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Centre infuses cash, unveils reforms map for public banks

Monitor News Bureau

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New Delhi :The government announced a reforms roadmap for public sector banks and details of how Rs 80,000 crore of funds raised through recapitalisation bonds will be allocated to 20 PSBs by March-end. Eleven weak banks are to be given a total of Rs 52,311 crore to maintain their minimum capital requirement even as nine strong banks will get Rs 35,828 crore.
The eleven weak banks are currently under the RBI’s Prompt Corrective Action (PCA), which kicks in when banks breach regulatory norms on issues such as minimum capital, amount of non-performing assets and return on assets. The central bank enforces these guidelines to ensure that banks do not go bust and follow prompt measures to put their house in order.
IDBI Bank, which has a Gross Non Performing Assets (NPA) ratio of 24.98 per cent, will receive the highest capital infusion of Rs 10,610 crore, followed by Bank of India getting Rs 9,232 crore and State Bank of India getting Rs 8,800 crore. The government said that higher capital for weak banks is being given to ensure that they meet “regulatory requirement” on minimum capital.
When the original plan of injecting Rs 2.11 lakh crore capital was announced last October, officials, including Chief Economic Adviser Arvind Subramanian, had indicated that the government will follow a “selective and differential approach” wherein priority would to be given to strong lenders while weak banks may have to either shrink in size or not grow from the current position.
Alongside the fund infusion, the government announced a set of measures to keep a close watch on the asset quality of the banks, including “specialised monitoring” by agencies for corporate loans of more than Rs 250 crore.
Speaking at a press conference while announcing the plan, Finance Minister Arun Jaitley said the government will only provide capital that is sufficient to meet regulatory norms for PCA banks while non-PCA banks will get growth capital. To a query on why IDBI Bank is being given the highest amount of capital when the government had earlier announced its intention to privatise, Jaitley said “the original decision stands” but the government is waiting for the “appropriate time” to restructure IDBI Bank.
“There are some decisions the government takes but there has to be an appropriate timing for that decisions… one of the objectives in supporting non-PCA banks is that these are the banks where robust lending is to take place so that they are able to support growth, lending and the economy itself. For the PCA banks, the principal object appears to be that they maintain their regulatory capital. And that is the criteria that is being followed for the IDBI. The original decision stands, it has not been reconsidered but then there is always a time in implementing the decision,” Jaitley said.
A total of around Rs 1 lakh crore will be infused in the PSBs by March-end, which comprise Rs 80,000 crore via recapitalisation bonds, Rs 8,139 crore through gross budgetary support and Rs 10,312 crore of funds raised from the market.
Banking Secretary Rajiv Kumar said the capital infusion will enable bank to support economic growth and increase credit deployment by at least Rs 5 lakh crore in the economy.
The government’s commitment to recapitalize all PSBs is credit-positive for weaker banks but corporate governance reforms fall short of addressing structural weaknesses, said Srikanth Vadlamani, Vice President, Financial Institutions Group, Moody’s Investors Service.
“A lot of capital (being given today) is not growth capital, but reconciliation capital. It’s the bare minimum level of capital the weak banks need to stay afloat,” said HDFC Bank Chief Economist Abheek Barua. Weak banks would require “larger doses of capital” but what is “relevant is the conditions that they commit to after getting the recapitalisation funds,” Barua said.
Banks have been asked to ring-fence cash flows of corporate borrowers,to ensure that their earnings are not diverted for other purposes. The government has also mandated each of the PSBs to have a stressed assets management vertical and monetise their non-core assets such as real estate to boost their capital adequacy. All banks are being given capital to ensure that they meet the regulatory requirement, Kumar said, adding that “no PSB will fail and the depositors’ money is safe.”
To ensure that banks comply with the reforms parameters, the government said that an independent agency will conduct an Annual EASE (Enhanced Access & Service Excellence) Index Survey of banks, the results of which will be made public. As per the EASE plan, the government wants to ensure that there is a banking facility within 5 km of every village in the country.
Chief Economic Adviser Subramanian had said in October that there is a possibility to shrink or narrow the scope of unviable banks and, in this view, “recapitalization must be selective and incentive based, directing it to those banks where the bank for buck in terms of new credit creation will be maximum.” RBI Governor Urjit Patel had also said that the recapitalisation plan will “allow for a calibrated approach” under which banks that have “better addressed their balance-sheet issues and are in a position to use fresh capital injection for immediate credit creation can be given priority.”
HDFC Bank’s Barua said the government’s idea may be to first bring weak banks to the minimum level of regulatory capital before going in for shrinking them.
The government will issue recapitalisation bonds of 10-15 years maturity, carrying interest rate of around 8 per cent or lower. These bonds will be non-tradable and not carry the status of an SLR (Statutory Liquidity Ratio) security, Economic Affairs Secretary Subhash Chandra Garg said. SLR is a portion of deposits that banks need to invest in government securities. “There is no fiscal impact of bond issuance to banks…These will be swap deals and cash neutral. There is not going to be a public issue,” Garg said.
Among banks currently under the PCA, UCO Bank will get Rs 6,507 crore, Central Bank of India Rs 5,158 crore, Indian Overseas Bank Rs 4,694 crore, Oriental Bank of Commerce Rs 3,571 crore, Dena Bank Rs 3,045 crore, Bank of Maharashtra Rs 3,173 crore, United Bank of India Rs 2,634 crore, Corporation Bank Rs 2,187 crore and Allahabad Bank Rs 1,500 crore.
As the National Stock Exchange on Wednesday, IDBI Bank stock ended up 5.65 per cent at Rs 65.40, State Bank of India up 3.76 per cent at Rs 330.05 and Punjab National Bank up 5.19 per cent at Rs 195.45.


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RBI to remain watchful on growth, financial stability: Das

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Mumbai: The Reserve Bank of India (RBI) will remain vigilant and strive to revive growth in Asia’s third-largest economy, as well as pushing to maintain macroeconomic, financial and price stability, its governor said in a speech.

India lost momentum in the final quarter of 2018, reducing its annual rate of economic growth to 6.6 percent, the slowest pace in five quarters and much less than expected.

But RBI Governor Shaktikanta Das said the country’s real gross domestic product (GDP) growth was expected to reach 7.2 per cent in the fiscal year to March 2020, which he described as the strongest among the world’s large economies.

 

India’s annual retail inflation rate rose in March to 2.86 per cent, from 2.57 per cent in the previous month, but remained below the central bank’s target for an eighth straight month, increasing the chances for a key interest rate cut in June.

“Inflation has remained below target, averaging 3.6 per cent for the period under the inflation targeting framework so far,” Das said in the speech, uploaded on the RBI website early on Saturday. He said he was referring to the period from October 2016 to February 2019.

The RBI has lowered its retail inflation forecast to 3.8 percent by January-March 2020, but warned it could be higher if food and fuel prices climb abruptly, or if fiscal deficits overshot targets.

India’s current account deficit is expected to be around 2.5 per cent of GDP in 2018-19 and the gross fiscal deficit has kept to budgetary targets, he added.

Das underscored the risks facing emerging market economies such as a India as global growth and trade weaken.

“There is considerable uncertainty as to whether this weakness is temporary or the beginning of a recession in advanced economies,” Das said, adding that central banks around the world were not tightening monetary policy, with some even promoting easier lending conditions.

The RBI cut its policy interest rate by 25 basis points earlier this month, in a widely expected move to boost the economy at a time Prime Minister Narendra Modi is seeking a second term in a national election.

Emerging market economies also remain exposed to financial market volatility, Das said, and financial conditions could heighten existing stress on the balance sheets of lending institutions in some countries.

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At 0.1%, India’s industrial growth falls to 20-month low in February

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New Delhi: A contraction in manufacturing output, especially in the sensitive capital and consumer goods segment, pulled down industrial growth to a 20-month low of just 0.1 per cent in February.

The bottom crawling growth rate follows a 1.43 per cent growth in the previous month of January. The index of industrial production (IIP) has witnessed low growth since November, 2018, and is expected to remain muted owing to weak exports, rural distress, credit constraints and uncertainty over the election outcome, according to economists.

In the April-February period of the current financial year, industrial output grew at 4 per cent, as against 4.3 per cent in the same period of the previous financial year.

 

The manufacturing segment, which constitutes the bulk of the index of industrial production (IIP) at 77.6 per cent, contracted by 0.3 per cent in February against an equally small rise of 0.93 per cent in January. Before, this, the December 2018 manufacturing number of 2.95 per cent. The numbers show continued volatility in the IIP, despite change in the index last year.

Most of all, the capital goods segment, which connotes investments, saw output growth turning to negative with an 8.8 per cent contraction, as compared to a 3.42 per cent contraction in the previous month.

Driven by machinery and heavy transport, capital goods production had been on a solid upward swing till October.

“The capital goods sector, which had shown an average growth of 8.9 per cent during April-October period in FY19 and raised hopes of an incipient investment recovery in the economy is once again appearing to be losing steam. With the exception of December 2018, capital goods are recording negative growth in each month since November,” Devendra Kumar Pant, Chief Economist at India Ratings and Research, said.

In January, the growth rate for consumer durables also fell to 1.2 per cent, from the 2.3 per cent growth in January. “A 1.2 per cent consumer goods production is also reflective of inventories that have built up in Q3, when capacity utilisation also improved. But, with demand tapering off, production has slowed down,” Madan Sabnavis, chief economist at CARE Ratings, said.

On the other hand, consumer non-durables commanded a growth rate of 4.3 per cent in February, up from 3.3 per cent in January. All other user-based segments either showed a negative growth or low-single digit growth.

Overall IIP growth for the entire year would be about 4.5 per cent, which is half per cent lower than what we had projected earlier, Sabnavis added.Of 23 sub-sectors within manufacturing, 13 recorded a year-on-year contraction, compared to 11 in January. Slowdown in major sectors such as metals and refined petroleum brought down overall growth. On the other hand, apart from furniture and food manufacturing, which saw healthy growth in the financial year, computer hardware production managed to see a healthy growth.

This is after the government pushed manufacturing in the sector on a sustained basis over the past nine months, through a series of benefits and the phased manufacturing programme aimed to reduce imports of electronics goods.

The two other sectors in the IIP — electricity and mining — also saw muted growth in February, data released on Friday showed.

Electricity generation rose 1.2 per cent in the latest month, slightly more than the 0.93 per cent rise in January. On the other hand, mining output grew by 2 per cent in February, against a 3.92 per cent rise in January.

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TCS net profit up 17.7% to Rs 8,126 crore in Q4, crosses $20-bn revenue

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Mumbai: Tata Consultancy Services (TCS) on Friday reported robust numbers both for the fourth quarter of 2018-19 and the full financial year, with the country’s largest IT services company crossing the $20-billion revenue mark for the first time. Growth in net profit as well as revenue exceeded Street expectations, though margin contracted a bit in the fourth quarter.

For the quarter ended March 31, TCS reported Rs 8,126 crore in net profit, a jump of 17.7 per cent over the corresponding quarter last year. Revenue, at Rs 38,010 crore, saw an increase of 18.5 per cent on a year-on-year (y-o-y) basis. When compared with the trailing quarter, net profit was almost flat, while revenue grew 1.8 per cent.

A survey by Bloomberg based on consensus analysts’ estimates had pegged TCS’ revenue and net profit at Rs 37,829.1 crore and Rs 7,970.7 crore, respectively. “This is a year when TCS has fired from all cylinders, and we are exiting the year on a much stronger note than how we entered it,” CEO and MD Rajesh Gopinathan said during a post-earnings interaction with media. “This is the strongest revenue growth that we have had in the last 15 quarters. Our order book is bigger than (what it was in) the previous three quarters. The deal pipeline is also robust,” Gopinathan added.

 

For FY19, TCS reported Rs 31,472 crore in net profit, an increase of 21.9 per cent over the previous fiscal year, while revenue at Rs 1.46 trillion was 19 per cent higher than FY18’s.

For the first time, TCS crossed $20 billion in its dollar revenue, posting $20.91 billion in top line in FY19, a growth of 9.6 per cent over the previous year, while it widened the revenue gap with the closest Indian competitor, Infosys, by $9.1 billion. In constant currency terms, it maintained double-digit revenue growth and grew 11.4 per cent.

Operating profit margins for Q4 as well as the full year, however, were marginally lower than the expectations and came below the guided range of 26-29 per cent. In the quarter under review, margins at 25.1 per cent saw a 50 basis point decline over the previous quarter, while margins for the full year stood at 25.6 per cent, up 79 bps.

The firm added six clients, each contributing revenues in excess of $100 million during FY19, while the employee headcount addition stood robust. The year ended with 4,24,285 employees, almost 30,000 higher than last year. Attrition at 11.3 per cent was one of the lowest in industry.

TCS continued to witness strong growth in its digital business, which accounted for 31 per cent of the overall revenue. Banking, financial services & insurance, which lagged other verticals, rebounded to double-digit growth with an increase of 11.6 per cent in the March quarter, although for the full year, it was 7.7 per cent.

chart In terms of geographies, North America business grew 9.9 per cent y-o-y (constant currency terms) in Q4, while for the full year, growth was 8.3 per cent. The UK, where TCS has the highest exposure compared with other Indian peers, saw maximum growth with revenues from the country rising 21.3 per cent y-o-y for the quarter and 22 per cent for the full year.

“Deals have come from many different markets and verticals. These give us the confidence that we’ll continue the momentum. Last year, we had very large segments that were dragging with growth of less than 2-3 per cent. We now have a benefit of a few large deals, so almost all segments are growing on a par with the company average,” Gopinathan said.

“TCS has delivered a decent set of numbers for Q4FY19, which beat estimates on the revenue and net profit fronts. Reported EBIT margins missed our estimates, though adjusted for Rs 220 crore contribution to electoral trust in Q4, margin was higher than estimates,” said Sanjeev Hota, AVP Research at Sharekhan.

The company reported deal TCV (total contract value) of $6.2 billion compared to $5.9 billion in the last quarter.

TCS said that like the previous year, it would start rolling out salary hikes in the range of 2-6 per cent based on geographies the employees are located, and some other metrics. In Q4 of last year, the company had doled out 120 per cent variable payouts, which will be 100 per cent this year.

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