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Shadow banking crisis starting to hit consumer spending: Report

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Mumbai : Karan Dua, an electronics shop owner in south-central Mumbai, placed his hope of crackling sales on Diwali — the festival of lights when people splurge on everything from clothes to cars and jewelry to houses.

. Businesses like Dua’s are seeing sluggish sales this festive season in part because India’s shadow lending industry, which accounted for nearly 4 out of every 10 consumer loans in the last three years, has grown more more cautious about extending new credit amid a funding crunch of its own.

Loan volumes for some of these lenders dropped to 10 per cent of the levels seen before defaults by a troubled financier from August onward made it costlier for all non-bank financial companies to raise funds, according to Indostar Capital Finance Pvt. which makes loans to companies, and individuals for home and vehicle purchases. The cash crunch for the industry came at the start of the peak shopping season in India, threatening consumption, which is the backbone of the economy, say economists.

 

“The amount the non-bank finance companies are lending has come down considerably,” said R. Sridhar, an industry veteran and chief executive officer at Indostar Capital. “Particularly lenders which give loans for buying consumer durables, vehicles and gold.”

NBFCs and lenders to the housing sector have become increasingly important in supporting consumer spending as the nation’s formal banking sector is weighed down by bad loans. Nomura Inc. estimates that the loan books of NBFCs and housing lenders have grown at a compounded annual rate of 17 percent in the past two years, compared with 8 percent for banks.

Such growth looks difficult to sustain as liquidity dries up, with the Bloomberg Economics India Banking Liquidity Index showing a nearly 1 trillion rupee shortfall of cash in the banking system. That, along with a 50 basis-point interest rate increase by Reserve Bank of India this year and the recent rise in borrowing costs in the credit market, is likely to have a ripple effect.

“With banks tightening credit to NBFCs and they in turn to retailers, transporters, and builders, there will likely be lower credit growth for the rest of the financial year and beyond,” said Anjali Verma and Raag Haria, analysts at PhillipCapital India Pvt. “Urban and semi-urban demand may be dented due to limited NBFC lending.”

Madan Sabnavis, chief economist at rating company Care Ratings Ltd, has penciled in an expansion based on robust consumption. But should demand falter because of tighter liquidity conditions, then growth would take a hit, he cautions.

The worst-case scenario is a 0.1-0.2 percentage point hit to growth, according to Sabnavis, who sees expansion dipping to 7.3 percent from 7.5 percent in the financial year ending March 2019.

Some disagree with the suggestion that lending will slow down for all. Those with a strong pedigree will be able to weather this phase, according to Tata Capital Financial Services Ltd., a non-bank lender.

“We are witnessing liquidity tightness and we believe this is a temporary phase,” said Kusal Roy, managing director of Tata Capital. “Surely, there will be a sharper and more select focus on customer profiles.”


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Business

India second most optimistic globally about executive job market in 2019: Survey

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Mumbai: Senior management leaders in India are optimistic about growth of executive jobs in 2019, only second to Brazil. According to the 2019 BlueSteps Executive Career Outlook report, nearly 57 percent of India’s senior executives believe that there will be stellar growth in job market opportunities as compared with 2018 levels.

In Brazil, 72 percent leaders are positive of growth. India is followed by Africa at 54 percent and France at 40 percent. The results are based on a survey of over 1,400 senior executives worldwide.

Globally, optimism levels for executives about senior management jobs market dropped considerably as against their strong outlook at the beginning of 2018. “This indicates that while the decrease in optimism does reflect an overall concern in the marketplace, the change may be more of a reflection of how strong last year’s market was instead,” the report said.

 

Nearly a third of the respondents cite strong economic growth and business environment as a reason for their optimism. India topped the list with respect to economy forecast for 2019, where 57 percent respondents believed in the pace of the country’s growth.

Brazil trailed with 56 percent leaders expecting growth. Leaders of the eastern European countries, the UK and Ireland were pessimistic about their economy.

The technology sector is expected to have the strongest growth at the executive level in 2019, with 70 percent of all survey respondents believing there will be robust growth in the industry.

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Traders’ body slams Rahul’s statement on abolishing GST

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New Delhi: Traders’ body CAIT criticised Congress President Rahul Gandhi’s statement of abolishing GST if voted to power, saying he does not have a blueprint of any alternative tax structure.

The attempt of Gandhi for seeking political mileage making traders a scapegoat is deeply regretted and vehemently opposed by CAIT, the Confederation of All India Traders (CAIT) Secretary General Praveen Khandelwal said.

He said Rahul Gandhi should not do any politics using shoulders of the traders else traders are capable to give a fitting reply in forthcoming elections.

 

CAIT secretary general said Gandhi is opposing the GST “whereas he does not have a blueprint of any alternate tax structure”.

Khandelwal demanded Gandhi should speak out the plans and programmes thought by the Congress party for traders and added that there must be a blueprint of alternative tax structure before abolishing GST.

While addressing a traders’ conference in New Delhi, he said the Congress has ruled the country for a long time and in such a long tenure, the trading community was never on a priority of the government or for the Congress party.

In reference to forthcoming elections, Khandelwal claimed almost 7 crore traders across the country have now converted into a vote bank due to a two-month national campaign of the CAIT under the slogan “One Nation-One Trader-Ten Votes”.

The CAIT would shortly release a National Charter of Traders carrying core issues of the trading community and whoever political party gives a logical road map of solutions, the traders will vote for that party as one unit across the country, Khandelwal said.

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NSE eyes 350-375 tonnes of domestically refined gold market for derivatives

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Mumbai: With over 350-375 tonnes of the domestically refined gold market still away from the organised trading platforms in India, the National Stock Exchange of India (NSE) has decided to accept it as good delivery on its derivatives platform. So far, only London Bullion Market Association recognised bullion is accepted as good delivery on the exchange platform.

NSE has initiated a move to decide India good delivery norms for gold including sourcing norms for gold refined and unrefined (dore). The process of finalizing new norms and implementing is expected to take two months.

These are significant as in last few years Indian bullion refineries’ business has increased and in 2018 domestically refined gold contributed from dore and recycled gold to half (350-375 tonnes) of the domestic gold demand. However, on gold futures exchanges this gold cannot be delivered. This means domestic refineries have limited access to hedge their future production on exchange platform as they can’t deliver gold the refine on exchange platform.

 

India’s domestic physical gold demand is 600 tonnes for jewellery and 160-175 tonnes of investment demand, according to the World Gold Council 2018 data. 275 tonnes of gold was supplied by Indian gold refineries and 87 tonnes of gold was derived from scrap or recycled gold. Indian metal companies also derive gold from ores of other metals during the process of refining them. This was 8.6 tonnes. All these can now be deliverable on the futures market once India goods delivery norms are in place.

At present, only MMTC-Pamps refines gold, which is LBMA standard and eligible to be delivered on Indian exchanges.

NSE’s move will help this domestically refined gold deliverable on its futures exchange where gold is already traded. At present, MCX and BSE accept gold to be delivered in futures, which is as per LBMA good gold delivery standards. NSE spokesperson said that “we are developing India good delivery standards and they will be largely in sync with LBMA and BIS norms.” 20 plus Indian bullion refineries that are registered with Bureau of India Standards have applied to NSE and six have been approved. International agency Alex Stewart, which provides inspection and analytical laboratory services, is studying the processes of these refineries and giving their score.

Even a domestic laboratory is also looking at the same and expected to give its report on processes of refineries that it has studied.

Sourcing of dore or unrefined gold is a big controversy globally and there was always a question on mines which are producing it whether the mine is using the funds for illegitimate activities or not. Globally OECD has developed norms to avoid such gold and Indian industry has been working for the same. However, NSE spokesperson said that “the exchange’s India good delivery norms for gold will accommodate norms to verify legitimate sourcing of gold dore by Indian refineries.”

The sourcing norms will also include norms for sourcing domestic gold for recycling where the gold provider will have to give an undertaking that no money laundering etc involved for the gold he is giving for recycling.

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