The Investment Blog from Advantage 'zyaada'

A First rough draft 

I hate writing influencing stuff for these ‘namakool’ government people..a true laissez faire capitalist as bollywood would say today – but much as I like to disappoint wooden leg intelligentia (sorry Saugata, not you) and unfortunate colleagues who cannot see the depth and incisiveness of my decisions ( only some times, as most of my followers and poachers would attest from the last 15-20 years, i have quite some intellectual property when it comes to establishing the kingdom’s fine traits and setting up the next wins. 

Well, this introduction is probably embedded into my names and branding choices as also in the discussions I have created across all Advantage zyaada properties, and while everyone has decided that the worst is past and we have recovered, the stock markets have finally got the cue,albeit from continuing discussions of interest rate when none are necessary unless a bank offers a loan.

China and India share a $2.5 trillion retail spending of a gross GDP of $3.5 trillion (Economic Times, It’s cold out in the west   ). While single brand FDI was raised earlier to 51% whatever was allowed in multi-brand retail has now been withdrawn due to recent changes in FDI definition and no move to allow multi-product retail.  Our reticence to allow Indian business property in retail spending to Foreign investors stems from the fact that we wish to be paid for allowing such to happen like for the Telecom Licences and paid so we don’t have that damned Fiscal Deficit overhang but that is just a digression here and it is definitely not ideology we are peddling.

Also, despite the caution adopted by RBI in not moving the GDP target ( 6% w/ upward bias ) I am reasonably confident that the growth rate would be between 7.5% – 8% with the IIP having recovered and there being only some agrarian doubts in the nation’s performance which would well be taken care of by the food inflation incl. grain procurement prices. In the mean time, China allowed banks to fund the corporates $1 trillion indiscriminately and now will provision at leisure; India mid-way through its own $120 billion borrowing program

Making fiscal policy – Dividing work with the RBI ( MOF, Economic Advisory Committee)

Some of my better endowed readers who are also leader of men would appreciate that it is always tough to appreciate the RBI or the FED if you are in the US and ‘get’ the inner depths of what is happening, what is doable, what is to be said and what is to be communicated to which stakeholders all at the same time..that is why probably Duvoori Rao had no qualms in handing over the tough job to the ‘center’ or in this case the Economic Advisory Committee and Mr Rangarajan.

Making Policy Count – Avoid being Abrasive

Let’s not forget that the RBI is doing a good job yet. With the Aussies having raised interest rates, it might have tempted lesser mortals to go in for rate increases right away, but we have just decided to raise the eponymous SLR a full basis point as banks continue to sidestep economics and lenders in each breath. The most laudable and really India thought centric piece of the policy was the important 150% ramp up in the provisioning of real estate loans to 1% of LTV carried on the books. It is a good reminder to banks that the costs of idle money will go up on both the treasuries and cash they keep ( a huge 35% in most banks, more for Citi) when the statutory rates even now are just 30%. In fact costs will also go up on the RE portfolio they are so eager to cultivate by a good 70-80 basis points, after all the entire provisioning concept for banks is based on being able to sell their collateral in case of default

Following up

However, next quarter we are suddenly going to get a flurry of results which proclaim greater volumes, no one will talk of pricing constraints, FDI will flow smoothly and I might just get time to read Ranga’s economics to take this slow elephant further. And that is how sand castles are blown away and not made into glass, nor kept for posterity. A mixed metaphor, maybe? But it is clearer now that the RBI is just battling select ‘investor guarantee’ holding bank companies that have never advanced adequate resources ( neither people, nor journalists, nor the money) to India as they reinvent the new way to leverage their own and their host nations ( i almost sound socialist there, but i am laying out the real hidden map where I share economic prowess in predicting the next turn and getting done with the rest of influenza to focus on earning real moolah in a real job / business)

But the credit policy for the Indian markets..

Coming back to the policy, it is a non starter, because it is a tired ramification of pending business like flowing credit and reforms undone by a crisis. The banks are prudent enough to lend only to profit making businesses and the governments are out of money to print at the mint, The government will continue to be the biggest borrowing program, the agrarians will suffer as rabi prices rise and production drops off,  the corporates will bide time as India’s holiday season is past though the stats are still due, and the RBI is not handling the fun, neither the EAC by admitting to any innovation. In my eyes, that will slow up this pack of hounds till ( probably just next week, probably just good news) some great FDI and energy releasing decisions come through. 

The next RBI ride will last the six months it can raise rates, but finally we have to start signing some good deals and get business done. Simple innovations like co-opting banks in the policy making and making obvious your support of public sector banks with larger balance sheets have to be reflecive of the new media and the new pace of competition where everyone is now ready to drive home their point to their investors and their stakeholders.

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The overall Credit Growth has shrunk to 16% today and Reverse Repos continue to attract more than Rs 1 Trillion daily ($20 billion). Overnight rates reign low. Foreign Banks and Private Sector counterparts like ICICI Bank have virtually stopped all lending to the real estate sector, while the Indian currency is expected to go into an upswing against the dollar. However, we have already cut CRR considerably and also with the Government’s own INR 5 trillion (incl states and spl borrowings) borrowing program ($ 100 billion) liquidity crisis would not result very soon.

However the RBI policy is a key tool to stimulate market lending and while deposit rates have already come down, banks are still cagey to lend. PSBs will play an important part in easing the credit situation. The Credit policy, however, cannot bring in Foreign investors who continue to invest in portfolio monies rather than FDI and MNC banks have additionally opened a route of lending to NBFCs to step a little away from market default. On the whole, everyone has taken their part of the pie and have made it clear that they are not part of the nation building role that RBI has. Tough luck as always. I would have gone ahead with reducing SLR requirements as reserves would remain robust, meander over to the Euro instead of the Dollar ( faster hopefully) and banks would have really got some urgency to lend to corporates even after flooding the interbank market with new securities as being released to continue market reforms. But of course, Mr Subbarao is firmly in saddle, India has got great reserves for the coming hyperinflation from the current bout of OILY deflation and the continuing rate of M3 at near over 20% is not a concern. Mr Subbarao may however be a little depressed by the prospect of monetization as the deficit , already at 11% continues to increase and the hyper inflation above still not going away for conservative strategies..but then this is a free market!

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Standard Chartered and Australia’s ANZ are in advanced talks to acquire separate parts of the Asian retail and commercial assets being sold by Royal Bank of Scotland, according to people familiar with the matter.Standard Chartered is now in pole position to acquire RBS units being sold in China, India and Malaysia, while ANZ was closing in on assets in Hong Kong, Taiwan, Singapore, Vietnam and Indonesia, said people familiar with the situation.

The assets are expected to fetch around $1bn-$1.5bn for the stricken UK lender.“The process is progressing well but nothing is yet final,” said one person familiar with the matter.HSBC could also pick up some of the assets, should talks with the other banks fail to reach a successful conclusion, said people familiar with the situation.

RBS put the assets up for sale this year, after posting the biggest loss in British corporate history. The bank, which is 70 per cent owned by the UK government, made a loss of £24.1bn $35.3bn last year and is shrinking its £2,000bn balance sheet.Its regional retail banking platform vastly expanded after the 2007 acquisition of the Asian operations of ABN Amro, which had built up significant branch networks in countries such as China and India.

RBS’s Asian retail assets include 170 branches, including 28 in India and 13 in China.The sale of the Asian assets has been complicated by RBS’ decision to retain its wholesale banking footprint in key regional markets.There has been uncertainty about whether banking authorities in the eight individual markets would rubber-stamp the transfer of branch licences to the potential acquirers, some of whom already boasting large retail networks in countries such as China and India.

A successful conclusion of the talks would transform ANZ’s footprint in the region and bolster its strategy to become a “super-regional” lender. The bank in May announced a A$2.5bn capital raising to fund a potential bid for RBS assets.

via FT.com / Companies / Banks – StanChart and ANZ poised to split RBS Asian assets.

zyakaira notes: StanChart benefits from ANZ not being in a hurry to confront RBI and enter India with a fresh licence, i guess…Also, RBS’ new branches will also become Stamchart. While Stanchart has a large presence in India, they are hardly notable for Wealth Management

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It could be the end of an era at ICICI, with high-profile exits coinciding with the impending retirement from executive position of Managing Director K.V. Kamath at the end of this month, when CFO Chanda Kochhar takes over the baton at the financial giant.

Two senior ICICI Bank Group officials, Shikha Sharma, the Managing Director & CEO of ICICI Prudential Life Insurance Company, and Renuka Ramnath, the Managing Director & CEO of ICICI Venture, the private equity firm, are set move on from the group, banking sources said, though there was no official confirmation yet.

“I am not resigning and I have nothing to say on newspaper reports (on my exit),” Ramnath told Hindustan Times. “There is no truth in all the reports in newpapers and I am not resigning,” said Sharma.

Given their long years at the group, it was not clear if there were semantic details distinguishing an early retirement from resignation.

While Ramnath, a 20-year veteran at ICICI group, is considering setting up a private equity venture of her own, Sharma is said to be moving after nearly three decades at the banking group, with no news on her next stop. Sharma is widely talked to be joining Axis Bank, which had considered her candidature for the post of CEO after the incumbent, PJ Nayak, retires in July 2009.

“It is natural to have career growth aspirations,” said a senior ICICI Bank official on the changes at the top. “Not always are these met in a large organisation like ICICI and hence the turnover.”

A senior official from another subsidiary company of ICICI Group said, “Renuka is on her way out.”

ICICI Bank has had to change its management plan with the likely exits of Sharma and Ramnath. Earlier, the bank planned to have two Deputy or Joint Managing Directors. But with one of its Executive Directors, V Vaidyanathan, expected to shift to head the life insurance company after Sharma’s exit, the bank is considering not to have these positions.

Vishakha Mulye, Executive Director, ICICI Lombard General Insurance, and former CFO of the bank, is expected to move to ICICI Venture to fill the void that Ramnath’s exit would create.

zyakaira notes: This is also a probable realisation that ICICI Bank is not helping Indian Banking sector compete globally and that management direction at the bank would suffer after Chanda Kochchar takes over. It is also unlikely that anyone leaving the ICICI executive would do anything seminal outside of the bank with most senior hiring at FIIs already over and successful boutiques being next to none. Unfortunately, there seem to be very limited place in India’s growing sector with only rep offices from the Global institutions and less than 1% global market share from India.

What is needed is already there, such mass action shows a blatant lack of confidence in the organization internally and a lack of will to proceed on the reform agenda and grow the bank’s global role..

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Rough week for stock, good week for business

To my teammates:

Public debate on the subject of potentially nationalizing some banks continues to put great pressure on our stock. And yet, our company continues to be profitable. I see no reason why a company that is profitable, with capital and liquidity levels that are very strong, and that continues to lend actively, should be considered for nationalization. Speculation about nationalization is based on a lack of understanding of our bank’s financial position as well as a lack of appreciation for the adverse ramifications for our customers and the economy.

Bank of America does not need any further assistance today, and I am confident we will not need any further assistance in the future. I believe our company has more than enough capital, liquidity and earnings power to make it through this downturn on our own from here on out.

Insider screams dealjournal@wsj

While I can’t divulge any specific financial results mid-quarter, I can tell you that activity in our trading business continues to be vastly improved over last quarter. The corporate debt markets are showing some signs of thawing in both high yield and high grade, and we’re already seeing some benefits in the market of our combination with Merrill Lynch, in terms of winning mandates to raise capital for new and existing clients. And Merrill Lynch Financial Advisors posted nearly a half billion dollars in CD sales in the first four weeks these products were available to their clients.

On the retail side, our customer satisfaction scores are up at a time when others are down. Our brand, which took a beating in January, strengthened in early February, as customers gave us high marks for trustworthiness and perception that money is safe with us. In the first week of February, our Go America, Save! promotion boosted CD sales 18% and IRA sales 10% over the prior week. We extended our industry record this week for number of active mobile banking customers, surpassing the 2 million mark. And this week, a consortium of banks, including Bank of America, launched the Help With My Credit campaign to raise awareness of the different ways credit card issuers can assist customers in managing their financial obligations.

I am really encouraged by what we’re seeing in our home lending business. The mortgage boom is so intense we actually pulled down some advertising for a brief period to give our teams a chance to catch up to the volume, but they are running at full tilt now and processing record volumes. Our decision to acquire Countrywide has put us in a great position to capitalize on the surge in this business. This is a very positive story as we lead up to the launch of our new Bank of America Home Loans brand in April.

Yesterday, I met with a group of about a hundred of our top leaders to discuss what’s going on in the businesses and listen to their thoughts and concerns. We talked about the great challenges we’re all facing in the marketplace. But we also talked about how encouraging it is to work with such strong teammates, to have the trust and support of our customers and clients, and to have the position in our markets that we do.

As we concluded the meeting, I told them that we have a clear challenge in front of us: to prove the cynics and the critics wrong. I know we can do that – in fact, I think we’re doing it now, in the work each of you is doing every day, and the business results you’re putting up on the board.

Thank you for that. Let’s keep the momentum going.

Ken

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Australias ailing economy got a double dose of desperately needed stimulus on Tuesday as the government pledged billions in new spending to avoid recession and the central bank cut interest rates to record lows.

The news lifted the Australian dollar off 10-week lows against the dollar and bill futures, which had factored in the possibility of a bigger rate cut, fell.

“Australia is facing an unfolding national and international economic emergency,” Prime Minister Kevin Rudd said in announcing $26.5 billionin stimulus spending to protect the Australian economy from the global financial crisis.

The plan includes A$28.8 billion for infrastructure, schools and housing, as well as A$12.7 billion cash payments for low and mid-income earners to be paid in March.

“It is a strategy to which we will add in the future as is necessary,” Rudd said.

The Reserve Bank of Australia RBA cut its key cash rate by a bold 1 percentage point to a record low 3.25 percent, citing the grimmest global outlook in many years.

The cut was in line with market expectations and brought the easing since September to a massive 4 percentage points. Investors are counting on further cuts to take the cash rate to 2.0 percent or less by May.

The latest package takes Australias total stimulus spending announced since last September to A$78 billion, and adds to a raft of similar plans from major economies, including one for $819 billion in the United States.

via UTVi News: Australia unveils $26bn stimulus.

zyakaira notes: It is still likely that Australia has suffered the least among all global developed economies in sharp contrast to the UK. While among the EU nations, Belgium and Netherlands are probably poised to lead after the mayhem in UK and France and no good news from Germany, the leadership of India and Singapore in the Asia Pac may be questioned by the strides made by Australia. They are also likely larger votaries of Bank nationalization if that pans out. It looks like there is a third roll down of Treasury Cash coming as none of the markets are likely to be investing buyers and mark to market would at least force you to state all your losses out by December 2009. With Deutsche and BNP also declaring large failures and no US bank left standing, Global banking is unlikely to find standing leaders in the private enterprise for coming 2-3 years.

In the Indian example, none of the banks have the size to have more than a representative play in the International markets, nor we have the oil money. A Kotak and a Yes may be fiesty but yet only micro influencers probably even less influencing than myself alone. It is indeterminable at this stage how anyone will find us investors.  In the Indian example as in the US example  a good start would be to focus on all sectors and not just the banks themselves. The stumbling block to that being no bank is in a position to lend for 2009 and 2010. The unscathed lenders are unscathed because of their voluntary and involuntary non-participation in lending and that along with nationalization may be the only strategies open to a well functioning bank anywhere in the world.    

Zyakaira notes: Aside #1 One wonders is the dollar rush to Brazil and Russia was the reason the cookie crumbled as it has in earlier decades? But i wouldn’t think of finding that opening in the dark skies from where the floods came, I would rather someone shows me a desk where one can meaningfully contribute and rediscover profits for another.

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This story is draft. Your analysis is welcome.

The Sino Indian juggernaut that rose in the early 2000s with the coinage of BRIC economies at Goldman Sachs and hypregrowth rates, wasn’t a hyperbole as it proved again and again every year for the last 10 years.

.. The climbing revenue and fiscal deficit at India

.. The unfortunate holes in corporate governance and investment banking due diligence in India and worldwide

.. The lack of money power in the domestic sector as its dependence on the foreign hand remains the only outlet for chinese friends – we are not out here to cap someone’s salaries, we just want to tell you that we could have fucked up even better than the UPA and the NDA did

.. The weaknesses in foreign policy dithering at the border post in face of the enemy, waiting for damage to happen

.. The collapse of the rupee dollar trend to reflect the current PPP

.. If We still keep our reserves in USD denominated bonds and treasuries

.. If the Euro economies continue to show resilience in the face of market forces and growth with old feudal design and “rattan” structures (you cn obviously see that this is an open invitation)

.. If life sucks for the educated joe who continues to rule the world on his thumb

.. Though China will lose more jobs

.. Where China would lose a big market, while the outsourcing story may show negtive growth but is a continuing annuity of the 300,000 Crores we do in FY2009

.. Where India is open to expat managers of Transnationals

.. Where prostitution and gambling has still to gain the social acceptance of the commies to proceed in progress

.. We are still asking for rate cuts, when LIBOR spreads to US Treasuries and Baa2 (Moody’s) corporate Bonds that peaked in 2008 September may have come down and Indian corporates may be able to borrow

– Banks are holding much more cash (8%-10%) than the average CRR of 5.5%

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These following research gives examples of the best cities for the India growth story:

BANGALORE – Growth rate 10.3% – What was knows as the Pensioners’ Paradise 10 years back, has emerged 10-fold now and a study states that the rupee millionaire club in Karnataka’s capital is the most crowded in India. Bangalore also boasts of owing the largest number of households with an annual income of Rs 10 lakhs (Rs 1 million) or more. With an estimated population of 6.5 million, Bangalore is 1 of India’s most populous cities. How has this city which was more popular for its gardens and laidback lifestyle modified so much in character? The 2 reasons that come to every Bangalorean’s mind are: the start of the IT industry, and subsequently the boom in real estate prices. Unlike other cities in India, Bangalore’s main activity is information technology and information technology-enabled services. Being the prominent contributor to India’s IT industry, the city is always referred to as the Silicon Valley of India. Software majors Infosys and Wipro being headquartered in the city, Bangalore contributed 33 % of India’s Rs 144,214 crore ($ 32 billion) IT exports in 2006-07. Businesses comprising large corporate tehat are either multinational companies or Indian firms dealing with or serving to MNCs recruit a very large workforce in Bangalore. And although the city’s infrastructure has been unable to stay pace with the fast growth of the city, Bangalore still remains one of India’s boom towns.
AHMEDABAD – Growth rate 10.1% The – Ahmedabad region, comprising Gandhinagar, of Gujarat is the biggest inland industrial centre in western India and has been a significant base of commerce, trade and industry. With a population of 56 lakh (5.6 million) Ahmedabad has kept great prosperity because of its proximity to Surat and its access to the hinterland of Gujarat. Though dusty roads and bungalows used to cover the city once, Ahmedabad is now evident a major construction boom and a rise in population. In recent years, the city has seen an important rise in information technology and scientific industries. Apart from these, chemicals and pharmaceutical industries share to the state’s economic growth, with 2 of the biggest pharmaceutical companies of India — Zydus Cadila and Torrent Pharmaceuticals being based here. Ahmedabad also forms the corporate headquarter of the Nirma group of industries and Adani group. Of late, several foreign companies have plan up their units here. Among them, Bosch Rexroth of Germany, Stork and Rollepaal of Netherlands deserve valuable mention.
MUMBAI – Growth rate: 8.5% – The commercial capital of India is one of the world’s top 10 trade centers. The city aids 25 % of industrial output and 70 % of capital transactions to India’s economy. The city response for about 1 % of the total population in India but has a per capita income which is almost 3 times that of India. Mumbai accounts for 14 % of India’s income tax collections and 37 % of the corporate tax collections in the country. The city is the berth of important financial institutions like the Reserve Bank of India, Bombay Stock Exchange and the National Stock Exchange of India. One of the biggest special economic zones in India is being set up in Navi Mumbai, to be sprawl over an area of around 50 square kilometers. Many corporate and multinational companies have their headquarters in the city that earns migrants from all around India. The city provides countless employment opportunities and is famous for its interesting and high standard of living. The city, with a population of 19 million, is also called as the Indian seat of entertainment as it is the home to the Hindi film industry, the biggest in the world. Most of the city’s inhabitants depend on public transport to commute. Transport systems in Mumbai comprise the Mumbai suburban railway, also known as the lifeline of Mumbai, BEST buses, taxis and auto rickshaws.
NEW DELHI – Growth rate: 8.4% – Though it can’t match Mumbai in terms of contribution to the growth of the Indian economy, the capital of India, is no pushover. Delhi’s, (comprising its 9 districts and adjoining Noida, Ghaziabad, Faridabad and Gurgaon) total GDP stood at Rs 1,60,739 crore (Rs 1,607.39 billion). It shares 4.94 % to all-India GDP. Connaught Place, one of northern India’s biggest financial centres, is situated in the heart of Delhi. Being a vital commercial centre in South Asia, Delhi has a per capita income of Rs 53,976, which is more than double the national average. Delhi’s main service industries, supported by as strong and well laid out infrastructure, add hotels, banking, IT, telecommunications, media and tourism. In recent times, Delhi’s manufacturing industry has emerged considerably and consumer goods industries have established manufacturing units and headquarters in and around the capital. Construction, health, power, telecommunications, community services, and real estate form the backbone of Delhi’s economy. The capital’s retail industry is 1 of the fastest growing industries in India. Public transport in Delhi includes buses, auto rickshaws, taxis, suburban railways and metro rail.
HYDERABAD – Growth rate: 7.8% Hyderabad, the financial capital of Andhra Pradesh, is also called as the city of pearls. With an estimated population of 7 million, the city is the biggest contributor to Andhra Pradesh’s gross domestic product, state tax and excise revenues. As per 2006 statistics, the per capita income of Andhra Pradesh was at Rs 25,625 (less than Rs 200 of national average). The city, which utilized to be primarily a service city, is presently the seat of several businesses, adding trade, communication, transport, commerce, storage, and lately IT. Like Bangalore, Hyderabad also has witnessed a real estate boom in recent times, mainly because of the growth of IT and retail business in the city. Major pharmaceutical companies such as Dr Reddy’s Laboratories, Matrix Laboratories, Aurobindo Pharma Limited and Vimta Labs are landed here. Hyderabad has also done considerable results in the field of bio-technology through initiatives like Genome Valley and Nanotechnology Park. For the advancement of infrastructure in the city, the Andhra Pradesh government is building a skyscraper business district at Manchirevula
PUNE – Growth rate: 7.4% – The growth of this major industrial city, situated roughly 150 km east of Mumbai, has turned the topic of discussion these days. Right from automobile majors such as Tata Motors, DaimlerChrysler, Pune will soon house units of international biggies such as General Motors, Volkswagen, Fiat, et cetera. A number of significant engineering goods industries like Cummins Engines Co Ltd and Bharat Forge Ltd, electronic goods companies like LG, Whirlpool, food companies like Frito Lay and Coca Cola are also put here. Of late, Pune’s software industry has grown by leaps and bounds. IT parks like Rajiv Gandhi IT Park at Hinjewadi, Magarpatta Cybercity, MIDC Software Technology Park at Talawade, Marisoft IT Park at Kalyani Nagar are seats of technology that the city can boast of. To face the demands of this explosive economic growth in Pune, the state of Maharashtra is planning a 1,000 MW power plant to uniquely service to the requirement of Pune. MIDC is the lead agency for the project.

The research post is published in toto at http://www.indicus.net/media/index.php/blogspace/1298-indias-10-fastest-growing-cities. Indicus specialises in Economic research and has readymade tools for slicing and dicing Indian economic data across all 593 districts of the country with information on loans, cars, durables, domestic product at each district city and any other required granular level. For pricing details please call Indicus.

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Another simple lesson of 2001 adopted by India, and as we mentioned here last month, more rate cuts are coming up. This time Banks going far to recommend and predict the exact amounts (Credit Suisse or some offshoot from France) and others trying to use their footing to stampede the bus with prescriptions ( J P Morgan) while the desi banks continue to look aside flabbergasted that they were asked to speak on the Financial system in India. No Comment! ( I am still looking for a job with a bank)

Apart from these all being incredibly anachronistic without a place for themselves, these were also among those who may not see much success on Indian soil with these being their first struggles and they being banks have a habit of not trying to learn from any event past or present. This is not to say that there is anything wrong with them, they are great institutions and have to maintain stoicism because they mean a lot to the bulwarks of the economy, but I would aver that these are costly mistakes when they happen. Deutsche Bank is a glaring example of how mistakes are made in India and how getting on their feet is a tough exercise, and we remain the most pliable of all BRIC markets. But HSBC and Citi have shown the advantage of being nimbler earlier and I just hope we can keep our heads in this melee (For one thing, I need a good job quickly, I am at the end of my reserves)

To come back to the rate cut topic, we need these SLR cuts to start happening and we have a lot going for more rate cuts now that inflation has come down to something almost below 5%. But probably, they should just stop now for a few months and wait for Credit to actually ease. The Tightwads and the SMB businesses are both not helping along and this night is going to be a long one, infact this was the first “frozen” winter Bangalore is seeing with consistently cold nights, while Delhi and Mumbai continue to fight gaps in public conscious and polity which have long been habituated to the government in state and center and district and some more. It’s sloth all the way and RBI is not the sole bread earner for this family. Lo!

Note: There has been some confusion in the global and indian financial press on this but the statistic for CRR is now 5.5% and when i last checked, banks were still maintaining cash at closer to 7% ( which was the rate in August/September 2007) and SLR at 24% before the RBI action started in August 2008.

zyakaira notes: unfortunately SLR continues to hold at a argish 24% and banks are quite happy keeping cash and govt securities on account rather than extending credit. the answers now are beyond rate cuts

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The government launched its second attempt to stimulate the economy into growing faster. Simultaneously, the Reserve Bank has lowered two key rates to help get more credit flowing through the economy. The repo and the reserve repo rate under the liquidity adjustment facility (LAF) has been cut by 1 per cent while the cash reserve ratio (CRR) has been reduced by 0.5 per cent. The reverse repo rate is now 4 per cent, the repo rate at 5.5 per cent and the CRR at 5 per cent. The CRR cut will effectively make about Rs 20,000 crore available banks. It remains to be seen how much of this the banks will actually use for fresh credit.
Other major steps announced this evening are:

* FII investment limit in rupee denominated corporate bonds increased from $6 bn to $15 bn.
* The ‘all-in-cost’ ceilings on external commercial borrowings (ECBs) removed
* Development of integrated townships would be permitted as an eligible end-use of the ECB
* NBFCs dealing exclusively with infrastructure financing permitted to access ECB from multilateral or bilateral financial institutions
* A Special Purpose Vehicle will be designated shortly to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) fulfilling certain conditions. The scale of liquidity potentially available through this window is Rs.25,000 crores, although details are yet to be announced.
* An arrangement will be worked out with leading Public Sector Banks to provide a line of credit to NBFCs specifically for financing commercial vehicles.
* Credit targets of Public Sector Banks are being revised upward to reflect the needs of the economy in the present difficult situation. Government will closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks.
States will be allowed to raise in the current financial year additional market borrowings of 0.5% of their Gross State Domestic Product (GSDP) for capital expenditures. This would amount to about Rs 30,000 crore.
* India Infrastructure Finance Company (IIFCL), which has already been authorized to raise Rs.10,000 cr. through tax free bonds by 31st March ‘09 for refinancing bank lending of longer maturity to eligible infrastructure bid based PPP projects, will be accessing the market next week for raising the first tranche of the amount. This will enable the funding of mainly highways and port projects on hand of about Rs.25,000 crore. To fund additional projects of about Rs.75,000 crore at competitive rates over the next 18 months, IIFCL is being enabled to access in tranches an additional Rs.30,000 crores by way of tax free bonds once funds raised in the current year are effectively utilised.

Apart from these, there are also measures to help exporters and some duty changes.

from www.valueresearchonline.com

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