India’s banking outlook stable, worst asset quality cycle almost over: Moody’s

India’s banking system outlook is likely to be stable over the next 12-18 months as the pace of formation of bad loans is expected to decrease compared to last five years, global rating agency Moody’s said today. Under the asset quality recognition (AQR) of the Reserve Bank, lenders have recognised a major portion of their non-performing assets (NPAs) or bad loans, it said. “The pace of deterioration in asset quality over the next 12-18 months should be lower than what was seen over the last five years, especially compared to the fiscal 2015-16, even as we take into account some remaining problem loan under -recognition in a handful of large accounts,” said Moody’s Vice- President and Senior Credit Officer Srikanth Vadlamani.

Aside from these legacy issues, the underlying asset trend for Indian banks will be stable because of a generally supportive operating environment, he added. Moody’s said the stable outlook for the banks over the next 12-18 months reflects its assessment that the system is moving past the worst of its asset quality down cycle. The credit rating firm today released a report — ‘Banking System Outlook — India: Bottoming Asset Cycle, Strong Liquidity Support Stable Outlook’. The agency rates 15 banks in the country that together account for around 70 per cent of system assets. The ratings outlook on 11 of the banks is positive. Vadlamani expects net interest margins (NIMs) of banks to stabilise, given the expectation of limited policy rate cuts over the next 12 months, with an upside risk coming from current changes in portfolio mixes in favour of higher yielding retail loans.

“Credit costs will also remain high for the sector, including for some private sector banks, but will be no higher than in recent years for the industry overall.” Indian banks’ capital strength will continue to show divergence between the weak public banks and the far stronger private lenders, he said. State-owned banks will require significant external infusions of equity capital over the next three years. “For state-run banks to have a credit growth of 12-15 per cent over the next three years, equity capital requirement will be of USD 1.2 trillion,” he said.

The PSU banks have not been able to demonstrate access to the equity capital markets, while the announced capital infusion plans of the Government fall short of the amount required for full recapitalisation, Vadlamani said. “A potential way to bridge this capital shortfall would be to slow loan growth to the low single digits over the next three years,” he said.

Source: http://indianexpress.com/article/business/banking-and-finance/indias-banking-system-outlook-stable-worst-asset-quality-cycle-almost-over-moodys-3039297/

Forex reserves hit fresh all-time high, cross $371 billion

The country’s forex reserves continued to scale new highs, with the week to September 9 adding $3.513 billion to the kitty, which hit a new life-time peak of $371.279 billion, RBI data showed today.

The reserves had increased by $989.5 million to $367.76 billion in the previous reporting week.

The reserves are more than sufficient to cover nearly 13 months of exports.

The surge indicates that new RBI Governor Urjit Patel is continuing with his predecessor Raghuram Rajan’s policy of building up the forex reserves. The three-year tenure of Rajan saw the RBI adding a net of $92 billion to the kitty.

Foreign currency assets (FCAs), a major component of the overall reserves, swelled by $3.509 billion to $345.747 billion for the week ended September 9, the Reserve Bank said.

FCAs, expressed in dollar terms, include the effect of appreciation/depreciation of non-US currencies such as the euro, pound and the yen held in the reserves.

Gold reserves, however, were unchanged at $21.64 billion at the end of the reporting week, the apex bank said.

The country’s special drawing rights with the International Monetary Fund increased by $5.3 million to $1.493 billion, while the reserve position with the fund was down by $1.3 million to $2.395 billion, it added.

Source: http://www.financialexpress.com/economy/forex-reserves-hit-fresh-all-time-high-cross-371-billion/379908/

FPIs infuses $1 billion in capital markets in September

Foreign investors have pumped in nearly Rs 6,800 crore (USD 1 billion) into the country’s capital markets so far this month, driven by global and domestic factors.

The latest infusion comes on top of a whopping inflow of Rs 25,904 in the preceding two months (July-August). Prior to that, foreign portfolio investors (FPIs) had pulled out a total of Rs 4,373 crore from the capital markets (equity and debt) in June and July.

Experts attributed the latest flurry in inflow to factors including good and widespread monsoon, better corporate earnings, sound progress on rollout progress of the Goods and Services Tax (GST) and positive data coming from the US economy.

Sentiments also rode high after domestic passenger vehicle sales grew for the 14th straight month in August, they added.

According to depositors’ data, net investment by FPIs stood at Rs 3,178 crore in equities during September 1-9, while the same for debt markets was at Rs 3,617 crore, taking the total inflow to Rs 6,795 crore (USD 1.02 billion).

So far this year, FPIs have invested Rs 44,028 crore in equities while withdrawing Rs 3,730 crore from the debt market. This resulted in a net flow of Rs 40,297 crore.

Source: http://www.financialexpress.com/economy/fpis-infuses-1-billion-in-capital-markets-in-september/373416/

Indirect tax mop-up rises 27.5% to Rs 3.36 lakh cr till August

Net indirect tax collections in the April-August period grew 27.5 per cent to Rs 3.36 lakh crore on the back of surge in excise collections.

The collection till August 2016 show that 43.2 per cent of the annual budget target of indirect taxes, which includes Central Excise, Service Tax and Customs, has been achieved.

Till August, Indirect tax net revenue collections are at Rs 3.36 lakh crore, which is 27.5 per cent more than the net collections for the corresponding period last year.

Net tax collections of Central Excise stood at Rs 1.53 lakh crore during April-August, as compared to Rs 1.03 lakh crore during the corresponding period in the previous financial year, registering a growth of 48.8 per cent.Net collections of Service Tax during April-August stood at Rs 92,696 crore, a growth of 23.2 per cent as compared to Rs 75,219 crore during the same period previous year.

Customs mop-up during April-August was at Rs 90,448 crore as compared to Rs 85,557 crore during the same period last fiscal, registering a growth of 5.7 per cent.
The government hopes to collect Rs 8.47 lakh crore from direct taxes and Rs 7.79 lakh crore from indirect taxes, which includes Customs, excise and service tax, in 2016-17.

 

Kaya acquires “beneficial interest” in 2 UAE skincare firms

Skincare firm Kaya Ltd today said it has acquired majority “beneficial interest” in UAE’s Minal Medical Centre and Minal Specialized Clinic Dermatology for an undisclosed sum.

“Kaya Middle East, DMCC, a foreign subsidiary of Kaya Ltd has entered into an agreement dated September 8, 2016 for acquiring 75 per cent beneficial interest in Minal Medical Centre, Dubai and Minal Specialized Clinic Dermatology, Sharjah.

“However, the agreement will become effective on fulfilling of certain conditions precedent and obtaining the requisite statutory approval/s, which will take approximately 4 months,” the company said in a BSE filing.

It further said: “The above said entities carry out business of skincare, body and hair services and reported revenue of Arab Emirate Dirham (AED) 11.17 million (around Rs 20.26 crore), as per the audited financial statements for the year ended December 31, 2015.”

Kaya Ltd said: “This acquisition will further strengthen company’s network of clinics in the UAE region and add new set of customers to our existing base in the region. With its special expertise in body contouring, it would help Kaya in leveraging across the region.”

With this acquisition, the total network of Kaya’s clinics in the Middle East region would increase to 23.

Source: http://www.financialexpress.com/companies/kaya-acquires-beneficial-interest-in-2-uae-skincare-firms/372083/

Readying comexes to take on defaulters

Lax risk management rules have been cited as one of the reasons that led to the NSEL debacle. It is, therefore, not surprising that the current commodity market regulator, the Securities and Exchange Board of India, is focusing on the risk management rules in the commodity exchanges. Early this month, it released a circular that tightened the rules for collecting trading margins on commodity derivative contracts and for contributions to the Trade Guarantee Fund (TGF).

Here, we take a closer look at the changes made to the manner in which the TGF is maintained by the exchanges.

As its name denotes, this fund is used to guarantee the settlement of all bona fide transactions of the members of the exchange. This is the corpus that is used to protect the interest of investors, if there is a large default, thus acting as the primary means of building confidence of investors towards the exchange.

Guaranteeing performance

The TGF is built through various components: a) yearly contribution of the exchanges. This was typically 5 per cent of the gross revenue every year. b) The security deposit paid by members to the exchanges, which is also called the Base Minimum Capital (BMC), c) all the penalties paid by the members to the exchanges in settlement-related issues, d) interest earned by investment of the fund balance in the TGF e) less the amount utilised for meeting the shortfall in member defaults in a year.

The yearly contribution of the exchange and the base minimum capital of members accounts for almost 90 per cent of the TGF. For instance, the TGF balance towards the end of June 2016 was ₹258 crore. Of this, contribution of the exchange accounted for ₹105 crore and BMC (cash as well as non-cash component) was ₹129 crore.

Recent tweaks

SEBI has, through the circular issued on September 1, sought to fortify the TGF maintained by commodity exchanges. This is done in three ways,

One, the BMC or the security deposit paid by members who clear non-algo trades has been increased from ₹10 lakh to ₹25 lakh. Members who also clear algo trades shall, however, continue to maintain BMC of ₹50 lakh. The higher amount of security maintained with exchanges will go towards increasing the TGF. Further, interest earned by investing this incremental amount will also be useful to exchanges.

Two, changes have also been brought about in the contribution made by exchanges to the Trade Guarantee Fund. Currently, the extent of risk is to be assessed every quarter and funds are transferred to the TGF to enable the exchange to handle the risk. The transfers were, however, capped at 5 per cent of the turnover of the exchanges, net of income tax paid. SEBI has now stipulated that the exchanges need not limit themselves to 5 per cent of their turnover in transferring money to this fund.

 

If the risk of default arises, say, if there is a global crash in commodity prices, then the exchange can transfer much more funds, to brace itself for member defaults.

Three, rules regarding usage of funds in the TGF, in the event of a default, have also been clearly spelt out. SEBI has termed it the ‘default waterfall’.

If a member defaults from payment, then the funds withdrawn from the TGF shall be in the following order – first the security deposit paid by the defaulting member to the exchange (BMC) shall be used to repay clients, then insurance if any, will be claimed. If these are not sufficient, then 5 per cent of the corpus in the TGF can be used for meeting the default. The ulitisation of the TGF shall also follow a certain order; penalties and investment income shall be used first, then exchange contribution to the fund and finally the funds of non-defaulting members shall be used, on a pro-rata basis.

If the default is so huge that even these fall short, ₹100 crore shall be left in the TGF and the remaining paid out. After all this, if there are still some dues remaining, the clients will have to take a pro rata haircut.

The tweaks are welcome and could help in tackling an NSEL-like fiasco in future. But SEBI should also make sure that there are regular audits of the TGF, perhaps on an annual basis, to ensure that these rules are followed by the exchanges.

Source: http://www.thehindubusinessline.com/portfolio/real-assets/readying-comexes-to-take-on-defaulters/article9096891.ece

GST bringing realty shake-up

Retailers, both of physical stores and e-commerce entities, fast moving consumer goods (FMCG) companies and those in consumer durables have started rejigging their warehouse strategy.

This is in preparation for the national goods and services tax (GST), with the government working to an April 2017 deadline. All this could mean a shake-up in real estate, say analysts. A rough calculation suggests these businesses could look at reducing their warehouse count to half, while stepping up the total space acquisition in select destinations, once GST comes into play. In the next two to three years, businesses could see significant cost reduction due to the revised strategy.

Hindustan Unilever, Nestle, Johnson & Johnson and Shoppers Stop are among those to have begun work on consolidating their warehouses, according to a source. These companies will take up mega space, in millions of square feet, to set up ‘mother warehouses’, he said. In the online space, top companies such as Flipkart and Amazon have been on an expansion spree for warehouses and fulfillment centres in the past two years, primarily to suit the complex tax structure through the country. Now, however, they won’t feel the need to have warehouses in every state and can strategise accordingly, Vijaya Ganesh Thangavel, managing director, Land & Industrial (India), Cushman & Wakefield, told this newspaper.

For instance, Max Fashion, a prominent retailer, has eight warehouses totaling 400,000 sq ft. The number is likely to come down to four after GST, says chief executive Vasanth Kumar. “The number will get firmed up once we know the full GST details and the implications such as the reverse logistics needs,’’ he said. Post GST, their warehouse count will be down but the total space covered could go up to around 600,000 sq ft by 2018 “to meet future business needs, as well our rate of growth at a 30-plus per cent CAGR (compounded annual rate)”.

If a typical e-commerce company was taking 300,000 to 400,000 sq ft in metros and tier-1 cities for warehouses, 100,000 sq ft in tier-2 and 40,000 to 50,000 sq ft in tier-3, the plan now will be to go for million sq ft space and more, away from big cities and in fewer locations, primarily where real estate cost won’t be prohibitive, says Thangavel of Cushman. Distribution centres, smaller in size in the range of 40,000 to 50,000 sq ft, could be set up closer to cities.

The biggest trend now is that prominent developers are getting into the warehouse space, which has mostly been a domain of local land owners till recently, according to Thangavel. Along with realtors, a new breed of advisors are coming up, only for warehouse planning. Also, warehouse parks are being set up for large structures. While the exercise of restructuring the warehouses will take a couple of years, he projects a cost reduction of at least 10 to 15 per cent by 2019-2020. Estimates are that big companies which have on an average one warehouse in every state, totaling to anything from 20 to 25, might look at eight to 10, pan-India post-GST.

“We understand that a few of the larger companies have started consolidating their warehousing requirements in strategic locations, in anticipation of GST, with a view to bringing efficiency into their supply chain,’’ said Rami Kaushal, managing director, Consulting and Valuations, CBRE South Asia.

Besides retailers and FMCG companies, even pharmaceutical companies would look at rationalising the number of operational warehouses and swap these for better quality and larger format ones, he said.

“Implementation of GST is expected to lead to rationalisation of warehousing demand, leading to lower logistics cost and reduced delivery time of manufactured goods,’’ Kaushal explained. The current complicated tax structure meant that choice in setting up inventory and distribution centres were based on the tax regime, rather than on operational efficiency, he said.

GST, when implemented, will free the decisions on warehousing and distribution from these tax considerations, according to Kaushal. ”This would enable occupiers to create larger hubs, servicing two or more states from a single location, which would help optimise inventory costs and increase efficiency.’’ This shift in operational planning would ultimately result in a hub and spoke model being adopted by many of the occupiers, he added.

Industrial warehousing space is estimated at approximately 800 million sq ft across the country and is expected to grow by nine to 10 per cent annually. A few sectors such as e-commerce, modern retailing and FMCG are expected to grow at about 20 per cent annually in the short term, according to CBRE.

A recent JLL report listed the National Capital Region, Mumbai, Pune, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad as top warehouse hubs. These eight city hubs together had a cumulative supply of organised Grade-A and Grade-B warehousing space of around 97 mn sq ft in 2015; this is expected to grow to around 116 mn sq ft by the end of 2016. It added that GST will result in emergence of new hubs such as Belgaum, Bhubaneswar, Coimbatore, Goa, Guwahati, Indore, Jaipur, Kolhapur, Lucknow/ Kanpur, Ludhiana, Nagpur, Patna, Raipur, Ranchi, Vapi and Vijayawada.

 

Source: http://www.business-standard.com/article/companies/gst-bringing-realty-shake-up-116090801173_1.html