The RBI and the government are confronted with fresh challenges of weakening rupee which puts further pressure on inflation. Besides, slackening industrial growth leaves limited choices for the RBI and the government, especially in view of difficult global economic environment
New Delhi: Ahead of credit policy review, Reserve Bank of India (RBI) governor D Subbarao on Friday met finance minister Pranab Mukherjee and discussed ways to deal with spiralling prices aggravated by a weak rupee, reports PTI.
“I came to review the macro-economic situation with the finance minister...” Mr Subbarao told reporters after his meeting with Mr Mukherjee.
He said this was a standard practice for the RBI governor to discuss the state of economy with the finance minister before the review of the monetary policy. The RBI policy review is scheduled on 25th October, a day before Diwali.
The central bank has hiked interest rates by 350 basis points since March 2010 to deal with the persistent high inflation, including rising prices of food items.
The RBI and the government are confronted with fresh challenges of weakening rupee which puts further pressure on inflation. Besides, slackening industrial growth leaves limited choices for the RBI and the government, especially in view of difficult global economic environment.
Mr Subbarao and Mr Mukherjee also discussed the situation arising out of the rupee weakening to a 28-month low and crossing 50 to a dollar mark.
“We reviewed the macro-economic situation. Everything that is under macro-economy was discussed,” Mr Subbarao said.
Earlier, in the day the finance minister emphasised the need for better coordination between the government and RBI.
He said the global economic developments have “once again brought into focus the need for better co-ordination between monetary and fiscal policies towards improving overall economic stability and growth”.
Worried over high inflation, Mr Mukherjee said the government has to tackle the supply side constraints.
“I am worried that food inflation has reached double digit figure. The last week figure was 10.62%. Of course, for previous two weeks it was perilously close to double-digit figure. But it crossed that limit,” Mr Mukherjee said.
While the food inflation has touched a six-month high of 10.6%, the overall rate of price rise measured on the basis of Wholesale Price Index (WPI) is stubbornly close to double digit since December last year.
A weak rupee is also adding to the inflationary pressure as it pushes up the landed cost of imported commodities. India depends on imports to meet 80% of its crude oil requirement. It also imports a large quantity of vegetable oils and pulses.
According to certain media reports, Kotak Bank has slapped a legal notice on Trident Microfin for a dishonoured cheque. But the microfinance institution is under a CDR plan. This is a peculiar case—and there are a number of legal issues and questions surrounding this move
In the last couple of days, we have had news releases that claimed that “Kotak Bank has slapped a legal notice on Trident” (Kotak Mahindra Bank slaps legal notice on Trident, 19 Oct, 2011, PTI ), which is part of a CDR (Corporate Debt Restructuring) plan. And we have had various stakeholders condemning the action already. Moneylife decided to look into the various (legal issues and questions) surrounding this peculiar happening where a company committed to a corporate debt restructuring (CDR) has been apparently sent a legal notice.
As always, we provide a background and then delve into the various issues. “Trident is one of the five MFIs in Andhra Pradesh that became part of a corporate debt restructuring (CDR) plan, under which it had recast its debt” (http://www.thesundayindian.com/en/story/kotak-mahindra-takes-trident-microfin-to-court/3/24623/). Trident’s Managing Director, Mr Puli, said, “We received a legal notice on October 14. We had taken Rs4 crore loan from Kotak Bank and repaid Rs2.6 crore but could not service the remaining Rs1.6 crore, hence the court notice,” (http://news.in.msn.com/business/article.aspx?cp-documentid=5526776&vv=1200). However, according to Mr Puli, Kotak “was not part of Trident's CDR program” (http://www.thesundayindian.com/en/story/kotak-mahindra-takes-trident-microfin-to-court/3/24623/). Without doubt, this unusual happening raises a lot of questions indeed but before we get deeper into the issues, let us get to know Trident, the microfinance institution.
According to http://www.tridentmicrofin.com, “Trident Microfin Private Ltd. (formerly Annapurna Financial Services Pvt Ltd) is a new generation microfinance institution established in 2007 and headquartered at Hyderabad in Andhra Pradesh, India. The Company was promoted by highly qualified microfinance professionals with the motto 'to reach the unreached'. The overarching goal of the company is to provide comprehensive financial and business solutions to low income individuals and enterprises. The primary objectives are: a) To ensure that no bankable poor are left behind in the area of our operation; and b) To provide comprehensive financial and business solutions to low income individuals particularly women and micro-enterprises. Trident’s growth over the last few years is given below:
JSW Steel profit would have been much higher had the production not been cut due to severe iron ore shortage
JSW Steel Ltd reported net profit of Rs127.12 crore for second quarter FY12, on stand alone basis. The profit would have been much higher had the production not cut due to severe iron ore shortage and also the forex translation losses of Rs512.98 crore due to adverse movement in rupee dollar parity.
During the current quarter, the company achieved production of crude steel of 1.738 million tonnes. Production volume grew by 11% in crude steel, 2% in rolled flat products and 30% in rolled long products relative to that of corresponding quarter of the previous year. The company’s production was lower at least by 450,000 tonnes due to acute shortage of iron ore and higher procurement cost of iron ore also increased the cost of production of steel by about Rs1,500 per tonne during the quarter.
The company achieved quarterly sales volume of 1.882 million tonnes, 19% growth in sales volume and 33% in net sales value, compared to that of corresponding quarter of the previous year.
The turnover and net sales for the quarter stood at Rs8,242.55 crore and Rs7,625.06 crore respectively, showing a growth of 33% over the corresponding quarter of the previous year, mainly due to higher volume and improved sales realization. The EBIDTA for the quarter is Rs1,332.95 crore up by 15% over the corresponding quarter of the previous year. The company has posted a net profit after tax of Rs127.12 crore after considering foreign exchange translation losses.
Due to the unusual depreciation in the value of the rupee against US Dollar over the last three months, the net unrealized loss of Rs512.98 crore on restatement of foreign currency monetary items at close of the quarter has been considered by the company as an exceptional item.
The company’s net total debt gearing stood at 0.68 (as against 0.64, as on 30 June 2011) and the weighted average interest cost of debt is at 7.33% (vis-à-vis 7.81%, as on 30 June 2011).
JSW Steel closed at Rs580.45 per share on the Bombay Stock Exchange, 0.37% down from the previous close.