Aside from these legacy issues, the underlying asset trend for Indian banks will be stable because of a generally supportive operating environment, said Moody’s Vice President.
Many sectors, other than power and coal, face environmental risks that could translate into credit risk, according to Moody’s Investor Service. These include automobiles, oil & gas, mining, steel, and commodity chemicals. Moody’s has identified 11 sectors with around $2 trillion in rated debt as having credit exposure to environmental risks in the next five years.
At the same time, 57 sectors, representing $59 trillion of rated debt, are considered low risk, with environmental risks unlikely to materially impact credit quality. While some like telecommunication operate with fundamentally low exposure to environmental risks, others such as banks and insurance companies, have business diversity to mitigate their current exposures.
Unregulated power generators, which do not receive the benefits of cost recovery from their customers, coal mining and coal terminals, are the most exposed. Moody’s has developed a heat map that qualitatively scores the relative exposure of 86 sectors globally to environmental risks, in terms of both the materiality and timing of any likely credit effects. The amount of rated debt covered by this sector review is $67.9 trillion.
Environmental risks have been classified into two broad categories — the effects of environmental hazards, and the consequences of regulation designed to prevent or reduce those hazards.
Another set of 18 sectors, accounting for $7 trillion in rated debt, face environmental risks that could be material, but over five or more years. In this “emerging, moderate risk” category are developing economy sovereign and regional governments, integrated oil & gas companies and regulated power generation utilities. These have a clear exposure to environmental risks that could affect their credit quality. However, it is less certain that the identified risks will develop in a way to impact credit ratings for most issuers in these sectors.
“The longer runway to respond to risks could provide time to implement policy changes, adjust business models or financial profiles, or develop technological or lower-cost solutions, mitigating the impact of such risks,” said the report.
Sovereigns with developing economy as well as regional and local governments face increasing infrastructure challenges to manage environmental risks from water shortages, pollution or natural disasters. Unlike the overall scores, the sub-category scores were assessed based on the sector’s general level of exposure to that particular environmental risk, rather than any potential to affect ratings.
European Central Bank (ECB) President Mario Draghi adddresses the European Banking Congress at the Old Opera house in Frankfurt, Germany November 20, 2015.
The world’s two biggest central banks will move decisively in opposing directions next week, with the European Central Bank (ECB) almost certain to ease policy on Thursday and a US jobs report likely to seal the case for a Fed rate hike in December.
Building a solid case for more easing on fears of anemic inflation, the ECB has all but committed itself to action, with the markets now guessing only about what exact steps it will take to kick-start price growth.
Still, there is plenty of room for surprises. The ECB will contemplate a wide range of measures, from a fairly uncontroversial deposit rate cut to more extreme – but highly unlikely – moves such as buying rebundled non-performing loans to resurrect bank lending.
“With expectations high, the risk of disappointment is also high but as concerns are correctly focused on the structural headwinds to the inflation outlook, there is really no point in holding back or saving ammunition at this stage,” Societe Generale said in a note to clients.
ECB President Mario Draghi has done his share to raise expectations. He has warned about increased risks to growth and inflation, and said “we will do what we must” to raise inflation as quickly as possible.
A Reuters poll of more than 50 economists predicted that the ECB would opt for a deposit rate cut to -0.3 per cent from -0.2 per cent, an expansion of its asset buying program to euro 75 billion per month from euro 60 billion, and an extension of that buying beyond September 2016.
There are a range of variations on this pattern, though. The ECB could opt for a deeper deposit rate cut, or it could add assets like corporate or municipal debt to those that it buys. It could even set a staggered deposit rate, punishing those who park large amounts of cash in its vaults.
The biggest complication to all this is the small but significant group of opponents to such action, led by Bundesbank chief Jens Weidmann and board member Sabine Lautenschlaeger, who broke ranks with their Governing Board peers recently to openly oppose further easing.
Overwhelm
Arguing that loose monetary policy poses risks and merely buys time to fix structural problems, Lautenschlaeger has taken a stance against any more steps, especially an expansion of the asset-buying program.
Draghi may have his work cut out bridging the gap between their views, as the ECB rarely votes at meetings and instead decides on policy with the broadest possible consensus.
His opponents could also make it tough for Draghi to continue his practice of promising big things, then exceeding the already heightened expectations.
“Expectations have increased further ahead of next week’s ECB meeting and ECB speakers have not done much to rein in expectations.
Draghi has overdelivered in the recent past but it could be harder this time given how much has been promised,” Deutsche Bank analysts wrote in a note to investors.
Citigroup said that to surprise the markets, the ECB would need to cut the deposit rate, increase its monthly bond-buying and adjust its forward guidance by extending the program or removing its reference to ending it next September.
While the euro area struggles with weak growth and high unemployment, the US is continuing to create jobs quickly. Data on Friday is expected to show that US non-farm payrolls increased by 200,000 in November, keeping the jobless rate at a 7-1/2 year low of 5.0 per cent.
But even if the figures disappointed somewhat, the Fed is still expected to hike at its meeting on December 15-16 given near full employment, with the debate likely shifting to future rate hikes rather than near term moves.
The biggest headwind for the Fed could be the dollar’s rapid firming against major currencies in recent months, which has already effectively tightened monetary conditions. But U.S. trade is less exposed to currency moves than elsewhere, such as in Europe, so the impact on policy is smaller.
Fed Chair Janet Yellen’s testimony to the Joint Economic Committee of the Senate on the economic outlook, due at the same time as Draghi’s press conference, will likely give more clues about the Fed’s next moves.
Among other top central banks, the Reserve Bank of Australia and the Bank of Canada are both expected to keep rates on hold with their respective economic outlooks in line or slightly better than their previous forecasts.
Tax department says any general public service that involves trade, commerce or business for a consideration will not be treated as Charity under the Act
With a view to weed out commercial activities under the garb of charity, the tax department has said any general public service that involves trade, commerce or business for a consideration will not be treated as Charity under the Income Tax Act.
Issuing ‘Explanatory Notes to the Provisions of the Finance Act, 2015’, which lists all the amendments that were made to it, the Central Board of Direct Taxes (CBDT) in a circular gave the definition of ‘charitable purpose’ as also listing yoga as one of the activities that will get tax benefit.
“The definition of ‘charitable purpose’ in the I-T Act has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration..,” the note said.
This is intended to ensure appropriate balance between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution. “These amendments take effect from April 1, 2016, and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years,” it said.
The explanatory note also provides details of rates of direct taxes, applicability of minimum alternate tax (MAT) on foreign entities, tax benefits for Swachh Bharat Kosh and Clean Ganga Fund, besides other provisions of the Finance Act, 2015, which was approved by Parliament in May.
As per the circular, 115 JB of Income Tax Act has been amended such that capital gains arising on transactions in securities; or interest, royalty or fees for technical services to a foreign company will not be liable to MAT if such income is credited to the profit and loss account and the tax payable is less than the rate specified in section 115JB.
The IMF will add the yuan to its basket of reserve currencies, an international stamp of approval of the strides China has made integrating into a global economic system dominated for decades by the U.S., Europe and Japan.
The International Monetary Fund’s executive board, which represents the fund’s 188 member nations, decided the yuan meets the standard of being “freely usable” and will join the dollar, euro, pound and yen in its Special Drawing Rights basket, the organization said Monday in a statement. Approval was expected after IMF Managing Director Christine Lagarde announced Nov. 13 that her staff recommended inclusion, a position she supported.
It’s the first change in the SDR’s currency composition since 1999, when the euro replaced the deutsche mark and french franc. It’s also a milestone in a decades-long ascent toward international credibility for the yuan, which was created after World War II and for years could be used only domestically in the Communist-controlled nation. The IMF reviews the composition of the basket every five years and rejected the yuan during the last review, in 2010, saying it didn’t meet the necessary criteria.
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy,” Lagarde said Monday during a press briefing at the IMF’s headquarters in Washington. Renminbi is the currency’s official name and means “the people’s currency” in Mandarin; yuan is the unit.
The addition will take effect Oct. 1, 2016, with the yuan having a 10.92 percent weighting in the basket, the IMF said. Weightings will be 41.73 percent for the dollar, 30.93 percent for the euro, 8.33 percent for the yen and 8.09 percent for the British pound. The dollar currently accounts for 41.9 percent of the basket, while the euro accounts for 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.
The yuan weakened in offshore trading Tuesday amid speculation China’s central bank will rein in intervention now that the IMF vote on reserve-currency status is out of the way. The long-term goal is for very few interventions, People’s Bank of China Deputy Governor Yi Gang said at a briefing, adding that bigger two-way fluctuations are normal.
In a preliminary report in July, IMF staff estimated the yuan would have a weight of about 14 percent to 16 percent. The weighting will affect the interest countries pay when they borrow from the IMF. It may also affect the scale of inflows the Chinese currency receives in the coming months.
Monetary System
The decision establishes the yuan as a fixture in the very international monetary system Chinese leaders criticized following the global financial crisis. In a landmark 2009 speech, PBOC Governor Zhou Xiaochuan argued a global system so reliant on a single currency — the U.S. dollar — was inherently prone to shocks. That conviction set off a global push by China’s leaders, including now-President Xi Jinping, to have the yuan included in the SDR, which countries can use to supplement their currency reserves.
The IMF staff recommendation was based on increasing international use and trading of the yuan, policy reforms that allow yuan to be used smoothly in SDR operations, and steps by China to step up data disclosure, the fund said. A more detailed staff report will be released later Monday or Tuesday, IMF officials said.
“It’s a big win for Beijing as they look to bolster their image and to get the respect they think they deserve,” said Timothy Adams, president of the Institute of International Finance and a former U.S. Treasury undersecretary.
The IMF endorsement is a bright spot in what has been a tumultuous year for the world’s second-biggest economy, which has been buffeted by slowing growth, a tumbling stock market and a shift by authorities toward a more market-oriented exchange rate.
The IMF’s decision is a “win-win” for both China and the world and acknowledges China’s achievements in economic development and reform, the PBOC said in a statement on its website. The U.S. supported the fund’s staff recommendation to add the yuan, the Treasury Department said in an e-mailed statement without elaborating.
Approval is unlikely to have much impact on short-term demand for the yuan, given the SDR’s minor share of global reserves, according to economists at banks including HSBC Holdings Plc and ING Groep NV.
Adams said that rising demand may be “evolutionary” and “a process that will likely be pronounced.”
The decision should boost efforts by Xi to open up China’s financial markets. China implemented a series of reforms to win IMF support, such as opening its onshore bond and currency markets to foreign central banks and reporting its reserves to the IMF.
G-20 Host
The question is whether China, which will host meetings of the Group of 20 economies next year, will try to leverage the IMF’s support to pursue broader changes to the global monetary system. In his 2009 speech, Zhou suggested the IMF expand the use of the SDR to tap its potential as a “super-sovereign reserve currency.”
The IMF’s move may also spur political blowback in the U.S., where Republican lawmakers have blocked efforts to expand the voting shares of China and other emerging-market economies at the fund. Senator Bob Casey, a Pennsylvania Democrat, said in an e-mailed statement that the decision “validates China’s history of cheating on its currency,” a history that’s hurt jobs and wages in his state.
The Washington-based fund created the SDR in 1969 to boost global liquidity. Under the Bretton Woods system of fixed exchange rates, countries pegged their currencies to the U.S. dollar. But for nations to increase their dollar reserves, the U.S. would have to run persistent current-account deficits, threatening the value of the greenback.
The SDR addressed this dilemma by serving as a supplementary reserve asset to augment countries’ gold and dollar holdings. While the SDR isn’t technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket to meet balance-of-payments needs.
It is part of the $ 75 bn announced during Prime Minister’s August trip to the Gulf nation that marked a paradigm shift in bilateral strategic and economic partnership.
Oil-rich United Arab Emirates (UAE) has identified key sectors including railways, housing, ports, roads and renewable energy (mainly solar) for investments in India as part of the $75 billion announced during Prime Minister’s August trip to the Gulf nation that marked a paradigm shift in bilateral strategic and economic partnership.
UAE had announced to investment $75 billion for various sectors in India when Narendra Modi made a two-day trip to Abu Dhabi and Dubai last August — first by an Indian PM to the Gulf nation in three decades. Earlier this month, Finance Minister Arun Jaitley was in UAE to discuss this investment proposal among other issues and met senior officials of the Abu Dhabi Investment Authority (ADIA), one of the largest sovereign funds in the Gulf nation, officials from Abu Dhabi said.
ADIA would contribute to the $75-billion fund allotted for investments in India in sectors including railways, roads, housing, ports and renewable energy (solar initiatives) where the Modi government is seeking foreign direct investment to boost economy, officials from the Gulf state indicated. The Indian PM is likely to announce a solar mission at the Paris climate change summit.
However, UAE is pushing to begin the process of investments in near future by various ministries in keeping with Modi’s promise. “India is now a strategic partner for UAE and Abu Dhabi wants to invest in India’s growth and seeking expedition of the process on the ground,” a person familiar with the developments told ET.
With this goal in mind Jaitley met Sheikh Hamdan Bin Rashid Al Makhtoum, Minister of Finance, UAE, to discuss issues of mutual cooperation in the field of economic and trade development during his trip there. His visit follows that of UAE’s Foreign Minister to India within weeks of Modi’s trip to Abu Dhabi and this shows the seriousness of both nations which have now expanded their counter terror cooperation amid growing threat from IS and other terror groups in South Asia. Strengthening counter-terror cooperation also figured during Jaitley’s deliberations with UAE leadership.
The finance minister also invited large participation and investment in recently constituted National Investment and Infrastructure Fund (NIIF) by the Sovereign Wealth Funds and Pensions Funds of the UAE. He said the investment in NIIF will ensure good returns on investment as the government will invest these funds in infrastructure projects.
Private sector lender Yes Bank has invoked 3.02 percent stake of United Breweries , pledged by McDowell Holdings, a unit of Vijay Mallya-led UB Group, by selling shares worth Rs 778 crore.
The move comes after State Bank of India (SBI) declared Mallya, Kingfisher Airlines and its holding company United Breweries Holdings, as willful defaulters for defaults on nearly Rs 7,000-crore loans to the long-grounded carrier.
In a notification to exchanges, United Breweries said that Yes Bank has invoked a total of 79.81 lakh shares, amounting to 3.02 percent stake. These shares were pledged by McDowell Holdings.
At Friday’s closing price of Rs 974.80 apiece, the shares sale of United Breweries is valued at Rs 778 crore.
Yes bank has invoked the stake “to secure loans given to group companies.”
Currently, Mallya and his family members hold 34.04 percent stake in United Breweries through various companies and 15.57 percent of stake was pledged with various financial institutions.
Now, Heineken is the largest shareholder of United Breweries with 42.22 percent stake.
Last week, Yes Bank had sold 4.25 lakh shares of United Breweries, India’s largest brewer that makes Kingfisher Beer, for Rs 39.48 crore through an open market transaction. These shares were purchased by Heineken International BV, the maker of Heineken beer.
Meanwhile, the 17 lenders to the airline had said they will e-auction the assets of the grounded airline, in their latest bid to part recover their dues of around Rs 7,000 crore and accrued interest on the principal, that has not been serviced since January 2013.
The airline, owned by flamboyant liquor baron Mallya, had taken Rs 6,900 crore from a consortium of 17-lenders, led by SBI, in early 2010 after a second debt restructuring for the airline.
United Brewerie stock price On November 30, 2015, United Breweries closed at Rs 952.05, down Rs 22.75, or 2.33 percent. The 52-week high of the share was Rs 1225.00 and the 52-week low was Rs 732.05.
The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.
The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.
The move is aimed at allowing the new multilateral agency headquartered in Shanghai to use a larger basket of currencies for lending and borrowing.
The NDB could raise funds by issuing rupee bonds in India or rupee-linked bonds overseas (masala bonds) for its rupee loans operations in the country.
In the past, the Asian Development Bank (ADB) has issued both domestic and overseas rupee bonds to finance projects in India.
The NDB, set up earlier this year, has an authorised capital of $100 billion. To start with, the it would begin with $50-billion subscribed capital, split equally among BRICS (Brazil, Russia, India, China and South Korea) countries.
It will scale up later by inducting more countries as members and raise resources from the market.
India, which needs $1-trillion investment in infrastructure in five years through 2017, could be one of the big beneficiaries of the new institution. The country is already the largest borrower of the World Bank and the ADB.
Even though NDB, sources said, is likely to give loans in local currencies to India and China, it would stick to US dollar as the default currency for raising funds from global markets as well in its lendings to countries. Exceptions will be made depending on the appetite for local currency loans in member countries, sources said.
With the process of operationalising the NDB (on the lines of the World Bank) gathering momentum, its board of directors met on November 20 to discuss and frame draft lending, borrowing and environmental policies for the bank before it commences operations in early 2016.
These norms will be ratified by the board of governors in March-April.
In the meantime, a pipeline of projects are being readied to seek the board of governors’ approval. India has already submitted three proposals including the Centre’s Green Energy Corridor and Grid Strengthening Project for evacuation power from renewable energy sources such as solar.
In this project, the NDB could be a co-financier along with the World Bank and the Asian Development Bank, sources said.
Two other projects sent to the NDB relate to a power project as well as an irrigation project in Rajasthan.
More projects will be sent to the bank after state governments submit their proposals to the Centre, sources said.
Another set of 18 sectors, accounting for $7 trillion in rated debt, face environmental risks that could be material, but over five or more years. In this “emerging, moderate risk” category are developing economy sovereign and regional governments, integrated oil & gas companies and regulated power generation utilities. These have a clear exposure to environmental risks that could affect their credit quality. However, it is less certain that the identified risks will develop in a way to impact credit ratings for most issuers in these sectors.
