Public Sector Banks recapitalization plan

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Public Sector Banks recapitalization plan

Indian government has come up with intent to strengthen the Public sector banks. The national financial system had been observing the alarming rate of rising NPAs of the PSBs and that had been a major concern in the economy. The total amount of   Rs. 2,11,000 Crore to Clean Up Legacy of NPAs will be released in next 2 years through budgetary provisions of Rs. 18,139 crore, recapitalisation bonds to the tune of Rs. 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity (estimated potential Rs. 58,000 crore).

Biggest thing to consider is that government’s actions will not be confined solely to mere recapitalization program. Owing to a fact that PSBs have a share of more than 70 % in financial system, further steps will be taken to enhance their role in financial system.MSMEs growth will also be paid special attention.GOI concluded that aggressive loaning to sectors with excessive capacity created large stressed assets as high as 12% by 2014.Asset quality reviews carried out in 2015 revealed high level of stress among the PSU banks. Gross NPA rose in PSBs from from 5.43% (Rs. 2,78,466 crore) in March 2015 to 13.69% (Rs. 7,33,137 crore) as of June 2017.

The need for such stimulus package.

 

 

Gross NPA rose in PSBs from from 5.43% (Rs. 2,78,466 crore) in March 2015 to 13.69% (Rs. 7,33,137 crore) as of June 2017.There had been consistent fears about the strain faced by banks and various rating agencies had been time again emphasising the need to make some revamp in the existing banking system. By March 2017 8 of major PSU banks had NPA s as high as 10 %.However few banks had been able to let their NPA ratio come down ,and their seemed an indication that this trend may continue in the future.

Steps taken by government in this regards over last few years.

 

Indradhanush Plan for recapitalising PSBs was announced by the Government on 14.8.2015. Government envisaged capital need of Rs. 1,80,000 crore till 2018-19. Accordingly, Government made provision   of  Rs.  70,000   crore   and projected market-raising of capital by banks to the tune of Rs. 1,10,000 crore. The launch of Indradhanush before the sharing of AQR findings by RBI with PSBs in December 2015 enabled PSBs to successfully remain Basel III compliant despite high NPA and consequential provisioning requirement identified through AQR. The present decision further builds upon Indradhanush.

Government also undertook several legislative changes to facilitate recovery and resolution of stressed assets. The Insolvency and Bankruptcy Code, 2016 was enacted as a unified framework for resolving insolvency and bankruptcy matters. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (which governs Debt Recovery Tribunals) were amended in 2016 to facilitate faster recovery. Further, the Banking Regulation Act, 1949 was amended this year to enable Government to authorize RBI to direct banks to initiate the insolvency resolution process under the Insolvency and Bankruptcy Code.

SOURCE{FORMAL STATEMENT RELEASED ON 24TH OCTOBER}

 

 

Industries’s reaction

Industry had a cautious welcome to the steps announced. Moody’s services indicated that government’s plan is a positive move to recapitalise the PSU banks. It expects that this will help in addressing the issue of weak capitalisation of PSU banks. US-based agency expects that all rated PSU banks would get enough capital to satisfy their Basel III capital requirements (https://en.wikipedia.org/wiki/Basel_III) as well as adequately address their asset quality challenges.

Industry, lawyers and economist sought a greater detail on the roadmap for the recapitalisation plan. A general consensus existed that this move will enhance public investment, which will boot private investment,but the roadmap has to be disclosed.  Government’s statements that the ‘recap bonds’ concept has to be worked out and that it was possible that these bonds may not involve cash flow. International Monetary Fund, such bonds may not be included under fiscal deficit — as it does not add to the spending.

Market’s reaction

 

 

Indian markets reacted positively to government stimulus plan. Shares in some of India’s largest banks surged by more than a quarter on the government’s program. The share price of Punjab National Bank, the second-largest state-controlled bank by assets, rose 49 while that of State Bank of India, the country’s largest lender, jumped 27 per cent. Other major state banks such as Bank of Baroda and Canara Bank jumped 28 per cent and 38 per cent respectively.

https://www.ft.com/content/1bcfd11e-b94b-11e7-8c12-5661783e5589

 

 

Other announcements

 

Government also made few other announcements about the macroeconomic stability of Indian economy, the way growth is expected to grow and also the efforts which have resulted into containing the inflation.There has been good increase in FDI. The gross FDI flows to India in 2016-17 amounted to US$ 60.2 billion, as compared to US$ 55.6 billion in 2015-16 and US$ 45.1 billion in 2014-15. As on 13th October 2017 the foreign exchange reserves exceeded US$ 400 billion.

 

Transformational reforms like GST , Insolvency and Bankruptcy Code, Housing Development, Improved ease of doing business, Institutional reforms{schemes like Ujwal DISCOM Assurance Yojana (UDAY) programme for DISCOMs; liberalization of FDI norms in various sectors; and approval of National Intellectual Property Rights Policy were mentioned} and highest ever disinvestment program were mentioned.

 

 

Government’s expectations now

 

GOI feels that such steps will have a positive impact over the next medium to long term strengthening of PSU banks. Lately SBI and its associated banks have been consolidated into one single identity which has now enabled it to be one among 50 largest banks in the world. So the government expects it to have a noticeable impact over the next coming years.

 

 

 

 

 

 

 

References

 

Press information bureau link on 24th October.

 

http://pib.nic.in/newsite/erelease.aspx

 

HARSH VARDHAN PATHAK

Msc Economics

Doon University{2011-16}

Harshvardhanpathak88@gmail.com,

coldplayharsh@gmail.com

     The Advent of British into Uttarakhand Forest(1815-1945)

  Can be also read at our blog, Brinks of economic thoughts,

 

Abstract:
This Paper inquest about the advent of colonialism in Garhwal, Kumaon forests and the impact endured by Kumaonie and Garhwali people by invasion of British not only on their state but on entire forest, their own resources. This paper further discourse the advent of British towards Uttarakhand from Kumaon region their proliferation to entire province, rampant extraction of Oak, Timber and Sal trees. The entire region was indentified to fulfil un-quenching need of wood and snatched away all the resources from native people imposed heavy taxes and fines in every alteration of forest rules different ways are determine to exploit each and every single tree. Last paragraph impends to wonder upon sorrow state of Indian forest form 1805 to 2017 as only regime changes but situation remains unvarying.

Uttarakhand and its Forest

The Advent of British Empire sail form Kumaon region to entire Uttarakhand. Unlike Gorkhas , people of Uttarakhand deliberately supported British regime due to suffering and agony bestowed by the Gorkhas. Although both the regimes of Gorkhas and British had exploited each-every facade of natural resources of Uttarakhand. After defeating Gorkhas the British started prolifying its dirigisme into entire province of Uttarakhand started form kumaon and headed toward Garhwal region.

After 1815 northern region forest commander Dietrich Brandis under commissioner G.W Traill, they entered Himalayan region with the cause, British commenced making laws to exploit the Himalayan forest that to basically looking at the fine quality of Oak and Timber wood which were memorising British to fulfil the demand of strong wood for the construction of northern railways tracks and seats, berths building. British Ramify Uttarakhand forest on three zone first reserved category second Preserve category and third for the civil category unlike without pondering the cascading effect on the Garhwali and Kumaoni people who have great dependence on forest, British kept villagers aloof from their own grown and preserve forest. The reason behind to ramifying entire forest in three different zone was increasing need of wood demand for the British, the preserved forest were made to grow those trees which were basically take time to mature for like Timber wood, the reserved forest was for maintaining ongoing supply of wood for the British either for the ship building or construction of railways and the last small semi areas of dense forest was given to villagers for their consumption need but availability of required natural resources was really negligible, tones of oak and timber was extracted by the English during 1815 to 1840 but after that cascading effects was started, the instances heat of summers during February and June caused lots of forest fire and many times by the villagers due to anger against British due to which British was having revue losses. When the committee was constituted to analyse the reason behind the forest fire under supervision of “Wyndham” submitted his report to Dietrich in his report it was advice to increase villagers participation and co-operation again in the forest activity rather than taking away accessibility of forest from them.

After 1878 the first law of Indian Forest was enacted, under which forest was guard by the local police. But resulted unprecedented despite to provide independence to villagers to excess forest they had been asked to bribe forest police several times even to pick small twigs of woods for their fuel wood, on the other hand black marketing was infused by local police itself private constructed stipulated with forest officials and numerous amount of wood smuggling within the purview of authority was started by the help of river Ganga wood logs had been swim to plain land side and then collected to Bareilly. Therefore British Government was facing tremendous demand of wood for the expansion of railways in the north region and even for inputs for their industries in England. Millions tones of fine well toned wood of oak,sal and Timber had been burned for simply coal purposes for the railway fuel. By observing failure of local police management “Dietrich” suggest British government to dissolve the forest department into revenue department as earlier because after formation of forest department Britisher were excepting increment in the supply of wood which has resulted unsatisfactory. The another aspect of clearing forest has came from the side of British the expansion of their colonies in hills has reduce the forest cover with more plantation of tea business has increased cascading impact on forest cover which was dampened the continuous demand for wood.

Table 1

Timber and Firewood Outturn in Uttaranchal, 1887-88 to 1912-13 (in 1000 cft)

Year Timber Firewood Total
1987-88 1778 3509 5287
1990-91 2712 5831 8543
1994-95 1684 5876 7470
1901-02 2959 5680 8638
1908-09 4087 5877 9964
1910-11 4502 6032 10534
1911-12 5105 6228 11333
1912-13 8692 5402 14395

Source: Annual Progress Reports of the Forest Department, UP, for concerned years.

As it has been observed form the above table that how rampant was the demand of timber from 1888 to 1912 a second highest demand was for the fire wood this is because majority of industry and railways mechanism was demanding energy in form of coal. But after 1915 the Kumaon and Garhwal natural resources had started shrinking, the Kumoan commissioner Dietrich failed to sustain un-interrupted supply and both Preserve and Reserve forest started giving negative returns due to vast variation between reduction in the rate of cutting of trees and rate of plantation and growth. Again after 1915 the British required immense amount of wood supply for the ongoing 1st world war (many of the troops of Kumaon and Garhwal has left the Kumaon regiment to protest against the suppression by British), secondly for construction of ships and for the fuel purposes but irony is faced by the people of Uttarakhand because they were denied to use any of natural resources from their own forest not even for cremation of human body, Kumaonies has to collect wood stick at night from the forest for the coking purposes.

Conclusion:

Colonial Approach of Today: According to Wydham we cannot have prosperous forest without co-operation of village society. Today’s Indian forest policy akin with British forestry policy our government still keeps aloof village society from forest. Rigid forest laws keeps villagers totally aloof from the dense forest villagers cannot use any of the natural output of forest if they wish to use any they have to bribe the forest official, same as used to occur in era of British. Despite that people of Uttarakhand initiated well known idea of Chipko movement and activist like Gaura Devi, Sunder lal Bahugana who always stood to perpetuate forest, from them government had taken all the rights and impend them to remain in confused vicious cycle of corruption and trouble. If we really wish to expand our forest cover we have to co-operate between village society and forest department also tries to provide equal property rights to all the villagers as forest also belong to them from decades. British Bishop of London Church had the visit to Grahwal and Kumaon near in 1840 while wondering he saw the massive devastation of cutting and exploitation of natural resources, he further mentioned that Uttarakhand coming generation may not see the beauty of dense forest as it will not prevail forever.

Reference:-

1. The Forests of the Western Himalayas: The Legacy of British Colonial Administration Author(s): Richard P. TuckerVol. 26, No. 3 (Jul., 1982), pp. 112-123 Published by: Oxford University Press on behalf of Forest History Society and American Society for Environmental History Stable URL: http://www.jstor.org/stable/40045.

2. State, Society and Natural Resources in Himalaya: Dynamics of Change in Colonial and Post-Colonial Uttarakhand Author(s): Shekhar Pathak Source: Economic and Political Weekly, Vol. 32, No. 17 (Apr. 26 – May 2, 1997), pp. 908-912 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4405344 Accessed: 17-09-2017 06:24 UTC.

3. The Historical Context of Social Forestry in the Kumaon Himalayas Author(s): Richard P. Tucker Source: The Journal of Developing Areas, Vol. 18, No. 3 (Apr., 1984), pp. 341-356 Published by: College of Business, Tennessee State University Stable URL: http://www.jstor.org/stable/4191262 Accessed: 17-09-2017 06:35 UTC.

Mohit Pandey

mohitpande2@gmail.com

RBI Monetary Policy stance of October,2017.

Can be also read at out blog.

RBI Monetary Policy stance of October,2017.

 

 

RBI Monetary Policy Committee decided to keep the key rates constant keeping in mind the the rising inflation rate which may settle within 4.0-4.5 % for the rest of fiscal 2018.This neutral stance has been consistent with the policy objective to keep CPI within 4% in a band of  -/+2, and also ensuring that growth momentum is also supported. During the August meet of MPC repo rate had been cut by 25 basis points to 6 % due to fall in inflation. However there had been genuine concerns raised due to loan waivers given to farmers of 88,000 cr which were expected to raise the inflation rate permanently by .2 %

 

RBI’s assessment

 

Since the last meet conducted in August 2017, Global economic activities have broadened.

Q 2 results in USA have been promising, although in near term the growth may be affected due to recent hurricanes which caused immense destruction of property. A positive opinion can also be made about the Euro zone economic activities too.Chinese; Japanese, Russian, Brazilian economies continued to be on trajectory of global growth thus enhancing global demand.

WTO assessment has also been positive for fiscal 2017 as compared to the 2016 financial year.OPEC crude production has been cut ,resulting in decline in the supplies and growth in demand, resulting in 2 year high price witnessed in the global crude price. Indian capital markets touched year high in September, before showing little decline due to conflicting situations in Korean peninsula. Equity markets have been on rise in most of the advanced economies. Same has been trend witnessed in the emerging markets. Capital inflows have been rising in the emerging market economies, but they also depend upon the stance of US Federal reserve.

Euro currency grew strong while Japanese Yen witnessed volatility. In India real gross value added (GVA) growth slowed significantly in Q1 of 2017-18.South west monsoon arrived at time but its activity slowed during the time from Mid July to August, thus registering a shortfall of 5 % by September end. This also reflected a decline of reservoir filling capacity to 65 % as compared to 75 % a year ago .Index of Industrial productivity figures grew as compared to June where they had contracted. Manufacturing has been weak although. Inflation figures did hit a 5 month high. Liquidity in the system persisted and at the same time currency in circulation also increased at moderate pace. Indian export growth picked up, better from previous declines over last 3 recorded months. Although Indian exports remained less as compared to many major economies. Gold import has declined, but the current account deficit has also increased considerably.Net FDI has been higher compared to previous fiscal. India’s foreign exchange reserves stood at 399 Bn $.Debt investment saw considerable rise, although there was equity outflow due to global uncertainties.

 

RBI’s Outlook and growth concern

 

MPC has assessed that food inflation will be around 4.2-4.6 % for the rest half of the year. Loan waiver given to farmers may put pressure on prices. State’s implementation of salaries similar to centre’s is also bound to put pressure on the inflation figures.Khariff production seems to be falling and so far GST has also seemed to have had adverse affect in manufacturing and thus may have slow investment over period of time.  The projection of real GVA growth for 2017-18 has been revised down to 6.7 per cent from the August 2017 projection of 7.3 per cent, with risks evenly balanced.

The MPC insisted the need to fasten up investment activity which, in turn, would revive the demand for bank credit by industry. Recapitalisation of public sector banks adequately will ensure that credit flows to the productive sectors. Infrastructure bottlenecks need to be checked. Stalled investment projects need to be restarted, particularly in the public sector; enhancement in ease of doing business, along with further simplification of the GST is needed; and ensuring of faster rollout of the affordable housing programs is  must  along with rationalisation of excessively high stamp duties by states.

Next MPC meet will be in December, 2017.

 

Opinion and expectations

 

Indian economic growth had slowed to 5.7 % for the first quarter of fiscal 2018, due to effects of demonetisation and change to GST regime. Many prominent economists believed a need to cut the rate to give a boost to the economy. But a slow growth accompanied with a rise in inflation left less room for RBI to cut rates. The policy has been in stance with RBI mandate to keep inflation in check.

Home loan rates are lowest and are unlikely to go down further. Few prominent investors viewed that inflationary pressures are on upside and considered it as a cautious approach. Some had opinion that downside risk to growth has increased. Dampened activities have shown negative effect in all sectors. If such price pressures continue then government will have to boost its spending that may affect fiscal deficit targets.

 

HARSH VARDHAN PATHAK

 

DOON UNIVERSITY

 

 

 

 

 

Latest IPO trends In Indian Capital Markets-September 2017

Can also be read at our blog,Brinks of economic thoughts.

 

Latest IPO trends In Indian Capital Markets-September 2017

 

 

 

 

Month of September was very much vibrant with many IPOs hitting the Indian stock markets. The month saw IPO issue of Dixon Technology,Bharat Road Network limited, Matrimony.com Limited IPO, Capacit Infraprojects.ICICI Lombard and SBI life IPO among the major players. Along with these Pratap Snacks also went public.

 

Infrastructure entity like Capacit Infraproject was one among the most sought after with subscription demand as high as 82 times .Indian investors in IPO markets show a trend to earn profits on quick basis. It has been seen that majority of subscription is done with an intent to gain the listing profits. We cannot conclude, but it is observed that investment in majority of cases is not done keeping in mind a very long term of 5-7 years in mind.

Various studies in past global IPO markets have indicated that IPOs are underpriced .This phenomenon helps the initial subscribers to gain heavily on the listing days, or during the 3-4 days of commencement of trading in the markets.

The month was also affected by the events transpiring in the North East Asia. Consistent verbal threats amongst North Korean regime and USA, multiplied with events of Europe, Chinese economy and USA economy led to a considerable decline in the markets.

 

Dixon technology and Capacit Infraprojects were one among the issues which were heavily oversubscribed; nearly 120 times and 82 times respectively. While on the day of listing both issues gave premium listings too. Dixon technology being as high as 54 % to Rs 2,725,high from the price band offered of Rs1766 INR per share while during  initial subscription.

Same was with Capacit infraprojects.It also listed at premium as high as 399 INR high by nearly 60 % from initially offered price of 250/- INR per share for  a market lot of 15,000 INR.

There were doubts about the Bharat Road network IPO due to registering losses. It somehow managed to get subscription of 1.8 times and even got some little enlisting gains. But since then it is been a decline in the share price.

Another interesting IPO was the matrimonial .com IPO.It was very heavily priced in the range of 985 Rs.It was oversubscribed 4.41 times .It started from slipping as low as 950 and today it is trading at 810 INR per share.

 

 

2 IPOs were the ICICI Lombard and SBI life IPOs which were to be looked after keeping in mind very long term perspective .These could have been the biggest success.SBI life IPO was the biggest IPO{8500 CRORE} post since Coal India Limited launched in 2010.SBI life had been given subscribe rating by majority of Investment advisors.SBI life had been paying dividends consistently since 2012.These 2 IPOs although gave some initial listing gains. Higher valuations looked a concern and it was expected that these 2 IPOs may not be able to give strong listing gains. But since insurance market has been mostly untapped in Indian markets, it was advised to subscribe the IPO keeping in mind medium to long term gains.

 

Indian investors are driven by the motive of listing gains. We did not see a very heavy demand for both issues.SBI life IPO was oversubscribed 3.6 times while ICICI Lombard has oversubscription of 3 times. Or even one can say that given the demands in last few months seen as high as 80-90 percent in cases of CDSL and Kochin Shipyard. These oversubscription figures then may look small. But still they sailed through with strong demand.

IPO market looked very vibrant for the month of September. In this month of October with Godrej Agrovet and MAS financial services going public. More activities are expected in the IPO market front.

 

 

Harsh Vardhan Pathak