ECO BRIEFS - 13.12.2008

ECONOMIC BRIEFS – 13.12.08
* * * * *

Axis Bank expanding in South, to increase headcount (BL 13.12.08)
Axis Bank is in the process of expanding its branch network and upgrading its extension counters to branches in the South. The bank has 181 branches in the South zone comprising the four States – Tamil Nadu, Karnataka, Kerala and Andhra Pradesh. Its President (South Zone), Mr C.P. Rangarajan, told that there were 17 extension counters in this zone initially. “The process of upgrading 13 of these to branches is over. We will upgrade the remaining ones before the end of this fiscal,” he said and added that the RBI has given the bank licence to add another 55 branches in this zone. “We have firmed up 32 locations and these would become operational by March 2009,” Mr Rangarajan said. ‘South zone comprises 3,700 employees. We will add about a thousand more in a year’s time. We place graduates, hire off campus albeit selectively after a written test,” he said, adding “career progression is matchless and the package on par with the industry.” South zone has about 30-lakh customers and is roping in about one-lakh new customers every month. “Our CASA deposit at Rs 8,000 crore is about 52 per cent of our deposit. Our CASA target for this fiscal is Rs 11,000 crore,” he said.

Kotak Mahindra Bank to launch corporate credit cards (BL 13.12.08)
Kotak Mahindra Bank is looking at launching a corporate credit card product and also enter into partnership programmes for launching co-branded credit cards by April 2009. “We are looking at entering into partnerships in the high-end segments in airline, retail and entertainment like movie or dining chain. An announcement in this regard is likely by January and launch by March or April,” Mr Subrat Pani, Business Head (Cards), Kotak Mahindra Bank, told. The bank entered the credit card business earlier this year with the launch of two Visa Gold Cards, a Visa Platinum Card and a Visa Signature Card to complete the range of financial services from the Kotak Group. Mr Pani said that since the launch seven months back, they have issued more than 1 lakh cards and are on course to meet the first year (April 2009) target of 2,50,000 cards. “Last year, we saw a growth rate of 40 per cent when around Rs 58,000 crore was spent on credit cards. But this year, as compared with last year, the growth is likely to be around 24-25 per cent and end at around 22 per cent, which is likely to come down further to around 12 to 15 per cent next fiscal (2009-10),” he said.

StanChart ups stake in Indian arm (BL, ET, BS 13.12.08)
Standard Chartered Bank has increased its stake in Standard Chartered-STCI Capital Markets Ltd (formerly UTI Securities Limited) to 74.9 per cent. It announced on Friday that it completed the acquisition of an additional 25.9 per cent stake from Securities Trading Corporation of India (STCI). Standard Chartered Bank (StanChart) bought 49 per cent of UTI Securities Limited from STCI in January. Standard Chartered-STCI Capital Markets Ltd offers its services under the brand Standard Chartered Wealth Managers. The company plans to grow its retail and institutional stock broking and investment banking business. It is planning to offer additional products for retail customers and more research-based services and products for institutional stock broking.

Negative show: Industrial output contracts in October (BL, ET, BS, FE 13.12.08)
The Index for Industrial Production (IIP) has posted a negative growth of (-)0.4 per cent in October as against a robust 12.2 per cent in the same month last year. However, between April and October the index had grown by 4.1 per cent compared with 9.9 per cent in the same period in 2007. In August, the index had dipped to a growth of 1.3 per cent largely on account of a very poor growth in intermediates. It recovered in September to 4.8 per cent. Now, in October, it has actually turned negative. The manufacturing sector recorded a decline in production in October to the tune of (-)1.2 per cent, particularly because of a huge plunge in exports. Manufacturing sector grew by 13.8 per cent in October last year. Mining activities too slowed down substantially with a production growth of only 2.8 per cent as against 5.1 per cent as iron ore production came down following fall in Chinese demand after the Government imposed export tax on iron ore. However, electricity generation was maintained more or less at last year’s level, improving marginally to 4.4 per cent compared with 4.2 per cent a year ago. The Chief Statistician of India, Dr Pranab Sen, expects the index behaviour to come back to the normal pattern from next month. He added that the IIP had grown by more than 12 per cent in October 2007 and that was an outlier performance and this high base was why the October 2008 index was down so much.

Record wheat crop on cards (BL 13.12.08)
Total area sown under wheat, rapeseed-mustard and chana (gram) – the three main crops during the rabi or winter season – is much higher this time compared to 2007-08. According to the Agriculture Ministry’s latest Crop Weather Watch Report, released on Friday, wheat has been planted so far on 213.60 lakh hectares (lh), against 204.70 lh covered during the same period last year. If current trends hold and no abnormal rise in temperatures take place in March, there is every possibility of the 2008-08 wheat crop even surpassing last year’s record 78.40 million tonnes (mt).

Markets ignore weak IIP data, recover on short covering (BL, ET 13.12.08)
Indian equities tanked on Friday on news of the collapse of the US auto bail-out package, but bounced back to close on a flat note as traders covered their short positions. The Sensex was down more than 400 points from its previous during mid-day trade, but closed up 0.46 per cent at 9690; the Nifty was up 0.04 per cent at 2921. Foreign institutional investors were net sellers of equity on Friday for Rs 16.52 crore whereas domestic institutions were net buyers for Rs 325.81 crore.

SEBI announces Code for Conflict of Interest (BL, ET, FE 13.12.08)
SEBI has come out with a “Code of Conflict of Interest” for the members of its board. Probably in a first of its kind move for any financial market regulator in the country, SEBI has asked the members to make a set of disclosure within a month. Under the code, a member interested in any matter coming up for consideration at a meeting of the board will have to disclose the nature of interest. The member should not take part in any deliberations of the board with respect to such matter except to the extent of professional advice if sought by the board. The code also allows public to raise conflict of interest.

Significant growth in currency future contracts on NSE (BL 13.12.08)
Three months after the launch of the currency futures segment on the National Stock Exchange, the nascent sector is witnessing significant growth in volumes and number of participants. From a modest 65,978 contracts valued at Rs 291.04 crore as on August 29, the day on which currency futures was launched, it had grown to an all-time-high of 2,71,392 contracts valued at Rs 1,372.02 crore on November 20, Geojit Financial Services Ltd said. Over one lakh contracts are being daily traded on the NSE. The company has also opened more than 4,000 currency derivative accounts to date. Most of its currency derivatives’ customers consist of investors who are looking for instruments that allow them better returns in a market where equities remain volatile and are often hard to predict. Also, exporters/importers are active participants in currency derivatives as it helps to cover their positions and mitigate the risk.

Ban on wheat, rice futures may go by January: FMC chief (BL 13.12.08)
The Forward Markets Commission (FMC) plans to resume futures trading in wheat, rice, tur and urad latest by January 2009. Trading was suspended in all four commodities by the Union government since January (for tur and urad) and February (for rice and wheat) 2007 as an anti-inflationary measure. The ban, initially dubbed as a temporary measure, has continued for almost two years, against the recommendations of the Forward Markets Commission. The FMC Chairman clarified that with the easing of inflationary pressure and a comfortable stock position, the Union Government is in favour of resuming trading in these commodities.

Home truths (BL 13.12.08)
Following the economic stimulus package for certain sectors announced by the Government last week and the RBI’s repo rate cuts, public sector banks are set to offer more than just easier interest rates on home loans up to Rs 20 lakh. The banks will offer a package of cheaper loans that would include lower interest of between 7 and 9 per cent for a ten year period along with other concessions such as reduction in margin requirements. Yet, whether that will lead to a revival of demand for housing is quite another matter since the market is not determined by the cost of mortgage finance alone but also by prices. Despite the current slowdown and the gloomy forecast, housing prices have not fallen proportionately.

Forex reserves down by $1.83 b (BL, BS, FE 13.12.08)
The country’s foreign exchange reserves fell by $1.83 billion to $245.86 billion for the week ended December 5, due to revaluation of global currencies and also due to selling of dollars by the Reserve Bank of India. In the week under review, the euro weakened against the dollar and yen. The yen appreciated as risk averse investors turned away from currencies such as the dollar and euro in favour of the yen. According to a forex dealer with private bank, it is difficult to predict the rupee’s movement next week. “It should strengthen tracking the euro. But as equity markets worldwide are likely to remain weak, the rupee could remain weak. It may trade in the range of 48.50-48.90.”

World Bank clears $14-b lending to India for 2009-12 (BL, ET 13.12.08)
The World Bank Group has cleared India Country Strategy 2009-12 that envisages lending program of $14 billion for the next three years. The institution’s board discussed the Country Strategy at its meeting in Washington on December 11. Of the $14-billion assistance, about $9.6 billion will come from the International Bank for Reconstruction and Development (IBRD) and $4.4 billion will come from the International Development Association (IDA). India is looking to avail itself of a total annual assistance of $6 billion from the World Bank for the financial year ending June 2009, as against previous year’s level of $3 billion.

Nabard projects: Kerala’s credit potential in 2009-10 at Rs 44,484 cr (BL 13.12.08)
The National Bank for Agriculture and Rural Development (Nabard) has projected the credit potential for Kerala in 2009-10 at Rs 44,484 crore. The share of primary sector in the projected credit potential is Rs 16,964 crore (38.13 per cent), secondary sector Rs 6,316 crore (14.20 per cent) and that of tertiary sector Rs 21,204 crore (47.67 per cent), according to the ‘State Focus Paper – 2009-10’ brought out by Nabard.

Reliance Life unveils new product (BL 13.12.08)
Reliance Life Insurance has launched a new-unit linked product - Reliance Super InvestAssure Plan (RSIP)-Plus. This product would give loyalty additions of 2.5 per cent of annual premium after the third policy year, apart from earnings growth. Mr P. Nandagopal, CEO, Reliance Life Insurance, said that loyalty addition was a reward, in addition to investment and maturity benefits, that the company pays to its customers for continuing their patronage.

HDFC Bank cuts deposit rates by up to 100 basis points (ET 13.12.08)
HDFC Bank has cut deposit rates across various tenures from 25 bps to 100 bps. It also cut rates again in some of its benchmark rates, which it had cut last week. In the shorter tenures of 15-29 days and 30-45 days, the rates cuts have been steeper at 1%. In the benchmark 9 months 15 days-9 months 16 day tenure, it bought down the rate by another 25 bps. This is over and above the 1.5% cut last week.

PF interest rate to remain 8.5% this fiscal year (ET 13.12.08)
The 4.4 crore subscribers of the Employees Provident Fund Organisation (EPFO) should not expect any rise in their provident fund interest rate this fiscal. Labour minister Oscar Fernandes ruled out the possibility of increasing the rate of interest of the Employees Provident Fund (EPF) rates for this fiscal year. The PF rate will continue to be 8.5 % fourth time in a row.

Further cut in repo, reverse repo rates likely (ET 13.12.08)
Analysts are expecting aggressive action on the monetary policy front as the central bank and the government try to arrest the slowdown. Expectations are for a 150 basis points cut in the repo and reverse repo rates - two key short-term rates that are set by RBI. “The central bank has been aggressively cutting interest rates. But these interest rate signals have not yet reflected in the cost of credit as financial institutions have not brought down interest rates. Availability of credit also remains a major concern,” said DK Joshi, principal economist at credit rating company Crisil.

Higher WMA limit not enough for govt (ET 13.12.08)
According to data released by the Reserve Bank of India (RBI) in its weekly statistical supplement (WSS), government banks borrowed Rs 30,986 crore - way higher than the enhanced limit of Rs 20,000 crore, which was revised upwards from Rs 6,000 crore in November in anticipation of revenue mismatches, as two government bond auctions were cancelled during the month. WMA is a temporary advance to meet government revenue mismatches. When 75% of the limit of WMA is utilised by the government, RBI may trigger fresh floatation of market loans. Borrowings within the prescribed limit are at the prevailing repo rate, while loans in excess of the limit attract an additional 2% interest. Though reliance on RBI was anyway anticipated, what is disconcerting is the fact that the amount ended up being more than what was envisaged earlier.

Bank credit up 30 per cent (BS, FE 13.12.08)
Bank advances grew by 29.8 per cent on a year-on-year basis to Rs 27,21,732 crore at the end of November as against 22.5 per cent a year ago. The growth was partly due to demand from oil companies and increasing dependence of Indian companies on domestic resources rather than global markets. From April to November 2008, loan growth was 15.2 per cent as against 8.6 per cent during the same period previous year, according to the Reserve Bank of India (RBI) data. The non-food credit grew 58.5 per cent to Rs 26,71,339 crore during the one-year period. The reported credit growth is much above RBI’s estimate of 20 per cent for 2008-09. “The central bank opened a special window for non-banking financial companies (NBFCs) and mutual funds (MFs) in November. Cash-strapped financial institutions have borrowed from banks during this period,” said an executive from a public sector bank. On the backdrop of domestic risk aversion, deposits grew by 23.6 per cent to Rs 36,49,506 crore till November on a year-on-year basis. Demand deposit, or deposit for a tenure of less than one year, stood at Rs 4,65,349 crore, whereas time deposit, or deposit with a tenure of more than a year, stood at Rs 31,84,157 crore.

Key deficit indicators dip in H1 (FE 13.12.08)
The central government finances during the first half of 2008-09 may have witnessed buoyant tax collections but key deficit indicators such as revenue deficit (RD), gross fiscal deficit (GFD) and primary deficit have been higher reflecting higher non-plan revenue expenditure on subsidies, interest payments and plan revenue expenditure on social services, other economic services, and grants to states. As per cent of budget estimates, both revenue deficit and gross fiscal deficit were higher mainly due to rise in revenue expenditure, both non-plan and plan. During the first half, revenue deficit stood at Rs 78,313 crore, formed 141.9% of the budget estimates as against 85.5% during April-September 2007 primarily due to expenditure pressure emanating from interest payments, subsidies, other economic services, social services and grants to states. During 2008-09, GFD was budgeted to decline by 0.3% of GDP, to Rs 1, 33,287 crore over the provisional accounts of 2007-08. During the first half of 2008-09, GFD at Rs 1,02,654 crore was 77% of the budget estimates, higher than 53% a year ago reflecting the rise in RD.GFD as percentage of GDP was at 1.9% during April-September 2008, higher than 1.7% same time last year. Meanwhile, gross primary deficit during the first half of 2008-09 stood at Rs 16,593 crore as against the envisaged surplus of Rs 57,520 crore in 2008-09 (budget estimates).

Health insurance portability could be a reality now (FE 131.12.08)
Cheering the health insurance policy holders, the issue of health insurance portability has finally taken shape and just waiting for the approval from the Insurance Regulatory and Development Authority (IRDA). The General Insurance Council (GIC), which is the self regulatory body of nonlife insurance companies, has taken a decision on portability of health insurance products on Friday. J Hari Narayan, chairman, IRDA, said that “We are very much in favour of the issue and in fact we had been working with GIC for past three four months on it and I am happy to know that they have taken a decision on it”.

Home prices, demand & funding form a vicious circle (FE 13.12.08)
While the government is trying to get banks to begin lending after their liquidity concerns have been addressed by the slew of monetary measures by the central bank, most banks have nearly doubled the proportion of home loans granted on a construction-linked basis. Instead of a lumpsum disbursement to builders, banks give such loans mainly on the basis of progress made on construction of the property. But in doing so, they may just be moving towards what they want to avoid - losing money. Given the high prices of houses - which lead to lower demand, construction-linked disbursement of loans and the miniscule developer’s equity - chances are that the developer may not be able to take the project forward.

RBI measures not to have any immediate effect, say banks (FE 13.12.08)
Two major private sector banks, HDFC Bank and Axis Bank, are not expecting any immediate positive impact of the recent liquidity and rate cut measures by the Reserve Bank of India (RBI) on their credit and deposit portfolios. Paresh Sukthankar, executive director, HDFC Bank, has said that the bank has witnessed a moderation in the overall growth of loans as well as the term deposits due to the prevailing economic scenario in the country. In the last few months, HDFC Bank's two-wheeler as well as commercial vehicle loan portfolios have not grown at a healthy rate. A senior executive of Axis Bank said that he expected the BPLR to fall by at least 100 basis points within 4-6 weeks. "However, it may fail to stimulate the credit growth of the Indian banking space as consumer confidence is at its lowest. Also, the corporates are holding back their capex plans in anticipation of a lower interest rate regime. Next quarter may not be very rosy for the Indian banks," he said. Observed Sukthankar "Unless the liquidity dries up again, I foresee another round of reduction in deposit as well as lending rates to happen within a few weeks. I do not anticipate a cut in CRR by the regulator in the near future. Fortunately, we seem to be heading at around 7% inflation levels by the end of this fiscal," he said.

Major rates & parameters as on 12.12.08 (BL, RBI)
Rupee/$
Call Rates
Auction under RBI’s LAF
Govt. Securities (Yield)


Repo
Reverse Repo
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
48.44/45
5.20-5.40%
Nil
Rs 6,590 Cr
6.21%
-
Nil
Rs 17,455 Cr

****
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express