Moody’s warns of capital concerns for India’s banks

 

Mumbai: Global rating agency Moody’s Investors Services on Monday warned that Indian banks will require more capital than what the government has allocated in last week’s interim budget, especially in the context of higher capital requirements under the Basel III norms and increasing bad loans that would require banks to set aside more money to cover such loans. 

 

“Last Monday, India’s government unveiled its interim budget for the fiscal year starting in April, allocating Rs.11,200 crore ($1.8 billion) for capital injections into public sector banks,” Moody’s said.

“The allocation is credit negative for public sector banks because it is much smaller than the Rs.25,000-36,000 crore ($4.1-$5.8 billion) that we estimated the banks needed to meet a minimum tier 1 ratio of 8% in the fiscal year ending March 2015…Without sufficient government capital infusions, public sector banks will be challenged to maintain minimum tier 1 ratios of 8%,” Moody’s said.

 

In addition, a sharp rise in the bad loans of Indian banks will also require them to have higher amount of capital, Moody’s said. Under the current norms, banks need to set aside more money to cover loans if they become bad, which affects their profitability.

 

“Our estimates assume the banks make adequate provisions to meet a minimum 70% coverage ratio under a range of potential asset-quality outcomes,” Moody’s said.

 

The agency expects that bad loans will continue to rise at Indian banks in fiscal year ending 2015 .

“Indian public sector banks’ need for significant external capital is a result of an increase in non-performing loans (NPLs) owing to the country’s slowing economy and infrastructure bottlenecks, and profitability that is insufficient for internal capital generation to fund loan growth,’ Moody’s said.

 

“As of December 2013, rated public sector banks reported an average gross NPL ratio of 4.3% (of total loans), up from 3.4% in March 2013, and we expect them to continue rising in fiscal 2015,“ it added.

Gross non-performing assets (NPAs) of Indian banks rose to Rs.2.4 trillion at the end of December, about 36% up compared with the same period last year. 

 

Among the banks, Kolkata-based United Bank of India is the worst affected with its gross NPAs standing at about 11% of its total loans. The bank is currently under the inspection of the Reserve Bank of India (RBI), which had barred the lender from giving fresh loans, except certain categories due to lower capital adequacy.

On Monday, United Bank announced that it will issue perpetual non-cumulative preference shares (PNCPS) to the government to raise capital.

 

The bank’s board has given approval to “create, offer, issue and allot by conversion of upto 80000 PNCPS of Rs.1 lakh each into such number of equity shares of Rs.10 each at an conversion price…on preferential basis to government of India in one or more tranches,” it said in a release to exchanges.

The United Bank board has further approved issuance and allotment by conversion of PNCPS up to 110 million equity shares of Rs.10 to the president of India by March, the release said.

 

RANJAY KUMAR

PGDM 1ST YEAR

SOURCE -: MINT

 

Consultant lists options to revive Dabhol power project

New Delhi: To revive Ratnagiri Gas and Power Pvt. Ltd, consultant Deloitte Touche Tohmatsu India Pvt. Ltd has presented a plan that includes options such as the Dabhol project be paid the minimum amount for sustenance from Maharashtra, people familiar with the development said.

The beneficiary from the beleaguered project—Maharashtra State Electricity Distribution Co. Ltd—may pay an amount equivalent to the current year’s debt servicing and meet the expenditure towards operations and maintenance of the 1,940 megawatt (MW) project, the consultant has suggested.

The other options suggested by Deloitte include conversion of debt into equity by lenders or fund infusion by the promoters. Cash-strapped Ratnagiri has a debt of around Rs.8,500 crore, with an outstanding debt service obligation of Rs.837.94 crore for the current financial year.

State-run NTPC Ltd and GAIL (India) Ltd own 32.86% each in the utility, the Maharashtra government has a 17.41% stake, and the rest is owned by banks and financial institutions such as IDBI Bank Ltd, State Bank of India, ICICI Bank Ltd and Canara Bank. NTPC had warned its parent, the power ministry, that its investment in Ratnagiri will likely have to be written-off—a significant loss of money and face.

“A revival plan has to be formulated to save the project. Some suggestions has been made by Dabhol. It is for the stakeholders to sit together and finalize the way ahead. We have sent the report to the stakeholders for comment,” a Ratnagiri official said, requesting anonymity. “We have gone back to the same situation post Enron.”

Ratnagiri, earlier known as Dabhol Power Co., was conceived in the 1990s and originally promoted by the now-bankrupt US energy, commodities and services firm Enron Corp. The asset was transferred to the government in mid-2005, and the project was fully commissioned on 31 March 2010.

“The stakeholders have been made aware of Deloitte’s suggestions,” said an NTPC executive, who also declined to be named.

A third person aware of the development confirmed the contours of the suggestions made by Deloitte, which was roped in work out a new business plan for the ill-fated project.

Ratnagiri was dipping into its insurance reserves to service Rs.139.12 crore in September dues to its debtors to avoid being classed as a non-performing asset, Mint reported on 31 December.

“There are several options. Of course, the first one is to get money from the Maharashtra government,” said the Ratnagiri official cited earlier. “Then comes the need for securing more gas followed by working out the affordability of the gas in the form of subsidies. There are some plans in the works.”

The Dabhol plant requires 9.7 million standard cu. m per day (mscmd) of gas, but has been allocated 8.5 mscmd by a panel of ministers, of which it receives only 0.9 mscmd. Various plans were drawn for the revival of the project, including leasing out the terminal to earn user charges, but they were dropped. Also, according to Ratnagiri, Maharashtra’s electricity distributor owes it Rs.1,112 crore in electricity dues, which the latter denies.

“Till affordable gas is made available and the plant becomes viable, any suggestion that involves dipping into the pocket of consumers is unworkable,” said Ajoy Mehta, managing director of the state’s power distributor.

This comes in the backdrop of the Union government considering a bailout package for gas-based power plants that includes ensuring that cash-strapped state power distribution companies continue to buy electricity from them after a scheduled increase in price of the fuel kicks in on 1 April, making available power from plants that are idling for want of the fuel, and a new repayment plan for a few other idle power plants.

The distributor is expected to pay full fixed cost for power capacity allocated to it, which it has disputed and stopped payments after April 2013, a Ratnagir spokesperson said.

As a temporary solution, Ratnagiri expects the state power distributor to pay at least the amount essential for debt servicing and keeping the company afloat, which faces the prospects of an asset downgrade, the spokesperson said.

The Centre’s plan, which also aims to revive the Dabhol plant as one part of the revival package, is meant for 6,996.5MW projects that were allotted gas from Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin. To prevent the Dabhol project from becoming a defunct asset, all additional gas from the New Exploration Licensing Policy blocks in the next fiscal year, expected to be to the tune of 3.95 mscmd, is to be allocated to Ratnagiri. In addition, all these power plants have been allowed to procure imported liquefied natural gas and sell power directly to buyers at higher prices. The plan also envisages these plants receiving new loans from Power Finance Corp. Ltd.

A Deloitte spokesperson declined to comment. Queries emailed to the spokespersons of NTPC and GAIL on 14 February remained unanswered.

India has a power generation capacity of 233,930MW, of which 18,964MW is fuelled by gas. For these projects to operate at a plant load factor—a measure of average capacity utilization—of 70%, a supply of 71.7 mscmd of gas is required. However, the total gas supply available to these projects was 26.13 mscmd, resulting in a load factor of 25.6%.

RANJAY KUMAR

PGDM 1st YEAR

SOURCE-: MINT

SpiceJet slashes fares by 75% for travel during April-June

 

Mumbai: India’s second largest low-fare airline SpiceJet Ltd on Monday cut fares by 75% for bookings made during 24-26 February to fill seats during the lean season.

 

This offer is valid for travel between 1 April and 30 June, the airline said on its website.

 

According to the SpiceJet website, a typical Mumbai-Delhi fare would be as low Rs.3,186 after the discount compared with the last-minute booking price of Rs.10,098, while Delhi-Goa fare would be Rs.3,737 against Rs.11,148.

“Super Summer Sale is valid on all domestic direct flights on the SpiceJet network. SpiceJet will offer discount on base fare and fuel surcharge only. All applicable fees and taxes to be paid by the customer,” the airline website said.

 

Travel agents said other airlines including IndiGo and GoAir will now be forced to slash fares.

Sharat Dhall, president at Yatra Online Pvt. Ltd, that runs Yatra.com, said SpiceJet has launched a three-day sale of up to 75% for flights between 1 April and 30 June and the discount ranges from 35% to 75% on current fares across sectors and is an attempt to stimulate the market and garner early bookings for the summer holiday season. 

 

“IndiGo has also launched special summer fares for the same period, and I expect other carriers to follow suit as well. This is a bonanza for holiday makers and a great opportunity to get super discounted fates for the family holiday this summer,” Dhall said.

 

“We are already seeing bookings triple from normal levels within hours of the sale being announced,” Dhall added. 

 

The promotional fare plan comes at a time when SpiceJet is looking for investment to fund its expansion plan. Last week, consultancy firm Centre for Asia-Pacific Aviation, or Capa, said in a report that SpiceJet is estimated to need close to $200 million to remain operationally viable, while a realistic and meaningful turnaround may require $300 million or more. 

 

 

 

Chennai-headquartered SpiceJet recently appointed consulting firm Bain and Co. to restructure its network and return it to profitability after losses mounted over the past few quarters. 

 

As of 31 March 2013, the total accumulated losses of the airline industry over the previous seven years had risen to $8.6 billion (based on current exchange rates), consultancy firm Capa said in its last week report adding the industry debt had climbed to $12.6 billion, with the full-service carriers—Air India Ltd, Jet Airways (India) Ltd and Kingfisher Airlines Ltd—accounting for 94% of the amount.

 

SpiceJet, controlled by media baron Kalanithi Maran, posted a net loss of Rs.173 crore in the three months to December, against a net profit of Rs.103 crore in the year-ago quarter.

 

 

In January, SpiceJet had cut fares by more than half for bookings for three days, a move promptly followed by other airlines including Jet Airways and Air India.

 

“SpiceJet is committed to leading the way in offering the most attractive fares to the most customers. We received overwhelming positive feedback from customers who booked the earlier ‘Super Sales’ for taking the lead in making air travel more affordable, where travelers can now book more spontaneously and more often by air, and also for attracting many first time air travelers who would otherwise endure long train journeys or not travel at all,” said Sanjiv Kapoor, chief operating officer, SpiceJet.

 

Kapoor said these advance purchase offers are a win-win for customers, for airlines, and for the travel industry and the economy overall, as it leads to significant demand stimulation, even as customers get to enjoy deeply discounted fares, airlines get to reduce wastage of seats that would otherwise fly empty, and others in the travel ecosystem get more business.

 

“These are not fare wars as is commonly reported, as there are no losers. This is just basic customer segmentation and inventory and revenue management,” he added.

Rahul kumar Gupta

PGDM,1st Year.

source:-Mint.

Maruti investors oppose Suzuki’s plant in Gujarat

The basic brunt of the unhappiness about Suzuki's plan is that it will allow the Japanese company to divert its India profits from a company it only partly owns to one it wholly owns, which it can then repatriate home.

TNN | Feb 24, 2014, 04.20AM IST

NEW DELHI: At least seven fund houses have raised a red flag over Suzuki's plan to set up a manufacturing facility in Gujarat and asked for a "rethink", arguing that the move is "neither fair" nor in the interest of its 56%-owned Indian arm, Maruti Suzuki, and its minority shareholders.

Axis Mutual Fund, DSP Blackrock, HDFC MF, Prudential ICICI, Reliance MF, SBI MF and UTI, which are shareholders in Maruti Suzuki, have also complained about royalty payments by the country's largest carmaker to its Japanese parent. "Complete clarity and transparency on these issues is needed so that further damage to minority shareholders is avoided... MSIL should do everything possible to ensure that this trust is restored and maintained for ever," the fund houses said in a joint letter to the Maruti Suzuki chairman last week.

On Jan 28, the company's board had announced a decision to let Suzuki Motor Corporation set up a 100% subsidiary in Gujarat. Maruti Suzuki will source products from this facility, it had said.

The decision was thumbed down by investors, with the stock falling 8% (although it has recovered since).

The basic brunt of the unhappiness about Suzuki's plan is that it will allow the Japanese company to divert its India profits from a company it only partly owns to one it wholly owns, which it can then repatriate home.

It was Maruti Suzuki which was originally supposed to set up the plant.



Life Insurance Corporation of India, the largest institutional investor with close to 7% stake, has separately sought details of the strategy, a senior company executive said.

In their letter, the fund houses have questioned the need for Suzuki to invest directly in the Gujarat plant as Maruti is sitting on a pile of cash, which added up to over Rs 7,000 crore at end-September and is projected to rise to close to Rs 25,000 crore by 2015-16. "...only Rs 3,000 crore is needed to be invested by FY17 (2016-17) in proposed Gujarat facilities. MSIL (Maruti Suzuki) thus already has more cash than what the business needs," the letter said.It suggested that Maruti will transition from being a manufacturing company to a trading outfit if Suzuki goes ahead with its decision.

Starting with Suzuki's plan to set up an independent assembly plant in 2004, the fund houses have cited three other instances where decisions were perceived to be "not fair" to Maruti Suzuki and its shareholders. The decision to set up Suzuki Powertrain India to manufacture diesel engines and its subsequent merger with Maruti, resulting in a 2% rise in Suzuki's stake in the Indian company, is another sore point. The third issue of a change in royalty payment still irks them.

The mutual funds have complained that minority shareholders have got a raw deal over the past few years as Suzuki walked away with high royalty payments. Maruti pays 5.7% of the sales as royalty to Suzuki for using its technology, which is estimated to have resulted in an outgo of Rs 7,000 crore over the past four years. The investors have said that royalty added up to nearly 40% of Maruti's operating profit, which was in addition to the Rs 550 crore dividend paid to Suzuki and Rs 400 crore to minority shareholders.

Without questioning the rationale for royalty payments, the fund houses have said that a large part of the value of a car comprises components such as swats, tyres, mirrors and locks, for which vendors already pay royalty or incur expenses on research and development. "It is thus not fair to levy royalty on the total sale value of the car. Ideally, royalty should be levied on the value of a car net of the bought-out components," the letter said, adding that the total royalty and R&D spend of Maruti Suzuki added up to nearly 7%.

In contrast, the shareholders said, Hero Moto Corp paid 2.5% of sales to Honda, while SKF paid 1.2% and Bosch 1.5%.

 

 

vijay kr yadav

pgdm sem 2

sou- times of india

After 800, Maruti declares end of the road for Estillo and A-Star

After the iconic Maruti 800 last month, it is the end of the road for two other Maruti small cars—A Star and Estilo, the successor of the Zen nameplate.

Advertisement

The company on Thursday told HT that it has stopped production of the two cars, and the decision was taken after the launch of its latest car, Celerio, earlier this month. The Celerio, which is riding on an affordable automatic gear shift technology, is expected to fill the void left by the two cars.
The phase out of the A Star brings to an end its largely uneventful 5-year journey in India, which is It one of the shortest life spans of all Maruti cars so far. Only the Maruti 1000 in the early 90s lived a shorter life. Developed with an eye on the export markets, A Star was also shared with Japanese car major Nissan Motor Corp for Europe as part of an agreement in 2006-07, where it was sold as the Nissan Pixo. After good demand in the first few years, sales have tapered off and Nissan does not buy the car from Maruti anymore.

In the domestic market, both cars were relative underperformers, and increased competition in recent years hit their fortunes. Sales of the A Star fell by 41.5% to 7113 units in 2013.
HT had first reported in February 2013 that the Estilo would be phased out by December. Maruti discontinued the old Zen’s jelly bean design with the tall-boy Zen Estilo in 2006.
The change did nothing for the car’s sales, however, and in 2009, the company did away with the Zen brand completely.  The refreshed Estilo did no better, and sales declined nearly 40% last year to under 10,000 units.

NAME - SHYAM KISHOR SINGH
                PGDM- 2sem

India needs to boost manufacturing, agriculture, services: Modi

BJP’s prime ministerial candidate Narendra Modi. Photo: AFP

 

New Delhi: Narendra Modi, the Bharatiya Janata Party’s prime ministerial candidate, said on Sunday that there is a need to boost manufacturing to revive the domestic economy.

Modi said the three pillars to develop the country were that agriculture should have a one-third share of the nation’s gross domestic product (GDP), manufacturing sector should account for one-third and the services sector should account for the rest. The manufacturing sector contributes to 14% of GDP.

“These are the three things that are needed to develop the country. We cannot let any of them go unattended,” Modi said at the hustings in Jagraon in Punjab. Modi had first started his public meetings from Punjab on 23 June last year after becoming the BJP’s chief poll campaigner. Punjab has a total of 13 Lok Sabha seats, but the importance of the state increases because people of Punjab are settled in all states of northern India, including Himachal Pradesh, Haryana and Rajasthan.

While talking about the need to reform the agricultural sector, Modi said new technology must be introduced to increase yields. “Land is limited and because of the increase in division of land within a family, there is smaller land with farmers,” he said. “We must increase yield and also introduce value addition in agricultural sector to increase the income of farmers. There should be better branding and marketing of agricultural products.”

The Gujarat chief minister said there is an urgent need to increase the number of cold storages and warehouses so that there is management of foodgrain and farm produce to help reduce wastage. “The Food Corporation of India must be divided in three different sections. The first section must handle procurement, second must look at storage and management and third section must handle distribution. These three must only focus on how to improve work with greater efficiency,” he said.

Modi also said that the BJP-led alliance was called National Democratic Alliance (NDA) during the election, but that the focus of the alliance is development. “When in government, NDA stands for national development alliance. Our only focus is development. We only believe in development,” said Modi. The BJP now has three main partners in its coalition—the Shiromani Akali Dal (SAD) in Punjab and the Shiv Sena and RPI in Maharashtra. It has also entered into a pact with some smaller parties in Tamil Nadu.

MUNTAZIR ALAM

PGDM-IIsem

SOURCE-MINT

 

After 800, Maruti declares end of the road for Estillo and A-Star

After the iconic Maruti 800 last month, it is the end of the road for two other Maruti small cars—A Star and Estilo, the successor of the Zen nameplate.

Advertisement

The company on Thursday told HT that it has stopped production of the two cars, and the decision was taken after the launch of its latest car, Celerio, earlier this month. The Celerio, which is riding on an affordable automatic gear shift technology, is expected to fill the void left by the two cars.
The phase out of the A Star brings to an end its largely uneventful 5-year journey in India, which is It one of the shortest life spans of all Maruti cars so far. Only the Maruti 1000 in the early 90s lived a shorter life. Developed with an eye on the export markets, A Star was also shared with Japanese car major Nissan Motor Corp for Europe as part of an agreement in 2006-07, where it was sold as the Nissan Pixo. After good demand in the first few years, sales have tapered off and Nissan does not buy the car from Maruti anymore.

In the domestic market, both cars were relative underperformers, and increased competition in recent years hit their fortunes. Sales of the A Star fell by 41.5% to 7113 units in 2013.
HT had first reported in February 2013 that the Estilo would be phased out by December. Maruti discontinued the old Zen’s jelly bean design with the tall-boy Zen Estilo in 2006.
The change did nothing for the car’s sales, however, and in 2009, the company did away with the Zen brand completely.  The refreshed Estilo did no better, and sales declined nearly 40% last year to under 10,000 units.
                                                                                                        NAME RAHUL SINGH 2

                                                                                                               PGDM 2 SEM