Moody’s downgrades Indian banking system outlook to ‘negative’

“With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY11-12 and FY12-13,” Moody’s vice-president and senior analyst Vineet Gupta said

New Delhi: Global ratings firm Moody’s today downgraded the outlook of the Indian banking system to ‘negative’ from ‘stable’ amid an economic slowdown, which is affecting asset quality, capitalisation and profitability, reports PTI.

“With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY11-12 and FY12-13,” Moody’s vice-president and senior analyst Vineet Gupta said.

A ‘negative’ outlook is one that is characterised by volatility and uncertain conditions, according to Moody’s.

On the positive side, however, the rating firm has recognised that India banks’ stable customer deposit base and their high level of government securities holdings provides them with a “resilient funding and liquidity profile” that buffers them against destabilising shocks.

India’s economic growth has averaged 8.4% over the past five years. But amid high inflation, monetary tightening and rapidly rising interest rates, the sustenance of the growth momentum is under pressure.

Stating that India’s economic momentum is slowing, Mr Gupta said, “At the same time, concerns have emerged over the sustainability of the recovery in the US and Europe and the rise in the borrowing programme of the Indian government, which could drain funds away from the private credit market.”

Loan growth would be a ‘strain’ on the Indian banking system in the next 12-18 months, while profitability will come under pressure due to lower interest margins and an increase in saving deposit rates, the report said.

“As monetary conditions tighten and economic activities slow, we expect bank loan growth to fall to 16%-18% in FY11-12 and FY12-13 from 21% in FY10-11,” Mr Gupta said.

On profitability, Moody’s said, “We expect it to come under pressure due to lower interest margins as deposit rates re-price and get a further push from the latest liberalisation on savings deposit rates.”

Moody’s rates 15 commercial banks in India, which together accounted for about 66% of the system’s total assets as of March 2011. The system is dominated by public sector banks, which account for around 75% of the market in asset terms.

Moody’s further said that individual bank ratings may come under downward pressure.

“For those banks with weaker capital ratios on average and higher asset quality pressures relative to their individual rating levels, their standalone ratings are likely to come under pressure,” Moody’s said.

Last month, Moody’s had downgraded its rating of State Bank of India’s (SBI) financial strength on account of the lender’s low Tier-I capital ratio and deteriorating asset quality.

The negative outlook on the banking system, however, contrasts with the stable outlook assigned to the financial strength ratings of 14 of the 15 rated banks.

Moody’s also expects the government to remain committed to providing support to both public and private banks.

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HC notice to CBI on bail pleas of Kanimozhi, 4 others

Earlier, special judge OP Saini had denied bail to Ms Kanimozhi and others, saying the charges against them are of grave nature and the CBI’s concession of not objecting to their bail pleas was of “no consequence in the eyes of law”

New Delhi: The Delhi High Court today sought the Central Bureau of Investigation’s (CBI) response on the bail pleas of DMK MP Kanimozhi and four others arrested for their alleged roles in the second generation (2G) spectrum allocation case, reports PTI.

Issuing notice to the CBI, justice VK Shali sought the probe agency’s reply on the bail pleas of the five accused by 1st December.

Besides Ms Kanimozhi, the four others who have moved the high court against a special court order denying them bail on 3rd November are DMK-run Kalaignar TV MD Sharad Kumar, Kusegaon Fruits and Vegetables Pvt Ltd directors Asif Balwa and Rajeev Agarwal and Bollywood producer Karim Morani.

Appearing for Ms Kanimozhi, senior advocate Altaf Ahmed contended before the bench that the trial court has ignored the CBI’s willingness to allow bail to the five accused.

Senior advocate Mohan Parasaran, appearing for CBI, again told the court that it has no objection to the bail.

“We reiterate the stand taken before the trial court. There is no deviation from that,” the senior lawyer said.

The response of CBI counsel came after justice Shali asked CBI if there was any change in the stand taken by the agency on the bail pleas before the trial court.

DMK supremo Mr Karunanidhi’s daughter Ms Kanimozhi has been in Tihar Jail since her arrest on 20th May. She was denied bail by the trial court.

Earlier, special judge OP Saini had denied bail to Ms Kanimozhi and others, saying the charges against them are of grave nature and the CBI’s concession of not objecting to their bail pleas was of “no consequence in the eyes of law”.

The CBI had preferred not to oppose the bail pleas of Ms Kanimozhi, Sharad Kumar, Asif Balwa, Rajeev Agarwal and Karim Morani, whose names had figured in the supplementary charge-sheet filed on 25th April.

The accused have been in jail for the last five to nine months.

Denying bail to Ms Kanimozhi, the court had also rejected her plea for it on grounds of being a woman, saying that she “belongs to upper echelons of society and is also a Member of Parliament” and cannot be “said to be suffering on account of being a woman”.

Justice Saini had dismissed the bail pleas of a total of eight accused on 3rd November. Others whose bail pleas were dismissed are former telecom minister A Raja’s erstwhile private secretary RK Chandolia and former telecom secretary Siddharth Behura, besides Swan Telecom promoter Shahid Usman Balwa. Mr Raja had not moved court for bail.

Dismissing Mr Morani’s submission that he was sick and not in good health and should be granted bail as per section 437 of the CrPC, the judge had said the medical records do not suggest that “standard of illness of Mr Morani is so high as to categorise his custody as detrimental to his health”.

Regarding the defence counsel’s contentions that they should be granted bail as there was no apprehension of their influencing the witnesses or tampering with the evidence, the court had said this is a case of “unprecedented nature” which suggests that witnesses would be under a lot of pressure.

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Competition Appellate Tribunal stays Rs630 crore penalty on DLF

While Compat has stayed the Rs630 crore penalty imposed by the Competition Commission of India on realty major DLF over alleged abuse of dominant market position, the tribunal clarified that that if DLF loses its case, the company will have to deposit the entire amount along with 9% interest

New Delhi: The Competition Appellate Tribunal (Compat) today stayed the Rs630 crore penalty imposed by fair trade watchdog Competition Commission of India (CCI) on realty major DLF over alleged abuse of dominant market position, reports PTI.

A three-member bench headed by justice Arijit Pasayat stayed the operation of the CCI order imposing the penalty.

However, the tribunal clarified in an interim order that if DLF loses its case, the company will have to deposit the entire amount along with 9% interest.

It also asked the company to give an undertaking within a period of three months regarding its liability to pay the penalty and interest if it loses the case.

Meanwhile, the tribunal also directed DLF and the flat owners’ association to submit a draft of the revised terms of their agreement, as directed by the CCI in its order, within a period of eight weeks.

The case pertains to the CCI’s imposition of a hefty penalty of Rs630 crore on DLF on 12th August for alleged abuse of its dominant position and the issuance of a ‘cease and desist’ order over unfair conditions imposed on the buyers of its flats.

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