China’s debt more than double its GDP

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China’s Debt more than GDP

China’s total borrowings were more than double its gross domestic product (GDP) last year, a government economist said, warning that debt linkages between the state and industry could be “fatal” for the world’s second largest economy.

The country’s debt has ballooned as Beijing has made getting credit cheap and easy in an effort to stimulate slowing growth, unleashing a massive debt-fuelled spending binge.

 

While the stimulus may help the country post better growth numbers in the near term, analysts say the rebound might be short-lived.

China’s borrowings hit 168.48 trillion yuan ($25.6 trillion) at the end of last year, equivalent to 249 per cent of the economy’s GDP, Li Yang, a senior researcher with a top government think tank, the China Academy of Social Sciences (CASS), told reporters yesterday.

The number, while enormous, is still lower than some outside estimates.

Consulting firm the McKinsey Group has said that the country’s total debt was likely as high as $28 trillion by mid-2014.

CASS, in a report last year, said China’s debt amounted to 150.03 trillion yuan at the end of 2014, according to previous Chinese media reports.

The most worrying risks lie in the non-financial corporate sector, where the debt-to-GDP ratio was estimated at 156 per cent, including liabilities of local government financing vehicles, Li said.

Many of the companies in question are state-owned firms that borrowed heavily from government-backed banks and so problems with the sector could ultimately trigger “systemic risks” in the economy, he said.

DRAGON IN TROUBLE
  • China’s borrowings hit ¥168 trn ($25.6 trn) at the end of last year, equivalent to 249% of the economy’s GDP
  • McKinsey Group said country’s total debt as high as $28 trn by mid-2014
  • Most worrying risks lie in the non-financial corporate sector, where the debt-to-GDP ratio was estimated at 156%
  • Problem will also affect state coffers because Chinese banks are “closely linked to the government”
  • The People’s Bank of China has announced that new loans extended by banks jumped to ¥985.5 bn last month, up from ¥555.6 bn in April

 

“The gravity of China’s non-financial corporate (debt) is that if problems occur with it, China’s financial system will have problems immediately,” Li said. He added that the problem will also affect state coffers because Chinese banks are “closely linked to the government”.

“It’s a fatal issue in China. Because of such a link, it is probably more urgent for China than other countries to resolve the debt problem,” he said.

Speaking earlier this week, David Lipton, first deputy managing director with the International Monetary Fund, also singled out China’s corporate borrowing as a major concern, warning that addressing the issue is “imperative to avoid serious problems down the road”.

Despite the concerns, China is having difficulty kicking its credit addiction. On Wednesday, the People’s Bank of China announced that new loans extended by banks jumped to 985.5 billion yuan last month, up from 555.6 billion yuan in April.

 

Source: http://www.business-standard.com/article/international/china-s-debt-more-than-double-its-gdp-116061600556_1.html

Cash crunch: How customers came to owe banks more than what they were loaned

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More than a thousand borrowers have outstandings that are substantially larger than the amounts sanctioned to them by banks, data sourced from Reserve Bank of India (RBI) shows. The total outstandings of 1,131 borrowers, at Rs 1,09,909 crore, were 150% more than the amount sanctioned, as on March 2016, data accessed by FE reveal. At the end of December 2015, the outstandings were Rs 90,235 crore.

Bankers and ex-bankers that FE reached out to attributed the pile-up in outstandings to short-term requirements of borrowers that were met by banks to help them tide over a cash crunch. Overdue interest, they said, could be another cause for the high outstandings. One senior banker observed that there were occasions when the capacity of the borrower to repay the additional amount was not assessed properly. “At times, limits get exceeded without a proper assessment of the customer’s ability to service the loan,” he said.

A former executive director of a public sector bank said one reason for the actual outstanding exceeding the permitted limits was that lenders tended to sanction ad hoc non-funded letters of credit (LC) even before the limits were okayed by the consortium. “Sometimes ad hoc LCs are opened for amounts which are bigger than those agreed to by the consortium. Since consortiums take anywhere between six months and a year to sanction limits, the money is disbursed since business cannot wait,” he explained, adding that such loans serve as working capital.

A former chairman of a state-owned bank said if the customer was unable to service the loan, the interest piled up pushing up the outstanding amount. “If the interest hasn’t been paid for three or four years, the amounts can become large,” he pointed out.

An RBI document on the Central Repository of Information on Large Credits notes that if outstanding loans exceed 150% of the limit, a “warning message should be displayed to the user on generation of the instance document”.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services, observed the main reason for the outstandings surpassing the sanctions was “temporary accommodation and loans against receivables”.

Parekh explained that at times borrowers approached banks for funds to be able to take delivery of imports. “The customer promises to pay back the amount from receivables so bankers do accommodate such requests,” he said.
Total non-performing assets (NPAs) of the banking system stood at Rs 5.8 lakh crore at the end of March 2016 and total provisions were Rs 1.43 lakh crore.

The central bank has been trying to help banks tackle bad loans by allowing them to convert debt into equity and more recently into convertible redeemable preference shares. However, banks have not been able to find buyers for any of the assets under strategic debt restructuring scheme.

FE had earlier reported that bank loans that aren’t NPAs just yet but could turn toxic amount to over Rs 6 lakh crore or close to 9% of total advances, citing RBI data. The total troubled loans of Rs 6,24,119 crore at the end of December 2015 were 9% higher than the Rs 5, 73,381 crore at the end of June 2015.

While Rs 3,06,180 crore worth of loans were classified in the SMA-1 category where repayments are overdue between 30 and 60 days, another Rs 3,17,939 crore was in the SMA-2 category where repayments are overdue between 60 and 90 days. These Special Mention Accounts follow a fiat from the RBI in 2014 asking banks to put in place a mechanism to red-flag troubled loan accounts early in the day so that these could be dealt with speedily. If the loan is not serviced after 90 days it must be classified as an NPA.

 

Source: http://www.financialexpress.com/article/industry/banking-finance/cash-crunch-how-customers-came-to-owe-banks-more-than-what-they-were-loaned/285239/

Indian private bank new loans outpace state-owned rivals for first time

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India’s privately owned banks are extending new loans faster than their state-run rivals for the first time ever, as government lenders struggle to bring surging bad loans under control.

New credit from private lenders amounted to Rs.3,50,000 crore ($52.4 billion) in the year to 31 March, taking their outstanding advances to Rs.17,90,000 crore, while state banks’ loans grew Rs.2,00,000 crore to Rs.51,20,000 crore, according to a finance ministry document, a copy of which was reviewed by Bloomberg News. Finance ministry spokesman D.S. Malik didn’t respond to two calls to his mobile phone on Tuesday seeking comment.

The stressed-loan ratio for state banks climbed to a 16-year high of 14.34% in the year through March, according to the document. Surging delinquent loans and inadequate risk buffers at India’s government-controlled lenders, which account for more than 70% of loans in the nation’s banking system, have been hindering Prime Minister Narendra Modi’s attempts to revive credit growth in Asia’s third-largest economy.

“Private sector banks will continue to take away market share from state-run banks in coming years,” Siddharth Purohit, a Mumbai-based analyst at Angel Broking Ltd., said by phone. “With limited capital and high bad loans, most state-run banks are not in a position to focus on loan growth.”

The private-sector banks’ faster loan growth is in line with a May 2014 estimate from a central bank-appointed committee, which predicted that the lenders’ share of total Indian banking assets will rise to 32% by 2025, from 12.3% in 2000.

Capital constraints.

Modi needs to revive bank lending as he strives to maintain the fastest growth rate among the world’s major economies. Indian credit grew 9.8% in the 12 months through 13 May, compared with an average of about 14% over the last five years, fortnightly central bank data compiled by Bloomberg show.

Timely capital infusions into constrained public sector banks will aid credit flow, the Reserve Bank of India (RBI) said in its monetary policy statement on Tuesday. Rules requiring government stakes of at least 51% have curtailed state banks’ ability to sell shares, while an audit of loan books by the RBI uncovered more soured debt, making them less capitalized than privately-owned lenders.

While some investors had anticipated the six-month-long central-bank audit, which ended on 31 March, to result in higher non-performing-asset (NPA) disclosures, the scale of losses and statements from bank executives highlighting the uncertain outlook for bad debt have surprised analysts. Thirteen state-owned lenders reported combined losses of Rs.18,000 crore for the year to March, finance ministry data shows.

Government lenders are the worst performers this year on the S&P BSE India Bankex Index, led by Punjab National Bank’s 32% slump and State Bank of India’s 6.4% drop. The gauge has gained 6.1% this year. Bloomberg

Source:  http://www.livemint.com/Industry/a9wEXC7uUXU0HpWgGYJEJM/Indian-private-bank-new-loans-outpace-stateowned-rivals-for.html

After Italy & Greece, PE seeks to partner Indian lenders for bad loan portfolio

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Storied asset manager KKR & Co has approached lenders like State Bank of India and ICICI Bank with a proposal to manage and create value from their loan portfolios to under-performing Indian companies. The American private equity investor will build a platform to deploy fairly long-term capital and operational expertise to turnaround troubled assets, with banks on board sharing the future upsides.

 

The proposal – discussed with a few public and private sector banks – is modelled on Pillarstone, a similar European platform created by KKR for stressed loans in markets like Greece and Italy . India’s central bank governor Raghuram Rajan has pushed lenders to purge bad loans and has urged global alternate asset managers to play a bigger role in easing India Inc’s bad loan crisis. But most Indian banks have opted for ‘fire sale’ of stressed assets to rival corporate houses rather than staying on course with a turnaround plan, though it would help these lenders unlock better value eventually.

“They are talking about jointly managing a portfolio of loans to these stressed companies as against acquiring a one-off asset. It involves sweating underlying assets to generate more value rather than writing down. This is also different than the prevailing approach by the under-capitalized asset reconstruction companies, which is more focused on asset-stripping,” said a source directly familiar with the matter. The discussions are ongoing but may not lead to any conclusive agreement with KKR, a second source cautioned.

When contacted, KKR declined to comment on the story. SBI and ICICI Bank too offered no comments. Traditionally, India’s public sector banks have stayed away from dealing with foreign investors in the stressed loan market.

Bulge-bracket global funds such as KKR, Brookfield Asset Management and Apollo Global management have looked at opportunities to acquire stressed assets put on the block by lenders. KKR was in contention to acquire Jaypee’s cement units, which was clinched by Aditya Birla-led UltraTech Cements for Rs 16,000 crore, mostly through a refinancing deal. KKR’s offer centred around acquiring 51% ownership (leaving the rest with lenders) and turning around operations under a new management team. The lenders would recoup a part of the loan upfront, while waiting for future upsides riding on a business rejig. The banks preferred a one-time deal offered by Birla’s UltraTech.

Brookfield’s acquisition of debt-laden Gammon’s road and power assets is one of the few recent instances where a global investor acquired assets of a stressed entity. “Indian lenders have opted for selling assets in distress rather than exploring ways to shore up value on troubled loans. Yesterday’s lenders have become today’s collectors. Hopefully, there will be a time when bankers will behave like bankers,” Anil Singhvi, a shareholder activist and co-founder of proxy advisory firm Institutional Investor Advisory Services (IIAS), said.

Last year, KKR along with Italian lenders UniCredit and Intesa Sanpaolo launched Pillarstone as a platform to help big corporate borrowers recover and grow. It later signed up with lenders such as Alpha Bank and Eurobank to expand the platform into Greece. Both Italian and Greek lenders have agreed to pool in about EUR 1 billion of loans each as part of the engagement with Pillarstone. KKR has said European Bank for Reconstruction and Development is also considering co-investing in the platform, which is planning to start operations into other European markets.

KKR has argued that Pillarstone is a “timely intervention” in European markets where hefty bad loans are hampering a broader economic recovery, a concern shared by policymakers in India as well. In recent weeks, the top 20 public sector banks have reported a cumulative loss of almost Rs 15,000 crore in the fourth quarter of the last fiscal. This was triggered by an unprecedented surge in provisioning for bad loans following the RBI’s asset quality review. The non-performing assets on their balance sheets is estimated at Rs 3 lakh crore.

“Nearly 15% of system assets are stressed and even if we optimistically assume that only a third of these stressed assets are going to be ultimately written off, that still means that nearly 30% the shareholders’ equity in the banking system is currently at serious risk,” Saurabh Mukherjea of Ambit Capital said in his latest research report. “The problem-facing public sector banks is more serious as 17% of their assets are stressed. It would imply that nearly 50% of the shareholders’ equity of PSBs will be written off by the end of FY18, requiring $30 billion (equivalent to nearly 1.5% of our GDP) in equity infusion. It is unlikely the government will find resources to recapitalize these ailing public sector banks,” Mukherjea added.

Source:http://economictimes.indiatimes.com/articleshow/52634610.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

SEBI warns investors against barred entities

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The Securities and Exchange Board of India (Sebi) on Monday warned unlisted companies and their directors who fraudulently raised money and asked investors not to be lured by their schemes.

The market regulator has listed out 235 unlisted companies that have lured retail investors by issuing securities such as non-convertible debentures/non-convertible preference shares in the garb of private placement. Orders against these firms were passed between April 2003 and May 2016.

“Companies are cautioned not to issue securities to public without complying with provisions of law. Failing which Sebi will be constraint to take stringent action against such companies and their directors,” Sebi noted.

The companies against which action has been taken include Jeevan Suraksha Real Estate, Roofers Infra Projects, Shankalp Food and Beverages, Silicon Projects, Pious Agro Industries, Ravi Kiran Realty, Angela Agrotech, Amrit Projects, MARS Agrofarm Developers, and Golden Heaven Agro Project India.

In another note, Sebi also warned investors against collective investment schemes (CIS) of entities barred by the market regulator from raising money.  The regulator passed orders against 100 entities and its directors carrying on unregistered CIS.

“As part of interim directions, Sebi directs the entities and its directors to stop collecting further money under existing / new schemes, not to launch any new scheme or float any new companies/firm to raise fresh money, not to divert or alienate any assets or money collected.”

Apart from Gift Collective Investment Management Company Limited, no other entity is registered with Sebi. Hence, investors are advised to do due diligence before investing in such schemes, said Sebi in its note.

http://www.business-standard.com/article/markets/sebi-warns-investors-against-barred-entities-116060601204_1.html

No funding for Adani project, says Australia PM

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There will be no government funding for Adani’s $21.7-billion coal mine project, Australian prime minister Malcolm Turnbull said on Friday as he sought to assure a protester in fish costume that he took climate change “as seriously as you”.

Turnbull made these remarks during an election campaign in South Australia. An environmental protester dressed as a clown fish from animated movie Finding Nemo asked him to commit to no public funding for Indian mining firm Adani’s controversial project.

“Adani’s plan to build one of the world’s biggest coal mines in Australia has been hampered time and again. A federal court in August last year had revoked the original approval due to environmental concerns. In October last year, the project got a new lease of life after the Australian government gave its re-approval.

An email to Adani on Friday did not get any response. Analysts said the prime minister’s statement was a major policy shift by the Australian government as until now it had been looking at all sorts of angles to get financial support to the proposal, including the idea of the A$117-billion Future Fund stepping in. A$ is Australian dollar.

“Adani’s pivot into Australian solar project development is looking like a clear insight into how they are going to react. At least with the solar projects, they will have a multi-decade tax holiday in Australia, given they will probably end up having to write off their entire A$1.3-billion ($940 million) investment in Adani Mining Australia profit and loss to-date. This would have a major impact on shareholder equity of the listed Adani Enterprises Ltd, which stood at $2.03 billion on March 31, given Adani Mining Australia represents 46 per cent of the net book value of equity of the entire group,” said Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis (IEEFA).

The admission from the minister that Adani’s proposed Carmichael coal mine project will receive no government money removes one of the final remote funding options for the beleaguered project, he said.

Buckley said Adani Enterprises remained relatively heavily geared, with net debt of $2.6 billion representing 1.3 times book value of shareholders equity. And taking into account the 2015 accounts filed with Australian authorities, Adani Mining Australia Pty is entirely debt-funded and is operating with negative shareholder funds. Hence, financial leverage remains an insurmountable barrier to develop the Carmichael coal proposal. “Adani appears to have no capacity to undertake the high risk A$10-billion Carmichael coal proposal, particularly since the company is now well underway on its new $5-10-billion solar investment programme in India and abroad,” said Buckley.

Apart from Adani, GVK group and Lanco group are also stuck after buying coal mines in Australia.

The Adani group had said they would go ahead with the Australian project to supply cheap coal to Indian power stations. At the same time, Coal India’s production has touched a record high to provide coal to Indian power plants. Besides, with coal-based power plants now shutting down due to high pollution in the developed world, the future of coal mines look uncertain.

AskMe Fin plans payment services for SMEs

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E-commerce marketplace Askme Bazaar plans to help small and medium vendors who are transacting on its site by arranging credit and insurance products for them. These services will be provided via Askme Fin, the groups’ financial services platform. In the last 2-3 months, Askme Fin has helped about 75 SMEs to raise loans from banks and SMEs, Pawan Lohia CEO, Askme Fin, told FE.

AskMe Fin has tied up financial institutions such as Mahindra Finance, Bajaj Finserv, Religare, Capital Float, ICICI Bank, Sme.com and Mandi.com to help SMEs access loans and is in talks with other banks and NBFCs who can lend to vendors.

Anand Sonbhadra, group – CFO of AskMe Fin, said his firm had facilitated disbursements of Rs 30 lakh across 150 merchants till date. The firm hopes to assist 10,000 online and offline merchants raise loans worth around Rs 1,000 crore by the end of March 2017. The average loan size varies from Rs 8-10 lakh, he added.

Askme Pay intends to add 2-3 million merchants. AskMe Pay, the payment platform of AskMe Group will be launched by June and will enable integration of other wallets on its platform. AskMe Pay will largely earn revenue via merchant discount rates and loan referral commissions from lenders, which is the range of 20-30% of the processing fee. Also services related to customer relationship management, marketing and promotional activities will fetch revenue from the merchant, Sonbhadra explained.

According to a TechSci Research Report – India Mobile Wallet Market Opportunities and Forecast, 2020, the mobile wallet market in India is projected to grow to $ 6.6 billion by 2020. A Nielsen report in February adjudged Paytm the most popular mobile wallet followed by Freecharge and MobiKwik, respectively.

Source: http://www.financialexpress.com/article/industry/companies/askme-fin-plans-payment-services-for-smes/265051/