Alternative Investment
Commodity benefits to remain limited for India Inc

According to India Ratings & Research, due to the current price levels of most commodities, a significant, sustained price correction is unlikely and thus the impact of recent price correction will be limited

India Ratings & Research (Ind-Ra) said it believes that the recent commodity price correction will have a limited impact on BSE 500 corporates. Additionally, given the current price levels of most commodities, a significant, a sustained price correction is unlikely.


According to the ratings agency, crude and its derivatives, metals, coal and agri-commodities can affect Indian corporates.


Crude and its derivatives

Ind-Ra said, the combined effect of a crude price rise (in US dollar terms) and rupee depreciation shaved off 4 percentage points on an average from the EBITDA margin of the corporates which use crude derivatives. These sectors are paints, plastics and lubricants. With the average crude price declining to $103 per bbl in FY13 from $107 per barrel (bbl) in FY12, these sectors have enjoyed some benefit to their margins. However, FY14 margins are unlikely to improve over the margins in Q4FY13.



On an annualised basis, the prices of crude and metals such as aluminium, nickel and steel are not likely to decline significantly from the current levels. Indian corporates who are the buyers of such metals would receive much limited benefit from the price correction. Owing to depreciating Indian rupee and physical premium, metal buyers generally receive at best half of the price correction benefits. The capital goods sector would be the highest beneficiary of these corrections. Other metal users such as auto, auto ancillary are likely to have limited benefit.


The current price of aluminium and nickel is at or below the respective 90th percentile marginal cost of production. However, potential for further price corrections remains for some base metals such as lead/zinc, copper, prices of which are currently 8%-12% above the marginal cost of production, Ind-Ra said.



According to the ratings agency, if the Indian rupee remains stable and coal prices fall further by another $10, which is likely, the earnings before interest, taxes, depreciation and amortization (EBITDA) of power generators may expand by 14% to 16%. For cement producers, a similar fall in coal prices may translate into a saving of around Rs2 per bag.



Key agriculture-based commodities considered by Ind-Ra are foodgrain for FMCG companies, sugar and edible oil for the food processing industry, rubber for tyre manufacturers and wood pulp for paper and newsprint industries. Most agri-commodities with the exception of grains and edible oils showed a price correction during March-September 2011. However, the secondary users of these commodities could not accrue the benefits of falling raw material prices in FY12 in the face of muted demand which has increased competitive intensity.


According to the ratings agency key beneficiaries of agri-commodities price correction are likely to be tea and coffee processors and tyre manufactures. FMCG companies in the food sectors may receive limited benefit driven by challenging volume growth and enhanced competitive pressure.


Honda Motorcycle inaugurates third plant in India

Starting operations from this June, Honda’s new plant shall have 12 lakh units production capacity in Phase I

Honda Motorcycle & Scooter India Pvt Ltd (HMSI), the second largest two-wheeler company in India inaugurated its most advanced and latest third two-wheeler production plant at Narsapura Area, District Kolar (Karnataka) today.


The new plant enables HMSI to more efficiently serve the vast scooter and motorcycle market of India together with the existing Manesar and Tapukara plants in northern India.


Spread across 96 acres, Honda’s third two-wheeler plant in Narsapura is situated at Narsapura Industrial Area, which is around 52km from Bangalore. The new plant employs approximately 4,500 associates and entails a total investment of Rs1,350 crore.


Starting operations from this June, Honda’s new plant shall have 12 lakh units production capacity in Phase I. Aiming at market leadership, Honda also announced additional increase of 6 lakh units capacity in Phase 2 of this plant taking its annual capacity to 18 lakh units by end of this fiscal year. With its three plants, Honda will significantly increase its cumulative annual production capacity by 64% in just one fiscal.


Speaking on the occasion Yoshiyuki Matsumoto managing officer, Honda Motor Co and representative of development, purchasing & manufacturing, Asia Oceania Region said, “In the current fiscal year 2014, Honda’s global two-wheeler sales growth is expected to increase more than the previous years and headed to new heights by its operations in India. There is no doubt that India is one of the most important markets for Honda’s overall business. Today we establish a new milestone with the inauguration of our 3rd manufacturing facility in India in the state of Karnataka. Out of the total 4500 new positions at this facility, nearly 90% are being offered to the local youth.”


Why should depositors from better banks pay for cooperative banks’ failure?

During 2012-13, about Rs160 crore was paid to depositors of 13 failed co-operative banks. The DICGC used money collected from depositors of other banks under the credit insurance scheme. Not a single rupee was paid on account of any failed nationalised or private banks. This only shows that dual regulation means poor regulation

Maharashtra leads the states for the maximum number of failed cooperative banks that are gobbling up depositors’ money.  As many as 13 co-operative banks failed to pay customers and have shut down operations in the 2012-13 fiscal. It is reported that the Deposit Insurance and Credit Guarantee Corporation (DICGC), a government-owned entity which guarantees deposits, paid as much as Rs160 crore to deposit holders of the 13 banks during 2012-13. This means deposit holders from other better managed banks and taxpayers have to bear the burden of mismanagement and failure of these co-operative banks.

Under the norms of DICGC, a wholly-owned subsidiary of the Reserve Bank of India (RBI), a maximum of Rs1 lakh is paid to a depositor in case a bank goes insolvent. Last year in August, finance minister P Chidambaram informed the Rajya Sabha that deposit insurance coverage provided by DICGC is also applicable to the eligible deposits held in all eligible co-operative banks.

In the same breadth, Chidambaram said that the DICGC had sent a proposal to increase the deposit insurance coverage limit to Rs2 lakh from existing Rs1 lakh. He had said, “The proposal was examined and to rationalise the deposit insurance premium structure, the government has suggested to the DICGC and the RBI to adopt the Risk-Based Deposit Insurance Premium Structure, before the proposal of the DICGC is considered for approval.”

Unfortunately, the only beneficiaries of the deposit insurance premium collected by the DICGC are badly-run and politically-influenced co-operative banks. Since its inception, the Corporation has paid out about Rs4,051 crore till August 2011, in claims to depositors after bank failures. As much as a quarter of this—a whopping Rs1,025 crore—has been paid out in the past three years, from April 2008 to March 2011, which was given to 83 banks. And all of these 83 banks were co-operative banks.

The payment is possible because DICGC collects the insurance payment from banks to guarantee deposits up to Rs1 lakh per account holder. The DICGC collects a premium from 2,249 banks, of which a whopping 2,080 are co-operative banks.

Here is the irony. Less than 200 commercial banks account for 88% of the insurance premium collected and co-operative banks account for under 8%. Yet, when it comes to payment because of failures, 100% of the money is paid on account of co-operative banks.

Moneylife Foundation has strongly opposed any attempt to increase the deposit guarantee since this will only ensure that badly run, politically controlled cooperative banks get money for their depositors from the banking system. Moneylife believes that the cost of this high insurance will eventually have to be borne by customers who make smart choice to put their money in better banks.

What is worse, co-operative banks are poorly regulated under the dual regulation of the Reserve Bank of India (RBI) and the Registrar of Cooperatives. It is an open secret that RBI's supervision is completely ineffectual when it comes to co-operative banks, because of the enormous political influence wielded by their promoters.

This year, of the 13 cooperatives, the ones in Maharashtra are the worst offenders, with nine banks from the state defaulted on deposit holders, followed by Gujarat (two co-operatives), Andhra Pradesh and Odisha (one each). According to media reports, the DICGC paid the maximum amount of Rs54.88 crore to Bhandari Co-op Bank of Maharashtra. This was followed by another Maharashtra-based lender Solapur Nagari Audyogik Sahakari Bank whose depositors were paid Rs45.76 crore. Depositors from two other failed banks, Siddhartha Sahakari Bank and Bhusawal Peoples Co-op Bank were paid Rs23.99 crore and Rs10.05 crore, respectively during 2012-13. A year ago or during 2011-12, the DICGC paid Rs277.31 crore to depositors of 18 co-operative banks that were closed.

Moneylife had carried a prescient story more than two years back (Co-operative banks are in terrible shape; account-holders will be at the receiving end. RBI should act decisively, and soon), written by Prof Anil Agashe, that co-operative banks were in terrible shape and that the Reserve Bank of India (RBI) badly needed to tighten its screws, so to speak, and act boldly to protect deposit-holders. Unfortunately, the RBI did not act fast enough. Not only did co-operative banks default on deposit holders but, unbeknownst to Indian citizens, they were used for far more sinister purposes.

RBI recently discovered, albeit too late, that the money-laundering racket, discovered by Cobrapost, had spread to cooperatives too, and appeared to be the main conduit for the private sector banks to launder money. Shockingly, it was also discovered that cooperative banks happily accepted fake PAN cards and dodge detection by opening hundreds of accounts without proper KYC with each deposit carefully under Rs50,000. Moneylife had written about this story here: RBI money-laundering probe shows cooperative banks as the key facilitator of shady deals.

Regulation of co-operative banks is appallingly poor. One of the worst offenders is Maharashtra State-Co-operative Bank (MSC Bank), which had reported over Rs1,070 crore loss, mainly due to non performing assets (NPAs). Not only did it suffer losses but, according to advocate Vinod Sampat, the bank was “window dressing” its accounts. This prompted the RBI to swiftly act and highlighted the need to bring all co-operative banks, a majority of which are controlled by politicians, under the central bank's direct control. Moneylife had written about it over here (MSC Bank: The RBI finally steps in to clear the mess in Maharashtra’s apex co-operative bank)

Unfortunately, it still isn’t clear who really regulates co-operatives because there are actually two regulators: the Registrar of Co-operative Societies (RoCS) and the RBI. Because of this dual set-up, there is little regulation, accountability and willpower to take action against errant co-operative banks.




3 years ago

MDT- It is very easy to encash forged cheques and/or drafts including by way of RTGS/NEFT invloving bogus home loan/car loan borrowers. There is a recent case of forgery involving two car loans from a Govt.Sector bank based in Dahisar. Two invoices for availing car loan for Rs.5.00 lac each was procured from VIGHESHWARS MOTORS PRIVATE LIMITED (VMPL) And a bogus account was opened in a co-operative bank in Dahisar itself known as VIGNESHWAR MOTORS (VM), a Proprietory firm. When the loan was approved, amount remitted to VM and fraudsters withdrawn entire funds. Poor Branch Manager, he had spoken to co-operative bank who confirmed that they have the account of VIGNESHWAR MOTORS (generally while speaking on phone nobody tells full name of the Company). I think when the turnover of the bank crosses certain limit, the dual control should be stopped and only RBI should monitor the banks. I think for doing so, there is need for banking amendment in Parliamnent but most of the time the Parliamentarians are busy only in adjournments not allowing any bills tobe passed.

Dayananda Kamath k

3 years ago

one of the reasons for allowing cooperative banks to do all these things is because they are sponsored by politicians. rbi also can be held responsible for some of the ills of co operative banks. they do not recognize the peculiar character of co operative banks and the skills of its staff and of the main reason for gujarat coopbank failure was rbi forcing them t enter the govt security market without any expertise. it was exploited by one of the dealers misused it and took the money to manage their slr requirements and guaranteeing high interest return.i dont remember the name of the dealer it something like hometrade or similar. it collapsed taking along many of the coperative banks in gujrat. earleir they used manage the slr by cross deposits with each other at higher interest rate as they are free to charge any interest and with agreement they used to share the risk by turn.

B Ramagopal

3 years ago

I am not surprised. It is just like any other thing the Govt (read Politicians) do. For example, AP Govt is providing Free power to farmers. Now the Electricity Distribution Cos are collecting hefty FSA & increased tariff from other categories of consumers to offset the losses and payment towards power purchase. Are the farmers getting benefited? certainly NO!! Another example is providing other 'freebies' promised during elections (TV, Mixie, Gold, etc etc). Now where does the money come from? From the Politicians? From the Party funds? No.. it is from taxpayer's money. But it is propagated as if the Govt is providing them and they garner the votes! In fact they (politicians & the Govt machinery & the whole supply chain) make more money while executing those freebies. That is the state of our country. Unless freebies, subsidies & reservations are done away totally we cannot eradicate corruption & our country cannot prosper

nagesh kini

3 years ago

In the recent past no private bank was ever permitted to go belly up. They were simply merged with others. This did away with having to claim the deposit insurance. Even in the coop.sector by and large the merger route is resorted to, but in absolutely gone cases they are allowed to go to the dogs and lodge insurance claims. The MSCB considered an 'apex' bank is controlled presently by the state's largest and most powerful political family. Though its net worth wiped out and an administrator appointed it is presently on a ventilator and doing business as usual, not in the least concerned.
The dual control of the State Coop. Dept. has to be done away with and they ought to under the oversight of the RBI's UBD.
The present deposit cover of Rs.1 lakh has lost its meaning, if at all it needs to be hiked to Rs.25l to keep up with inflation!

Sucheta Dalal

3 years ago

I wish a lot of bank customers will come on 3rd June and make their voice heard!

There is a big lobby working to expand the insurance cover -- it was even recommended in the Damodaran report.

We strongly believe this is a dubious trick to protect cooperative banks . Moneylife Foundation has strongly represented to the RBI that we are against it. If no private banks or nationalised bank -- not even Global Trust Bank was allowed to fail, why this dubious do-gooding.

Similarly, no customer has ever asked for savings bank interest to be freed. RBI took forever to raise it to 3.5% - then suddenly it was freed. YET only 2 banks offer 6%. Any guess who lobbied for this change?

These are seemingly positive developments that work against our interest ! We need to wake up and get together NOW to intervene in policy matters.


Deepak Gupta

In Reply to Sucheta Dalal 3 years ago

The hike in insurance cover can be allowed only on one condition - the premiums from each category of banks/deposits must be based on risk in that category.

So, cooperative bank premiums should be raised enough to exceed the insurance payments in the coop banks.

This will also allow premiums to drop for nationalized and private banks that currently contribute 88% of the premiums, for the sole benefit of political masters of coop banks.

Dayananda Kamath k

In Reply to Sucheta Dalal 3 years ago

another novel way of fleecing the bank customers ably supported by rbi is interest charged on loans against deposits of the bank. earlier loans as well as deposits interest is charged quarterly. when prudential norms of accounting is introduced and 90 days was considered the period reckoned for recognizing npa, banks at the instance of rbi started charging interest on monthly basis. so interest is compounded monthly for your loan account. but for deposits they pay only quarterly interest or is compounded quarterly. so you are loosing or paying higher interest than agreed of 2%above the rate of interest paid on deposits, because of compounding period difference. if the recognition period is to be 90 days then why interest is to be charged monthly it could have been continued to be charged at 90 days period could have been reckoned from tht date. which coud have reduced lot of pressure on banks balance sheets also. otherwise why they cannot pay interest on deposits also only monthly compounding basis for the sake of equity. further you have an option to take monthly interest also at discounted rate. but if you take a oan against that deposit you will not be charge 2% above the discounted rate but on the quarterly rate the deposit receipt should the rate of interest as quarterly compounded rte only. it is also violation of contract act by banks as they are charging more than agreed as per the loan documents.

Dayananda Kamath k

In Reply to Dayananda Kamath k 3 years ago

one more way banks have looted customers is by floating rate on housing loans. the concept itself has been wrongly applied in india. In floating rate bank has to clearly say how the floating rate is determined. the base rate, it should be an independent rate not influenced by the lender or on which he do not have a control. then the markup on these rate should be clearly mentioned, as how many basis points on the base rate. then frequency at which ie. quarterly, half yearly or annually the rate will be rate will be reset as per the change in base rate on the reset due date. without these basic parameteres floating rate was allowed by rbi. banks changed the rate mark up at their whims and fancies and charged it uniformly to all without taking into consideration when their date of reset is due. it is a clear case of miss selling by banks the concept of floating rate. regulator has closed his eyes because we are intorducing international concept foating rate.every bank has overcharged their customers and only to those who have complained and has the clout have got refunds. it is classic case for class suit against regulator as well as banks.

Gopalakrishnan T V

3 years ago

It is like depositors and other stakeholders of banks taking care of non performing loans. Defaulters are allowed to enjoy and the losses on account of their defaults have to be borne by others particularly depositors.This will go on unless and until the stakeholders resist such cross subsidising. Will it happen in our corrupt system and bankruptcy of ideas.

Anil Agashe

3 years ago

Bigger Pvt Banks and nationalised banks must be exempted from this scheme completely. Only weak banks need to have to pay insurance charges to safeguard their depositors. The money paid by good banks being used to pay for those who default is a criminal thing.
Secondly time has come to really look at the necessity of co-operative banks themselves. The basic purpose of co-operative banks has been long defeated in any case!
Also we must stop protecting stupid depositors who keep their money in co-operative banks. if these banks fail the depositors must be made to suffer for their stupidity.

Vaibhav Dhoka

3 years ago

Co-operative bank are used as tool by local politicians,and therefore action is taken when coffers are empty.Ultimate looser is petty investor who gets last call when bank is shut.

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