Banks must be strict with wilful defaulters: Chidambaram

Public sector banks should deal strictly with wilful defaulters to check non-performing assets (NPAs) while being sympathetic towards borrowers facing difficulties, Finance Minister P Chidambaram said today.

“Genuine defaulters and wilful defaulters need to be dealt with separately. We have to be strict with willful defaulters,” Chidambaram said in an address to the Parliamentary Consultative Committee attached to his Ministry.

He said that bankers have been told to be sympathetic and have a “humane approach” towards genuine defaulters.

“This is time for hand-holding of borrowers who are facing difficulties, especially industry,” he added.

The NPAs of public sector banks rose to 3.84 percent of advances at the end of March from 2.32 percent in March 2011.

The NPAs of banks in the agriculture sector was at 5.46 percent, in MSME at 5.82 percent, in the corporate sector at 3.44 percent, in retail loans at 2.37 percent and real estate at 1.92 percent.

The Finance Minister said levels of NPAs are critically dependent on the performance of the economy. If economic growth was at 8 to 9 percent, then NPAs would be low.

Chidambaram further said banks must ensure that credit flows to every sector of industry.

He further said banks need capitalisation to meet their enhanced lending, which is increasing every year. This year, the government has made provisions of Rs 14,000 crore for bank recapitalisation.

Chidambaram said banks normally make their own arrangements to meet capital requirements, both through their own resources and from the market.

The Finance Minister said levels of NPAs are critically dependent on the performance of the economy. If economic growth was at 8 to 9 percent, then NPAs would be low.

Chidambaram further said banks must ensure that credit flows to every sector of industry.

He further said banks need capitalisation to meet their enhanced lending, which is increasing every year. This year, the government has made provisions of Rs 14,000 crore for bank recapitalisation.

Chidambaram said banks normally make their own arrangements to meet capital requirements, both through their own resources and from the market.

The Finance Minister informed the Committee that all public sector banks are following Basel III norms (global capital adequacy norms) and that “our capital and provisioning requirements are stricter than Basel III norms.”

Earlier, members of the Committee made suggestions about recovering dues from wilful and genuine defaulters and how to deal with different NPA cases, according to a statement.

Some members spoke of a softer approach by banks towards genuine defaulters such as farmers and promoters of MSMEs as they are vulnerable to external factors beyond their control.

Members raised the issue of misuse of corporate debt restructuring and downgrading of banks by rating agencies due to NPAs or other factors.

Members of the Consultative Committee who attended the meeting included Anto P Antony, Rajkumari Ratna Singh, Saugata Roy, N K Singh, Shantaram Naik, Murli S Deora (Permanent Special Invitee).

The meeting was also attended by both Ministers of State for Finance, Namo Narain Meena and Jesudasu Seelam.

US GDP accelerates sharply in second quarter

he US economy accelerated more quickly than expected in the second quarter thanks to a surge in exports, bolstering the case for the Federal Reserve to wind down a major economic stimulus program.

Gross domestic product grew at a 2.5 percent annual rate, according to revised estimates for the period that were released by the Commerce Department on Thursday. The quarter’s growth rate was more than double the pace clocked in the prior three months.

The report could boost confidence that the economy is turning a corner despite government austerity measures. At the same time, a full recovery from the 2007-09 recession is probably years away as the US jobless rate remains historically high at 7.4 percent.

The government had initially estimated that GDP expanded at a 1.7 percent rate in the second quarter. But recent data on trade showed that exports climbed during the period at their fastest pace in over two years.

The government also said data from retailers showed that businesses had restocked their shelves at a faster pace in the April-June period than initially estimated.

Economists polled by Reuters had forecast the economy growing at a 2.2 percent pace.

Many economists expect the economy will accelerate further in the second half of the year as austerity measures begin to weigh less on national output.

That drag was evident in the second quarter, when spending contracted at all levels of government. Indeed, Thursday’s data showed the economic drag from spending cuts was greater in the second quarter than initially estimated.

Still, the data could make officials at the US central bank more confident in their plan to begin reducing monthly bond purchases later this year. The program has reduced borrowing costs and helped spark a recovery in the nation’s housing market, which collapsed during the recession.

In the second quarter, investments in housing accounted for nearly a fifth of the economy’s growth during the period.

However, other reports have suggested that housing began to look more shaky toward the end of the quarter. Expectations that the Fed could reduce bond buying as early as next month have driven mortgage rates sharply higher since May.

The bond-buying program is one of America’s last major economic stimulus programs, as the federal government’s fiscal austerity began dragging on the economy in late 2010.

In the second quarter, higher taxes appeared to hold consumers back. Consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.8 percent growth pace after rising at a 2.3 percent rate in the first quarter.

Housing Min suggests easing FDI norms in affordable housing

The Housing Ministry is all set to relax the norms to attract foreign direct investment (FDI) in affordable housing. CNBC-TV18′s Nayantara Rai reports.

The Housing Ministry has informed the Department of Industrial Policy and Promotion (DIPP) that an easier regime will attract FDI in the affordable housing segment. The proposal suggests halving the minimum built up area norm from 50,000 square meters to 20,000 square meters. It is also talking about a new minimum capitalisation norm. Currently, it is USD 10 million for the industry.

The ministry is suggesting USD 2.5 million in case there is a joint venture with an Indian partner and USD 5 million minimum capitalisation in cases of 100 percent FDI. Right now, there is no separate FDI regime for affordable housing. It is only for the realty sector. So, all eyes are now on DIPP’s next move.

Govt might buy gold from citizens to ease rupee crisis

ndia is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency.

A pilot project will be launched soon, a source familiar with the Reserve Bank of India (RBI) plans told Reuters. India has the world’s third-largest current account deficit, which is approaching nearly USD 90 billion, driven in a large part by appetite for gold imports in the world’s biggest consumer of the metal.

With 31,000 tonnes of commercially available gold in the country – worth USD 1.4 trillion at current prices – diverting even a fraction of that to refiners would sate domestic demand for the metal. India imported 860 tonnes of gold in 2012.

“We will start a pilot project among some banks where we will allow them to buy back gold from individual households,” the source, an official familiar with the central bank’s gold policymaking, said. “This will start soon, we have discussed (it) with banks.”

The RBI will ask the banks to buy back jewellery, bars and coins for rupees. Lenders will have to offer better rates than pawn shops and jewellers to lure sellers.

Any talk of using the country’s gold to help meet India’s international obligations revives memories of a 1991 balance of payments crisis – when India flew 67 tonnes of gold to Europe as collateral for a loan to avoid a sovereign debt default.

Earlier on Thursday, Trade Minister Anand Sharma said the RBI should look into the possibility of monetising gold holdings.

It was not immediately clear whether Sharma was referring to the 557.7 tonnes of gold the RBI holds in its own reserves, or gold in private hands. He did not give more details of how the proposal would work.

“I have not said there should be any mortgaging of the gold, or auction of the gold, that is incorrect. I have just said the RBI should look into … how they can benefit the people, particularly with regard to the bonds or the monetisation,” Sharma said in response to a question in parliament.

Earlier this week in comments reported in the national media, Sharma said “even if 500 tonnes is monetised at today’s value it takes care of your CAD”, or current account deficit.

Selling gold reserves may sit badly with Indians, many of whom saw the 1991 sale as a public humiliation. The secret operation was only exposed after a vehicle carrying the first consignment of bullion broke down on its way to the airport from the central bank.

“It (pledging gold) will be a desperate measure, and it will send a very wrong signal to the entire country because all the time we’ve maintained that things are under control even though things are adverse,” said Madan Sabnavis, chief economist at CARE Ratings in Mumbai.

Such a sale would also dent international gold prices which took a hit earlier this year after Cyprus said it was considering selling its gold reserves to shore up its finances.

India has taken multiple steps this year to curb imports of gold, its second-biggest import after oil, including raising duty three times to 10 percent.

The rupee, the worst-performing emerging market currency in Asia this year, rebounded from a record low on Thursday after the RBI said it will provide dollars directly to state oil companies to shore up the currency.

In comments published by The Hindu newspaper last week, David Gornall, chairman of the London Bullion Market Association, said India could raise USD 23 billion by swapping gold for a payable currency for a period of its choice, while remaining the long-term holder of the gold.

Gold forms an essential part of a bride’s dowry in India and is considered auspicious as a gift or offering at religious festivals.

Rupee fall pinches home-owners; HDFC, ICICI Bk hike rates

The rupee free fall has forced HDFC and ICICI Bank , that together enjoy more than 40 percent of the home loan market, to hike their interest rates by 25 basis points. For HDFC ’s customers home loan upto Rs 30 lakh will increase to 10.4 percent while the interest rate loan above Rs 30 lakh will rise to 10.65 percent.

This means borrowers will have to pay Rs 17 a month more in the EMIs for every one lakh rupee of their loans of 20 year tenure, Rs 16 more for a 15 year loan and Rs 15 more for a 10-year loan.

The timing is not good considering home loan customers are anyway facing the brunt of an overall economic slowdown and several companies being in a down sizing mode.

Developers say another problem is of the rising input cost which will only push up property prices in an already subdued market.

Pradeep Jain, chief managing director, Parsvnath Developers says, “I don’t foresee any impact because the property prices keep increasing, input cost keep increasing. If one sees the last couple of years approximately 5-10 percent annual basis the input cost keep increasing and if we work out 50 basis point versus the input cost increasing or the property cost keep increasing and the sanctioning and the land prices keep increasing. I do not foresee the consumer and user going to stay back to buy the property.”

Sources in HDFC and ICICI Bank are expecting applications for new home loans to drop. The economic slow down have a cascading impact on realty sector but both HDFC and ICICI Bank don’t expect the home loan segment to take a hit as there is a shortage of 25 million homes in urban India thus there is genuine demand.

They also point out all the tax benefits under section 80C, tax benefit on payment of interest is upto Rs 1.5 lakh per annum. This year an additional tax benefit was introduced of upto Rs 1 lakh on interest payments subject to certain conditions like the value of property not exceeding Rs 40 lakhs and loan amount being less than Rs 25 Lakhs. This alone can result in one time saving of around Rs 30,000. Post these tax benefits banks claim the effective interest rates can be as low as 5.25 percent even if the headline rate is 10.4 percent.

Country faced with difficult economic situation: PM

With falling rupee and rising oil prices casting a shadow over Indian economy, Prime Minister Manmohan Singh today said the country is faced with a difficult economic situation for which some domestic factors too were responsible.

“It cannot be denied that the country is faced with a difficult economic situation,” Singh said after Leader of the Opposition Arun Jaitley sought his response on the rupee hitting a life-time low. “There are several causes (for the economic woes). I do not deny some domestic factors too are responsible,” he said.

Listing some of the external factors that have impacted rupee and Indian economy, Singh said US monetary stance and problems created by tensions in Syria and its “inevitable consequences on oil prices” have played their role.

“We have to reckon with these uncertainties,” he said, adding he needed “sometime to reflect” on these. “I would be happy to make a statement tomorrow,” the Prime Minister said.

Moily meets FM to discuss ways to cut oil import bill The over 20 per cent rupee depreciation this year

With fall in rupee value and the Syrian crisis ballooning oil import bill, Petroleum Minister M Veerappa Moily today met Finance Minister P Chidambaram to discuss possible solutions including Rs 3-4 per litre hike in diesel prices and cut in duties.

The over 20 per cent rupee depreciation this year and global oil rates spiking to two-year high on threat of western strikes against Syria has meant that loss on sale of subsidised diesel and cooking fuel will rise to at least Rs 140,000 crore from last month’s estimate of Rs 123,000 crore.

Tight on finances, the finance ministry has no means to meet half of the losses by way of cash subsidy. A one-time steep hike in diesel prices and possibly also cooking gas (LPG) is being mulled after the monsoon session of Parliament ends next week.

“We are all worried about rupee depreciation. All of us should all do our best to reduce the tension on the economy.

We are discussing how we can conserve energy and reduce fuel consumption (so that imports are cut),” Moily told reporters after the 30-minute meeting.

Losses on diesel sales at government-controlled rates have widened to Rs 10.22 per litre from Rs 9.29 a litre at the beginning of the month and less than Rs 3 per litre in May, even as prices are raised by 50 paise a litre every month.

Besides, the oil companies lose Rs 33.54 per litre on kerosene and Rs 412 per 14.2-kg cooking gas (LPG) cylinder. The revenue loss or under-recovery on diesel and cooking fuel was estimated at Rs 80,000 crore at the beginning of the fiscal and has now widened to Rs 140,000 crore.

Moily said the under-recoveries which were estimated at Rs 123,000 crore last month may go up but added “we are addressing that issue.”

“We have to ensure that we help finance ministry to reduce CAD,” he said adding while India does import oil from Syria, the crisis developing will have an impact on international prices.

India is 79 per cent dependent on imports to meet its oil needs and rupee depreciation means it has to pay more for the imports. Last year, it shelled out about USD 170 billion on import of oil.

Moily refused to say if fuel prices will be raised next month but sources in his ministry said that was an option seriously under consideration. Every one rupee depreciation in the local currency against the dollar adds Rs 8,000 crore to the under-recovery while a one dollar per barrel increase in international prices results in Rs 4,800 crore additional outgo.

The government had in January allowed oil companies to raise diesel rates by up to 50 paise per month until losses on the most-consumed fuel in the country are wiped out.

Oil companies feel a 50 paise hike is insufficient and there should be a higher, one-time increase to cover for the fall in the rupee.

The price of diesel was last increased on August 1, when prices in Delhi went up by 56 paise (including local taxes) to Rs 51.40 per litre.

RBI should consider monetising gold: Anand Sharma

Trade Minister Anand Sharma said on Thursday the Reserve Bank of India should look into suggestions that it monetise its gold reserves to reduce imports and dollar outflows that have hammered the rupee, but emphasised it was for the bank to decide.

India has 557.7 tonnes of gold in its reserves, making it the eleventh biggest holder, according to the World Gold Council. India consumer’s appetite for gold has been a drag on the rupee, the worst performing major currency since May.

“I have not said there should be any mortgaging of the gold, or auction of the gold, that is incorrect. I have just said the RBI should look into…how they can benefit the people, particularly with regard to the bonds or the monetisation,” Anand Sharma told parliament.

“This is a suggestion which has been made by many economists,” he said, adding that it a was up to the Reserve Bank of India to decide whether such a measure would bring down gold imports.

Economic growth seen below 5% in 2013/14: Poll

India’s struggling economy is likely to grow even more slowly this fiscal year than the decade low of 5 percent struck last year, as investment will stay weak due to inadequate reforms and uncertainty ahead of a looming election, a Reuters poll showed.

The parlous state of Asia’s third largest economy was reflected in the rupee’s 18 percent plunge against the dollar to all time lows since May, when signals emerged that the US Federal Reserve was considering winding down an easy money strategy that had benefitted emerging markets like India.

Burdened with a record high current account deficit, the rupee has suffered a far steeper fall than other emerging market currencies, and investors doubt whether Prime Minister Manmohan Singh’s minority government will take bold enough steps needed to remedy the economy with an election due within nine months.

The median consensus estimate by 36 economists surveyed over the past week put annual growth at 4.7 percent in the April-June quarter, slowing from 4.8 percent in the March quarter. The data is due to be released on Friday at 1730 IST.

“The growth momentum was weak even before the latest bout of instability in the domestic markets and these risks have become starker after the measures adopted to arrest the currency depreciation,” said Radhika Rao, economist at DBS Bank in Singapore.

“A sharp lift up in productive capacity building is unlikely ahead of the elections, given the need for policy clarity. Policies might be put forth, but could lack regulatory teeth,” Rao said.

The Reserve Bank of India’s defence of the rupee has put another brake on an economy, as the cost of borrowing for companies increased as the central bank tightened money market liquidity.

Raghuram Rajan, a widely acclaimed economist, who takes over as governor of the RBI next month is expected to prioritise currency stability over inflation and growth, according to a separate Reuters poll this week which also showed the worst is not over for the rupee.

On Tuesday the rupee plumbed lows after the lower house of Parliament approved a nearly USD 20 billion plan to provide cheap grain to the poor that raised concern over the government’s efforts to reduce the fiscal deficit to a target of 4.8 percent of GDP in the current fiscal year.

The government aims to reduce the current account deficit to 3.7 percent of GDP this fiscal year from the record 4.8 percent notched last year, but 16 out of 29 economists regarded that target as optimistic.

India’s growth slowed to 5 percent in the 2012/13 fiscal year that ended in March, its worst performance since it grew by 3.9 percent in 2002/03.

Twenty-nine economists responded to questions on how the economy would fare compared to last year’s dismal showing.

Fourteen said the economy was likely to grow at a pace slower pace, and five took a stronger stand saying it was highly likely it would be below last’s years 5 percent.

Ten said it was unlikely that growth would be worse than last year, but some added that any improvement would be marginal at best.

“Recovery in the Indian economy would be a protracted one,” said Vishnu Varathan, economist at Mizuho Corporate Bank in Singapore. “The bottoming could be more prolonged and less distinct.”

For all its problems, almost all the economists agreed that the Indian economy was not close to a full blown balance of payments crisis, as suffered in 1990-91.

Wipro gains 2% on rupee depreciation, inclusion in Nifty

Wipro shares gained nearly 2 percent in morning trade Wednesday on the back of sharp rupee depreciation and inclusion in Nifty.

Indian rupee breached the 67-mark today, hitting a record low of 67.62 against the US dollar, down 138 paise from previous close. Such a sharp decline in domestic currency may help exporters, especially IT companies to report strong numbers in July-September quarter of 2013.

Meanwhile, Wipro will replace Reliance Infrastructure in the Nifty with effect from September 27.

Wipro was excluded from the Nifty on April 1 due to demerger of non-IT business into a separate company Wipro Enterprises.

At 09:40 hours IST, the stock was up 1.74 percent at Rs 462.80 on the Bombay Stock Exchange.

It rallied more than 13 percent in past one month and nearly 20 percent in 2013.