K V Kamath sees Re 1 gain against dollar every year

from the sify business line

Mumbai: Indian manufacturing industry has taken off on a good note from 2002, but export-oriented companies need to exercise caution due to the rising rupee, said K V Kamath, chief executive officer and managing director, ICICI Bank.


He said the Indian currency would continue to appreciate further in future. “If I were in company management, I would allow at least Rs 2 per year or Re 1 a year strengthening,” he told corporates and industry representatives, implying that companies should be prepared for a Re 1 rise in the Indian unit against the dollar per year. The rupee has risen 13.7 per cent over a year.

Speaking at a manufacturing summit organised by the Confederation of Indian Industry, Kamath said the manufacturing sector, which clocked a growth rate of 12.5 per cent in 2006-07, is a star.

“From 1997-2002, manufacturing reinvented itself in terms of processes, quality, cutting costs thereby becoming a good industrial machine. Anybody who grows is a star (according to the Boston Consulting Group growth-share matrix) and manufacturing is surely a star as it is growing by leaps and bounds,” he said.

He said that increase in demand for products has played a major role in this upsurge with consumers from the service sectors like IT, ITeS, telecom, financial services and media driving this demand.

On the economy, Kamath said that 10 per cent gross domestic product growth is a given. “I have been saying this right through that we are set for a long period of growth and we need to only think of 10 per cent plus in future.”

He cautioned export-oriented manufacturers to brace themselves for the rupee appreciation and chalk out a strategic plan for facing the rupee-dollar matrix. Rupee appreciation increases the dollar price of Indian goods in global markets; thereby squeezing the margins of exporters, many of them belonging to sectors like textiles, leather and handicrafts.

Hence, many small-scale companies have gone on a retrenchment drive in order to fight increasing costs.

Kamath advised companies to invest largely in human resource to make it industry ready.

“Financial capital in not a challenge anymore as our markets are strong. What we are facing is the severe dearth of talented human capital and hence we need to enter into tie-ups with universities and customise programmes to suit the industry’s requirements.”
ICICI Bank has an agreement with Manipal Academy for Banking and Insurance to train people in banking.

ICICI Bank cuts interest rate on home loans

From the hindustan times

After State Bank of India, country's largest private sector lender ICICI Bank has cut floating home loan rates by 0.5 per cent to 11 per cent.

The new rates, implementable with immediate effect, will be applicable on new loans till October 31, an ICICI spokesperson said in Mumbai on Thursday.

The reduction follows the Finance Minister P Chidambaram asking banks to have a re-look at the interest rates to stimulate demand in the economy.

SBI had yesterday reduced interest rates on home and other retail loans by 0.5-1 per cent for different maturities as part of its festival offer.

The proposed rates are applicable for all new loans sanctioned on or after October 8 and is valid up to December 31, SBI had said in a statement.

SBI home loans are now cheaper by 0.50-1 per cent depending on loan maturities and amount of loan. The bank also gives discount if the salary account is with the SBI and further discount if a higher margin is available.

RBI cautions banks over project financing

From The Business Standard

Concerned over the high level of defaults in the project finance portfolio of banks, the Reserve Bank of India (RBI), has asked banks to ensure that funds for projects are released in such a way that the decided level of debt-equity ratio (DER) for the project is maintained at all times.

The central bank has suggested that banks could release funds sequentially so that they are not required to fund the equity portion of projects.

“To contain this risk, banks are advised, in their own interest, to have a clear policy regarding the debt-equity ratio (DER) and ensure that the infusion of equity or fund by promoters should be such that the stipulated level of DER is maintained at all times. Further, they may adopt funding sequences so that possibility of equity funding by banks is obviated,” said RBI in a circular to all banks.

RBI noted that while decisions for financing projects were to be taken by banks’ boards, there was a greater equity-funding risk in allowing promoters of a project to bring in their equity portion proportionately as banks released finance.

“If the borrower is unable to bring in his portion, the banks may ask the borrower to bring in another promoter or acquire equity in the project. However, as the investment is locked up, banks are forced to release funds to keep the project going as a delay could result in the project becoming a non-performing asset,” said a senior banker.

Banks could also ask the promoter to bring their entire contribution upfront before the bank started disbursing the sanctioned amount or to bring in a certain percentage of their equity (40-50 per cent), upfront and bring the balance in stages.

RBI had earlier asked the Indian Banks’ Association (IBA) to consider advising banks to introduce a system wherein the borrower would be required to first spend the portion of the finance being brought in by him and the bank would release funds thereafter.

The banking regulator had observed that banks were forced to lend more to keep the project going as delays could result in the project becoming a non-performing asset (NPA).

IBA suggested that RBI could reiterate to banks that promoters’ portion should be brought in such a way that the stipulated level of DER was maintained at all times to ensure commitment of the promoters to the project and reduce the equity-funding risk.

P-Note imbroglio benefits $, future tense for Re

Source : Moneycontrol.com

The initial reaction was very negative for the rupee and positive for the dollar, analysts said.

In early morning trade, the rupee had to react to Sebi’s P-Note move before stock markets opened. For that one-hour, we saw the rupee dwindle by about 1%. This 50 paise fall in early morning trade was largely triggered by the NDF, or non-deliverable forwards, market.

The offshore market for the rupee is really those constituents that are really being hurt by the P-note clampdown. They are the people who are coming in and buying dollars, analysts said, in anticipation that they may have to exit.

Banks followed by taking similar position because the expectation was that it is going to be rupee negative, analysts said. Therefore, banks and FIIs were buying NDF, the offshore market was also buying. When the stock market opened, it crashed and FIIs and banks continued to buy, they added.

After the recovery, there was a semblance of sanity, analysts said. The rupee came back quite smartly by about 20-30 paise and ended down about 0.25%. The stability is coming from the fact that exporters are coming in and selling at higher levels for the dollar, but this does not mean that stability will reign. The rupee markets are very much watching what the stock market regulator is saying and what the stock market participants are doing.

What will it mean if FIIs can’t issue fresh P-notes and all top P-notes issuing FIIs have pretty much reached the level of 40% which Sebi has allowed for total investments in the form of P-notes. Since they have hit that limit, fresh P-notes can’t be issued so that worry is hitting them. Once that starts impacting the stock market and plays it self out in the next few days, the rupee impact will come and the forex market is extremely confused now, analysts said.

A bank wouldn’t know whether it should go long or short on the dollar at this point in time. They are only watching for signals and for clarifications from the stock market, analysts said. You are seeing some kind of recovery in the stock market but you can’t mistake this for any long-term direction, they added.

Subprime defaults pinch Indian banksFrom The Business Standard

From The Business Standard

Unbridled lending to subprime borrowers by banks in the past few years is now biting. The loan-loss ratio in loan portfolios in this segment has touched as high as 15 per cent in the case of some private sector banks.

Subprime borrowers belong to economically weaker sections with monthly income of around Rs 5,000 and pay interest rate as high as 45-50 per cent on loans ranging up to Rs 50,000.

Defaults in this segment have climbed up to double digits for banks and non-banking finance companies active in this market, which has become a cause of major concern among bankers. The rising defaults in the last six months or so are getting more magnified with the base (loan portfolios) remaining stagnant during this period.

In an investor conference about two months ago, ICICI Bank had said “.....if you look at for example, credit card, the credit losses have been running at about 8 per cent or so, personal loans in the region of 3.5 per cent to 4 per cent, and for small ticket personal loans, while it is lower currently, the loss will be in the region of about 15 per cent or so.”

ICICI Bank’s personal loans portfolio, including subprime loans, was about Rs 11,200 crore at the end of June 2007.

Default rates on retail loans, particularly unsecured loans, is on the rise. Within unsecured loans, defaults on subprime (small ticket size loans) are much higher though they vary from bank to bank.

“Non-performing assets in personal loans portfolios of banks have increased to about 5 per cent now from 3 per cent last year and on credit cards to around 11 per cent from high single digits,'' a senior official with a private sector bank, who did not want to be quoted, said.

The loan defaults in the subprime segment have increased beyond banks’ tolerance limits. Considering the high interest rates charged on small ticket loans, banks would be comfortable with maximum defaults of 9-10 per cent in the portfolios, the head of recovery of a bank active in this segment said.

However, the size of subprime loans provided by banks and NBFCs was not available, with none of the lenders providing any breakup of such loans. Banks are also witnessing a sharp rise in defaults in their motorcycle loans portfolios, where the average loan size is less than Rs 50,000.

HDFC Bank too is present in the business of providing small ticket loans, but details on the level of defaults were not available. HDFC Bank has always maintained that its “retail NPAs are in line with the product mix.”

“The default rate is always higher in unsecured lending, hence, we charge a higher rate of interest. Banks factor in a little higher loss in this segment, which is called the tolerance level. We are seeing a slowdown in the retail growth. If the denominator is not growing and the non-performing loans are on a rise, then bank is in for some trouble,’’ said an official of another private sector bank, who also did not want to be named. The rise in defaults to intolerable levels had also seen banks getting very aggressive with their recoveries, which led to some instances of deaths allegedly due to excesses by recovery agents. ICICI Bank had to pay Rs 15.50 lakhs in the form of fixed deposit and insurance covers to the family members of a borrower in Mumbai, who committed suicide leaving behind a note implicating recovery agents.

Bankers said such incidents have happened only in the case of borrowers from the weaker sections as this class of defaulters are easy targets for forcible recoveries.