CRISIL says credit profiles of diamond and diamond jewellery players to remain stable over medium term

Mumbai: Ratings agency CRISIL said it believes that the credit risk profiles of India’s diamond and diamond jewellery players will remain stable over the medium term, on the back of steady demand expected in key markets, and improved prices of polished diamond in 2010-11. This outlook for the gems and jewellery industry is based on a CRISIL study of the credit risk profiles of the 142 players from the industry in its rated portfolio.

In a release, CRISIL said the players are also likely to maintain a prudent approach to working capital management, a measure they adopted to cope with the recent slowdown in the global economy.

Subodh Rai, head, CRISIL Ratings, said, “Over the medium term, gems and jewellery players are expected to maintain the prudent working capital management practices they adopted during the recent slowdown in the economy.”

In the second half of 2009-10, India’s gems and jewellery exports increased by 46% over the corresponding period of the previous year, backed by buoyant demand and restocking by retailers. Gems and jewellery exports exceeded $28 billion in terms of value in 2009-10, up from $24.4 billion for 2008-09.

CRISIL said it believes that demand from the US market, which accounts for more than half of India’s gems and jewellery exports, will be steady, backed by a stable economy, and will result in moderate buoyancy in exports by Indian players over the medium term. However, deterioration in recessionary conditions prevailing in the European Monetary Union (Eurozone), which accounts for around a fifth of the global demand for diamond jewellery, can impact the export of gems and jewellery from India, the ratings agency cautioned.

Gurpreet Chhatwal, director, CRISIL Ratings, said, “In addition to an increase in actual consumption, restocking by retailers also drove a sharp turnaround in demand in the second half of 2009-10.”

Most retailers maintained minimal inventory during the second half of 2008-09 and the first half of 2009-10, expecting the slump in demand to continue. However, the trend was reversed in the second half of 2009-10, with demand increasing, prompting retailers to begin restocking of diamond jewellery, the ratings agency said.

CRISIL said with improvement in global demand, the prices of cut and polished diamonds rebounded in the second half of 2009-10 from the weak levels seen in the second half of 2008-09. However, the prices lag the increase in the prices set for rough diamonds by miners during the period. CRISIL believes that the prices of polished diamonds will remain firm over the medium term, with exporters passing on, to customers, increases in the costs of procuring rough diamond.

“By now, most retailers have completed the process of restocking. Demand growth will, therefore, now be driven largely by actual consumption. Export growth will, therefore, moderate from the high levels witnessed in the second half of 2009-10, and yet, remain healthy over the medium term,” Mr Chhatwal added. 


Sturdy Indian banking sector on a high growth trajectory, says S&P

Mumbai: Ratings agency Standard & Poor’s (S&P) said growth in India’s banking sector will remain high, bolstered by sound economic growth prospects and despite the challenges of high domestic inflation, intense competition, and evolving risk management processes.

“A robust economy, along with a stable retail deposit base and a prudent regulatory environment, has underpinned the resilience of India’s banking sector to the global financial slowdown. We expect credit growth of about 20% in the next fiscal year,” said S&P’s credit analyst Geeta Chugh in a release.

According to a report titled “The Indian Banking Industry Is Resilient And Buoyed By Strong Economic Growth Prospects” and published by the ratings agency, the asset quality of the Indian banking sector came under some pressure in the fiscal year ended 31 March 2010.

“Nonperforming loans (NPLs) increased moderately from their historical lows. The gross NPLs for our portfolio of rated Indian banks increased to 2.5% as of 31 March 2010, from 2.2% a year ago. This was in line with our expectation,” the report said.

S&P said the increase in NPLs was contained by the quick economic recovery, modest leverage, low sectoral concentration in the banks’ loan books, and low exposure to sensitive sectors. Loan restructuring by banks availing of the onetime dispensation by the Reserve Bank of India to restructure loans without classifying them as NPLs, on meeting certain criteria, also reined in NPLs. Slippages or loans moving to NPL, from restructured loans were 5%-20% in the six months following the completion of the restructuring exercise in June 2009. “We expect 25%-50% of the restructured loans to slip to NPL in the next two years,” it said.

The report from S&P further said, “We expect credit growth to continue to exceed nominal GDP for the next five years. The impetus for overall credit growth is likely to come from India’s low credit penetration, large-scale infrastructure investments, companies reconsidering large acquisitions, and revived demand for working capital and capital expenditure. We also anticipate that secured retail credit will pick up moderately due to an increase in auto and housing sales, attractive interest rates, and improved job security.”

Increased capital is the key to the banking industry’s future growth. S&P said its rated private-sector banks are well capitalised and have adequate access to capital markets. Additional capital would, however, support the growth plans of all government-owned banks. The government’s limited resources and regulations that necessitate government shareholding of at least 51% have partly constrained these plans. These banks could now benefit from the government’s proposed Rs16,500 crore recapitalisation programme for increasing banks’ capital adequacy ratio to a minimum of 11%. This step is part of the government's measures to ensure sustained availability of credit in India, the report added.


Govt sanctions funds for unique identity numbers

New Delhi: The Indian government on Thursday sanctioned funds for the second phase of the ambitious scheme to allocate unique identity numbers to 10 crore of the country's population, reports PTI.

The Cabinet Committee on Unique Identification Authority of India, at a meeting chaired by Prime Minister Manmohan Singh, approved the commencement of Phase II of the scheme at an estimated cost of Rs3,023.01 crore.

"Of this, an amount of Rs477.11 crore would be towards recurring establishment expenditure and Rs2,545.90 crore would be towards non-recurring project related expenditure," an official spokesperson said.

The estimated cost includes project components for issue of 10 crore unique identity (UID) numbers by March 2011 and recurring establishment costs for the entire project phase of five years ending March 2014.

The first set of 10 crore UID numbers are expected to be issued between August 2010 and March 2011. Thereafter, 600 million UID numbers are expected to be issued within the next three years. The UID project would provide unique numbers to all residents of India.

The UIDAI proposes to collect the demographic and biometric attributes of residents through various agencies of the union and the state governments and others who, in normal course of their activities, interact with the residents.

The UID project, established last year, is primarily aimed at ensuring inclusive growth by providing a form of identity to those who do not have any identity. It seeks to provide UID numbers to the marginalised sections of society and thus would strengthen equity, an official release said.

Apart from providing identity, the UID will enable better delivery of services and effective governance.

The phase I of the scheme comprised setting up necessary infrastructure for offices at headquarters and regional headquarters, creating testing facilities for running the pilots and proof of concept (PoC) experiments, initial work of creating standards in various areas of operations.

Setting up of a project management unit and hiring of consultants for preparation of detailed project reports (DPRs) for various components of the project also formed part of the first phase of the project.

The phase I proposal was approved in November 2009.
The UIDAI has since established its Headquarters at New Delhi and six out of the eight regional offices.


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