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Industry could grow close to 10% this fiscal: Ahluwalia

New Delhi: The government today exuded confidence that industrial output would be close to 10% this financial year as it welcomed the return of double-digit growth in the sector during October, reports PTI.

“I hope that it (IIP growth rate) would be close to 10% but it may not actually get to 10%,” Planning Commission deputy chairman Montek Singh Ahluwalia told reporters here.

After a gap of two months, the Index of Industrial Production (IIP) recorded a double-digit growth of 10.8% in October. Having recorded an increase of 15.08% in July, IIP had slipped to 6.91% in August and further to 4.4% in September.

“We have to wait and see whether this (high IIP) growth is maintained in the remaining months of the year because this is the period last year when growth picked up.

“There could be base level effect so the growth rate could be lower compared to same months last year,” Mr Ahluwalia said.

As regards the economic growth during the current fiscal, he said, “The 8.5% (GDP growth) would definitely be achieved, it could be little higher. But we are not giving precise forecast on that.”

The economy during the first half of the current fiscal recorded an increase of 8.9%, raising hopes that the fiscal might witness economic expansion of 9%, up from 7.4% in 2009-10.

Asked about the need to provide further stimulus to fuel growth momentum, he said, “This is not the occasion when stimulus (should be given)...when economy is growing at 8.5%.”

“It is very difficult to say that you need stimulus...

of course you need policies which retain this growth momentum.”

Although economy is doing very well on the growth front, inflation is still high, Mr Ahluwalia said, adding the government will have to keep a vigil on it.

“Growth is doing very well. Things are improving on inflation, but in the present situation inflation is still high. We cannot relax vigil on inflation,” he said.

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HSBC’s interactions with top finance executives indicate tough times ahead

From its meeting with CEOs and CFOs of 13 financial companies recently, HSBC has found there's a consensus that liquidity will ease only after April 2011; Basel III, IFRS are key variables for 2013; micro-finance losses are tangible; there are no worries over bribery cases or the 2G scam

HSBC has gathered from its interaction with the heads of several financial companies that the situation for banks may not be too good over the next 4-5 months.

Here are some consensus observations that emerged from HSBC's meetings.

  • Loan sanctioning and disbursement from PSU banks could generally become slower as more checks and balances are put in place. 
     
  •  Overall loan growth seen at 18-20% this year and a little higher next year. 
     
  •  Margins flattish, slippages to be higher this year. 
     
  •  Bribery and telecom scam to have limited impact; micro-finance mess would have tangible impact but limited by small exposure.

    Here are key comments from the officials whom HSBC met.

    Axis Bank - Shishir Mankad, vice president, finance: Margins are likely to dip in the initial part of the up cycle. Exit margins at 3.5% in FY11. In FY12 margins would lose support of equity raised last year. No noticeable improvement in slippages as yet (Rs4.5 billion in Q1 and Q2), mainly SME related.

    Bank of India - BA Prabhakar, executive director: Stress on level of Q2 slippages is likely to continue for two more quarters, mainly on smaller loans, including agri. Government spending has been slow as it is probably trying to conserve cash for next year.

    CRISIL - Suman Choudhury, head of financial sector ratings: Individual sanctioning power may be curtailed, or reviewed, at PSU banks. Some slippages expected for the next 1-2 quarters, which is likely to add 40 basis points to the gross non-performing loans (NPL) ratios. About 20% slippage expected on restructured loans. Moratorium on about 60% of restructured loans is through; the about 40% remaining is likely to be done by Q1FY12.

    HDFC Bank - Paresh Sukthankar, executive director, and Pralay Mondal, country head for retail assets & credit cards: Core CASA likely to decline a few percentage points and 'fluff' CASA is likely to disappear. Corporate access to money market has come off the tightness.  Corporate capex has been mainly funded by cash surpluses and forex loans.

    ICICI Bank - Chanda Kochhar, managing director & chief executive officer; Rajiv Sabharwal, executive director; Puneet Nanda, executive director; Satyan Jambunathan, senior vice president & head of finance: MFI exposure is 1% of loan book.

    IDBI Bank - P Sitaram, chief financial officer: Term deposit growth is likely to be challenging as incremental money goes into savings and other instruments. CASA target at 18% in FY11 and 25% by FY13. At least 1.75% net interest margin (NIM) expected for FY11, 2.2% in FY12 and 2.5% in FY13-return on assets (ROA) target at 1.2%. Would like to bring down bulk deposits from 65% to 50% of term deposits.

    IndusInd Bank - Romesh Sobti, managing director and chief executive officer; Paul Abraham chief operating officer; KS Sridhar, chief risk officer: Likely to originate home loans for HDFC with all-in fees of 1.5%. Vehicle finance gross yields at 16% would help achieve blended yields of 12%, which are highest in the industry. Bulk deposits now down to 50% of term deposits. Target is 35% CASA.

    State Bank of India - SS Ranjan, deputy managing director & chief financial officer: Deposit growth to be 3% lower than loan growth. FY12 loan growth seen at 22% and FY11 at 18-19%. About 500-600 branch expansion envisaged each year. Fee growth of 20-30% over next 3-4 years. Working capital lending improving as inventory unwinding comes off. By Q2FY12, Rs400 billion of 1,000-day, high-cost deposits would have re-priced and equity issuance in March 2011 is likely to help move margins to 3.5% levels. Cost/income ratio target at 38-40% over two years versus 45% currently as income increases quicker.
    HDFC Ltd - Keki Mistry, vice chairman and chief executive officer: 20-25% growth comfortable in the medium term, led by urban population proportion increasing from 28% to 40%.

    IDFC - LK Narayan, executive director and group chief financial officer; Bimal Giri, senior director: About 19% of assets is mainly 2G exposure (tower business). Target is to treble balance sheet in 3-4 years from Rs330 billion currently.

    HDFC Standard Life - Vibha Padalkar, chief financial officer: Persistency has improved from 65% to 80%. Product mix incrementally is 10% traditional, 90% ULIPs.

    ICICI Pru Life - Puneet Nanda, executive director, Satyan Jambunathan, senior vice president and head of finance: NBAP margins have dropped, given the expenses and persistency. (NBPA stands for new business achieved profit.) Hence, cut in expenses is required to maintain margins. New products are far more favourable for customers, hence persistency likely to increase despite drop in commission rates. To put greater focus on protection products.

    Reliance Life - Sam Ghosh, chief executive officer at Reliance Capital: Implementation of the direct tax code may slow down sales somewhat, as savvier large-ticket holders may opt out, but smaller holders will not. An estimated $1 billion will be required this year and $2.5 billion in the next year and should be self-sufficient after that.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.) 
 

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