China to end monopoly of state-owned banks

“Consensus has emerged among leadership of the ruling Communist Party to let private capital play greater role to reduce, if not break, the state sector’s banking monopoly,” Premier Wen Jiabao said

Challenging for the first time the monopoly of the state-owned banks, China has announced plans to broaden the financial sector reforms by allowing private capital financing. Consensus has emerged among leadership of the ruling Communist Party to let private capital play greater role to reduce, if not break, the state sector’s banking monopoly, Premier Wen Jiabao said.

This is the first time China has acknowledged the monopoly of state-owned banks following last month's announcement of a pilot project to reform the financial sector in Wenzhou, an eastern coastal city with a tradition of entrepreneurship.

Wen, who along with President Hu Jintao and other top leaders is set to retire this year, made the remarks while visiting some companies in Fujian province and the Guangxi Zhuang autonomous region, state-run China Daily reported on Thursday.

Analysts say the move to open up financial capital was aimed at increasing investment and competition in financial and banking sectors of the world’s second largest economy, giving more scope for its currency Yuan to play bigger role.

Economists have long complained about a lack of progress in reform of the state-dominated banking and financial industry and of inadequate service for the country’s large number of small and medium-sized enterprises.

 “Regarding raising funds for your businesses, I think it has been too easy, quite frankly, for our banks to make profits,” Wen told businessmen during his visit to the factories.

He added: "The reason is that a small number of large banks are in a monopolistic position. It is only from them, and nowhere else, that companies get the loans they need." This is why we've now come to make way for private capital to enter the financial services sector, which ultimately requires breaking monopolies. There is already a consensus among the central leadership, which is reflected, as you can see, by the pilot reform in Wenzhou. "I think some successful practices from Wenzhou's pilot reform can be introduced nationally. Some of the practices may even be immediately implemented."

Under the current system, China's state-owned banks live off an effectively guaranteed spread between deposit and lending rates that are set by the central bank. The spread now stands at around 3 percentage points. The so-called Big Four banks — Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China — raked in a combined profit of about 630 billion yuan ($100 billion) last year against the backdrop of slowing economic growth.
 
The Wenzhou reform was announced by the government on 28 March 2012. It allows private financial services, including setting up village banks and rural financial cooperatives.

Wang Jianhui, chief economist with Southwest Securities Co Ltd, said that a more competitive banking sector would significantly boost the vitality of private businesses.

“The monopoly in the sector makes getting loans expensive. Private businesses, especially smaller ones, have to get cheaper loans to flourish,” he told the daily.
Qiu Zhiming, president of the privately owned Beifa Group, a maker of stationery in Ningbo, Zhejiang province, said big state-owned lenders are charging his company twice as much as the benchmark interest rate by imposing various charges.

He said banks always think up new ways to charge his company more and if he doesn't accept it then he does not get the loan. "At the end of the day you find that a significant part of the profit goes to the banks. Something has to be done, urgently," he said.

The financial sector reforms come at a time when the economy is set to hit a slow-growth cycle. GDP growth may hit a three-year low of 8.4% in the first quarter, Zhang Xiaoqiang, deputy minister of the National Development and Reform Commission, said. That figure implies an annualised quarter-on-quarter growth of just 6.5%, below the 7.5% target this year.

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See-saw battle for short term control continues as bears fail to take out the resistance line

Holding of the recent low of 5,171 points is importance as a decisive close below this will ring alarm bells and the efforts of the last couple of weeks will be in vain. Expect selling pressure from the beginning of the coming week

S&P Nifty close: 5322.90

 
Market Trend
Short Term: Sideways        Medium Term: Sideways        Long Term: Down


The Nifty opened the week with an upside gap and rallied exactly into our projected resistance area of 5,372-5,385 points and sold off immediately, thus curtailing the weekly gains to a meagre 27 points (+0.52%). Following the ‘hammer’ last week the Nifty has made a “small body” with a long upper shadow indicating that there is selling pressure at higher levels. It also failed to take out the resistance line (in black) drawn by connecting the recent tops of 5,629 and 5,499 points.

The sectoral indices which outperformed were BSE Consumer Durables (+6.39%), BSE Capital Goods (+3.30%), BSE Power (+3.21%), BSE PSU (+2.07%), BSE Bankex (+1.48%) and BSE Reality (+1.16%) while the gross underperformers were BSE Healthcare (-0.84%), BSE Auto (-0.70%) and BSE Metal (+0.03%).  The weekly histogram MACD continued to move down but is still above the median line indicating that the bulls’ hopes are still alive. However the volumes were poor during the recovery due to the short trading week on account of holidays.

Here are some key levels to watch out for this week
  •  As long as the S&P Nifty stays below 5,327 points (pivot) the bulls would be under pressure even though the intermediate trend is sideways.
  • Support levels in declines are pegged at 5,275 and 5,227 points.
  • Resistance levels on the upside are pegged at 5,375 and 5,427 points.

However there is strong possibility that the volatility might expand and the extremes of the above mentioned range might be exceeded.

Some Observations
1.    The Nifty closed above the pivot of last week but has formed a “small body with a long upper shadow” which implies that there is supply at higher levels.
2.    Weekly averages have become positively phased and a close below them would result in the selling pressure accentuating.
3.    Unless and until the 5,372-5,385 points range is taken out in close the bears will hold the edge and a break of the recent low of 5,171 points (in close) would set the cats amongst the pigeons.

Strategy
The recent tops of 5,378 and 5,499 have to be taken out if the bulls want to turn the tide in their favour. Holding of the recent low of 5,171 points is importance as a decisive close below this will ring alarm bells and the efforts of the last couple of weeks will be in vain. Expect selling pressure from the beginning of the coming week.

(Vidur Pendharkar works as a consultant technical analyst & chief strategist at  www.trend4casting.com)

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More trouble for Ghai as CAG raps AP govt over land allotment

Filmmaker Subhash Ghai's film institute is facing trouble in Andhra Pradesh as well over allotment of 20.10 acres of prime land

Hyderabad : Filmmaker Subhash Ghai's film institute is facing trouble in Andhra Pradesh as well with the Comptroller and Auditor General (CAG) rapping the state government over allotment of 20.10 acres of prime land to the institute in alleged violation of rules, reports PTI.

Mr Ghai is locked in a legal tangle in the AP High Court over the land allotment.

The CAG, in its latest report on land allotments in the state, related to the YS Rajasekhara Reddy government tenure, found fault with the allotment for Whistling Woods International Limited "in violation of AP Ancient and Historical Monuments and Archaeological Sites and Remains Rules 1960."

Based on a writ petition filed by a private person, the AP High Court had in January 2010 suspended the state government's order (dated August 19, 2009) giving 20.10 acres of land to Mr Ghai.

The case is pending disposal even as the state government is set to review the allotment in the light of the High Court order as well as the CAG's observations, official sources in the Revenue Department said.

The land allotted to WWIL in survey Nos. 173 and 178 at Ibrahimbagh village under Golconda mandal in Hyderabad district was adjacent to a protected monument (Premamati Mosque).

"While the market value of the land was assessed by the Hyderabad district Collector at Rs4.84 crore per acre, the government allotted the land at Rs2 crore per acre. The lease rent was fixed at 0.2% of the market value at which the land was allotted (Rs 2 crore per acre) for the first three years," the CAG report noted.

"The allotment was made through APIIC for establishing a world-class training institute of film, television, animation and media arts. This was followed by a lease agreement in October 2009, between APIIC and WWIL for allotment of 17.01 acres to WWIL for a tenure of 66 years, renewable for a further period of 30 years," it said.

The Supreme Court had on Wednesday upheld the Bombay High Court order quashing the 20 acre land allotted to his film institute at Filmcity in Mumbai.

From the fourth year onwards, the lease rent was to be enhanced to one per cent of the market value. Further, the agreement allowed WWIL to exercise an option to purchase the land at a concessional rate of Rs2 crore per acre after ten years, duly adjusting the lease rentals paid by that time, the CAG report said.

"The Government, thus, gave undue benefit to WWIL both in terms of concession in charging half the actual market value of the land and the option given to it for purchasing the land ten years down the line at the same rate irrespective of appreciation of land value. Further, allotment of land in a protected area for commercial purposes violated Government rules," it said.

In fact, audit scrutiny revealed that at the time of alienating the land, government had already decided to sign an MoU with the Islamic Republic of Iran for taking up the restoration and conservation of the monuments adjacent to this land," the CAG noted.

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