Q3 numbers

 

Dinesh Unnikrishnan

The Firstpost Online

Published on March 1, 2017

 

 

The first obvious inference from the Gross Domestic Product (GDP) number for the October-December quarter at 7 percent, released on Tuesday, is that the demonetisation hasn’t significantly altered the growth story. At least not to the extent warned by a section of the economists and multilateral agencies including the International Monetary Fund (IMF). But it still tells that the demonetisation would have indeed slowed the growth from 7.9 per cent in 2015-16 to 7.1 percent 2016-17, but the bad news should hopefully end there. Only the final, full year figure will tell the whole story.

 

Not only the CSO retained its first advance estimate of 7.1 percent growth for the full fiscal year, but it also offered a set of numbers that show business was as usual in the third quarter — a period when a severe, artificial cash crunch hit the cash economy (constituting 78 percent of the overall) for about two months. Prime Minister Narendra Modi had announced his decision to demonetise Rs 500 and Rs 1,000 notes in a televised statement on 8 November, which sucked out 86 percent of the high value currency notes in a stated objective to curb the so-called black money (cash which is not accounted to legitimate income sources or taxed). The withdrawal of currency notes resulted in a cash short supply affecting many businesses.

 

How should one look at the GDP numbers? It tells us, certainly, that underlying positive growth trends continue — or at least the CSO believes so. According to government statisticians, the economy is not collapsing post the note ban shock-therapy. One shouldn’t be too perturbed debating whose economic growth projections have come right and who all have got it wrong. What is important is to look at the data— the hard numbers— and understand what is really happening on the ground. Here, it is not just enough to look at the GDP numbers alone in isolation, but a set of high-frequency data that would give us the larger picture.

 

When one does this, it gives an impression that the third-quarter GDP number is largely a pleasant statistical surprise and does not quite add up to certain other vital set of information which should ideally corroborate the headline GDP numbers.

 

To understand this disconnect and the possible reasons, a closer look at certain issues is warranted.

 

One, the biggest surprise is the manufacturing sector numbers. According to the CSO’s GVA sectoral break-up, the manufacturing sector grew by 8.3 percent in the October-December quarter compared with 6.9 percent in the Q2. Such a jump is perplexing given that the factory output numbers for the last three months has shown a contradicting picture. According to Index of Industrial Production (IIP) data, the manufacturing sector growth contracted in October by 2.4 percent, grew by 5.5 percent in the November and again contracted by 2 percent in December. If one looks at the year-on-year cumulative numbers, there has been actually a negative growth in all these three months.

 

Two, why the bank credit to the sector doesn’t show a corresponding increase if the sector has actually grown? According to RBI data, bank credit to industry contracted by 4.3 percent in December 2016 in contrast with an increase of 4.9 percent in December 2015. The manufacturing sector, thus, shows a sharp positive jump in the GDP data and opposite trend in the IIP data and bank credit trend. Given that both GDP and IIP data are collated, compiled and released by the CSO and should reflect same trend, how will the agency explain this disconnect?

 

Three, both the private and public consumption numbers are equally confusing. The CSO numbers tell us that the private consumption has picked up sharply in the third quarter. It actually rose by 10.1 percent in the quarter almost doubling from the preceding quarter growth of 5.1 percent. But, if one looks at the trends in consumer spending and consumption, one again gets a contradicting picture. Main among them is the two-wheeler sales numbers and earnings pattern of consumer-focused companies during the period.

 

According to this report, sales of Bajaj motorcycles declined by over 3 percent in the third quarter, Hero witnessed a negative growth of 13.54 percent while Honda two-wheelers saw a growth of a mere 2 percent. Similarly, if one looks at the trends in the FMCG sector, the story is no different. According to data from market researcher Nielsen (read reports here and here), sales of the industry have gone down by 1-1.5 percent or Rs 3,840 crore in November, compared with October. There has been a 20-40 percent fall in sales of biscuits, salty snacks, toilet soaps, shampoos and washing powders, the data from Nielsen shows. Sales of refined oil, agarbattis, beverages and packaged tea fell about 3-4 percent.

 

Once again, the IIP data comes handy for reference. The consumer goods, durables and non-durables have done poorly in the December quarter. In fact, in December, growth in consumer durables contracted by 10.3 percent from 9.4 percent in November and 0.6 percent in October. Non-durables declined by 5 percent in December, after contracting 2.9 percent in October and showing a marginal pick up of 2.5 percent in November. Note that December is the month which actually began showing the demonetisation impact. Quite a statistical wonder isn’t it?

 

Now look at the public spending figures. The CSO estimate on Tuesday shows the government consumption figures have grown sharply in the third quarter, by 19.9 percent as compared with 15.2 percent in the preceding quarter. There has been surely a pick-up in the government spending in the last three quarters but again, the IIP numbers say a different story. According to this data, the capital goods segment, which is an indicator of the investment activity on the ground, has actually contracted 3 percent in December, declined by a massive 27 percent in October though showed an uptick of 15 percent in the November month. To be sure, the base year for both IIP (2004-05) and GDP numbers (2011-12) are different. But such a

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