Govt may face hurdles in achieving FY11-12 borrowing target: RBI

The tight liquidity conditions would make market borrowing difficult for the government. Also, the private sector might face some problems, as there would be less funds available in the market for them

New Delhi: The government could face difficulties in managing its borrowing programme for the current fiscal amid the prevailing tight liquidity conditions as banks hold a higher proportion of government securities, reports PTI quoting the Reserve Bank of India (RBI).

“Notwithstanding the relatively lower budgeted market borrowings of the central government in 2011-12, managing the borrowing programme would be a challenge in view of tight liquidity conditions and the high level of excess Statutory Liquidity Ratio (SLR) holdings of the banks,” the Reserve Bank said in its Annual Report.

Gross government borrowings in the current fiscal (2011-12) are pegged at Rs4.17 lakh crore, down from Rs4.37 crore in 2010-11.

Of this, the government is scheduled to borrow Rs2.50 lakh crore in the first half, as against Rs2.84 lakh crore in the corresponding April-September period last year.

The tight liquidity conditions would make market borrowing difficult for the government. Also, the private sector might face some problems, as there would be less funds available in the market for them.

Moreover, the higher SLR of banks would restrict them from buying bonds floated by the government.

The apex bank also said that the government’s ability to rein in the fiscal deficit would influence the conduct of the market borrowing programme in the current fiscal.

The government has estimated the fiscal deficit target at 4.6% in the current fiscal, down from 4.7% last year.

“The conduct of the market borrowing programme will be influenced by the ability of the government to rein in the fiscal deficit and its financing by way of market borrowings,” the report added.

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Inflation to fall to 6% by March 2012: Goldman Sachs

“Demand continues to weaken and core inflation, as measured by the non-food manufacturing inflation, is trending lower in sequential terms. Going forward, we expect year-on-year headline inflation to slow to 6% by March 2012,” Goldman Sachs Global Economics, Commodities and Strategy Research said

New Delhi: Global banking and research giant Goldman Sachs has said India’s headline inflation will fall to 6% by March 2012 due to weakening of demand, reports PTI.

“Demand continues to weaken and core inflation, as measured by the non-food manufacturing inflation, is trending lower in sequential terms. We believe this fall in inflation is observed to stay... Going forward, we expect year-on-year headline inflation to slow to 6% by March 2012,” Goldman Sachs Global Economics, Commodities and Strategy Research said.

In its latest issue of ‘Asia Economics Data Flash’, it said this is likely to be the case even after factoring in a revision of the July Wholesale Price Index (WPI) number.

Headline inflation fell to an eight-month low of 9.22% in July. However, experts have said the numbers are likely to be revised upwards.

The government has revised the inflation figure for April to 9.74% from the provisional 8.66%.

Similarly, the May number was revised to 9.56% from the provisional 9.06%.

“The July data suggests that sequentially, inflation continues to come off sharply. We think that the year-on-year numbers are misleading and do not capture the decline in inflationary pressures since a big spike in first quarter of 2011,” Goldman Sachs said.

Goldman’s projection is in contrast to forecasts made by the Reserve Bank of India (RBI) and the Prime Minister's Economic Advisory Council (PMEAC).

In its Annual Report for 2010-11 released last week, the RBI had said inflation is likely to remain elevated till the third quarter of the current fiscal and then moderate to around 7% by March 2012.

The PMEAC, in its Economic Outlook for 2011-12, projected inflation to remain high at around 9% till October, before falling to 6.5% by the end of the fiscal.

“There is a slowdown in economic activity in India which is being exacerbated by rising interest rates and headwinds from the global economic environment,” Goldman said.

The RBI has hiked key policy rates 11 times since March 2010 to curb inflation. India Inc had said the repeated rate hikes have made the costs of borrowing expensive and reduced fresh investments and industrial production.

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Govt sanctions Rs2,000 crore capital infusion for few banks

The capital infusion would result in raising tier I capital or equity capital of the banks. Besides, the capital infusion would result in enhancing government’s stake in the select banks

New Delhi: The government has decided to sanction Rs2,000 crore to some public sector banks as part of its recapitalisation drive, reports PTI.

“We are in the process of sanctioning Rs2,000 crore to a few public sector banks, but the disbursement would take place at later date,” official sources told PTI.

The mode of disbursement would be decided later, sources said, adding, the capital infusion would result in raising tier I capital or equity capital of the banks. Besides, the capital infusion would result in enhancing government’s stake in the select banks, sources said.

This is part of the Rs6,000 crore re-capitalisation amount for the public sector banks announced in the Budget this year.

Finance minister Pranab Mukherjee in his Budget speech had said, “During the year 2010-11, the government is providing a sum of Rs20,157 crore for infusion in the public sector banks to maintain Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8% and increase government equity in some banks to 58%.”

“I propose to provide a sum of Rs6,000 crore for the year 2011-12 to enable public sector banks to maintain a minimum tier I CRAR at 8%,” he said.

Most of the public sector banks got capital support from the government during the last fiscal. These banks included Punjab National Bank, Bank of Baroda, Union Bank of India, Oriental Bank of Commerce, UCO Bank and Dena Bank.

In the first phase of recapitalisation in June last year, the government had approved capital support of Rs6,211 crore into five banks. The banks, which had got capital from the government included Union Bank of India, Bank of Maharashtra, IDBI Bank, UCO Bank and Central Bank India.

The remaining Rs13,946 crore was disbursed by March 2011 through mostly preferential allotment of equity.

All the public sector banks have already submitted to the government their capital requirement. The bank has requested the government capital infusion of Rs990 crore to fund its business growth, Punjab & Sind Bank executive director PK Anand said.

“We have requested the government to infuse additional capital of Rs990 crore by way of preferential shares,” MrAnand had said earlier this month.

Mangalore-based Corporation Bank has also sought Rs300 crore capital support from the government.

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