Money & Banking
RBI to create central repository on large credits

According to RBI it is necessary to build a repository of large credits and share it  with banks so that the lenders are aware of building leverage and common exposures

The Reserve Bank of India (RBI) has decided to create a central repository on large borrowers, both individuals and entities, with an exposure of more than Rs10 crore to help banks deal with credit risks.

 

In a notification, the central bank said it is necessary to build a repository of large credits and share it with banks for enabling them to be aware of building leverage and common exposures.

 

“Accordingly, it has been decided to use the information supplied by the banks through the return on large borrowers (Form A)...which captures the system-wide exposure of individuals and entities having exposure (both fund and non-fund based) of more than Rs10 crore, for creation of a central repository of large credits across banks,” it said.

 

Raghuram Rajan, on taking over charge as governor of RBI, had said the central bank proposes to collect credit data and examine large common exposures across banks.

 

“This will enable the creation of a central repository on large credits, which we will share with the banks. This will enable banks themselves to be aware of building leverage and common exposures,” he had said.

 

RBI collects the data from banks and non-submission of or wrong reporting attracts penalties.

 

“Banks are advised to take utmost care of data accuracy and integrity while submitting data on large credit to the RBI, failing which penal action...would be undertaken,” the central bank said.

 

The gross non-performing assets (NPA) of public sector banks rose to Rs1.76 lakh crore at the end of the June quarter from Rs1.55 lakh crore on March 2013.

 

The ratio of gross NPAs to gross advances for commercial banks rose from 2.36%in March 2011 to 3.92% in June 2013.

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Slump in auto industry continues; hope depends on festive season

Although domestic car sales grew 15.4% and two-wheelers by 3.8%, all other segments experienced drop in sales during August. Even car sales growth is attributed to low base effect from last year

Notwithstanding the 15.4% growth in domestic car sales and 3.8% increase in monthly sales for two-wheelers, the auto industry continues to slump. This is because the increase in passenger car sales due to low base effect of last year. However, according to industry experts, the growth seen in August is unlikely to be sustained in September and a recovery in the market is likely to happen only in the next couple of quarters, especially during the festive season.

 

"In August auto volumes grew 7.5% year-on-year (yoy), the first time in seven months. However, except passenger cars and two-wheelers, all other segments experienced a drop in sales from August 2012. We expect the near-term demand weakness to continue through September, while the festival season is likely to lead only to a month-over-month recovery," said Rohan Kurde, auto analyst at Anand Rathi Financial Services, in a research note.

 

According to data released by Society of Indian Automobile Manufacturers (SIAM), during August, domestic passenger car sales grew 15.4% to 1.33 lakh units from 1.15 lakh units same month last year. The growth was mainly due to low base effect as a result of the month-long lockout last year at Maruti Suzuki's Manesar plant.

 

Sugato Sen, deputy director general of SIAM, said, "This (growth) is not a reflection of the market conditions. This is mainly due to Maruti Suzuki India Ltd's numbers compared to last year. The tough market conditions still remain. Interest rates are high, fuel prices continue to be high while sentiments are extremely low".

 

In August, Maruti Suzuki doubled its domestic car sales at 63,499 units as against 31,653 in the same month last year. The company had declared a month-long lockout at its Manesar plant in August 2012 following a violent labour unrest in which a senior executive was killed.

 

Hyundai Motor India Ltd registered a marginal increase during the month at 28,281 units as against 28,192 units last year. Tata Motors saw its sales plunge by 50.57% to 8,761 units as against 17,727 units during August last year.

 

India's largest utility vehicle maker, Mahindra & Mahindra, saw its domestic passenger vehicles sales decline by 25.45% to 18,137 units during the month.

 

According to SIAM data, during August, motorcycle sales grew 3.82% to 7.95 lakh units from 7.66 lakh units in the same month of previous year.

 

"The good monsoon has had an impact on rural sales of two-wheelers, especially that of motorcycles. We expect this to continue and the rural demand could also have a slight positive impact on car sales," Sen said.

 

During August, two-wheeler market leader Hero MotoCorp posted 1.61% increase in its domestic sales at 3.95 lakh units. Bajaj Auto saw its bike sales decline by 22.6% to 1.51 lakh units compared with 1.95 lakh units a year ago period. Honda Motorcycle and Scooter India's (HMSI) motorcycle sales jumped 48.68% to 1.44 lakh units as against 96,876 units in the year ago month.

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India does not have structural problems: Raghuram Rajan

Raghuram Rajan, the new governor of RBI, believes that the economic mess that the country finds herself in is not structural and can be fixed in incremental steps

While admitting that the Indian economy has serious problems to overcome, Raghuram Rajan, the new governor of Reserve Bank of India (RBI) believes that the very problems that India finds herself in, namely the current account deficit and balance of payment crises are not structural in nature, and can be fixed by incremental reforms.
 

“For the most part, India’s current growth slowdown and its fiscal and current-account deficits are not structural problems. They can all be fixed by means of modest reforms,” wrote Rajan in Project Syndicate, an economic think-tank. He added, “Indeed, despite its shortcomings, India’s GDP will probably grow by 5%-5.5% this year – not great, but certainly not bad for what is likely to be a low point in economic performance.”
 

Rajan believes that the key to India’s recovery is to take incremental steps, not necessarily major structural reforms, like clearing projects, fixing subsidies and easing financing flows. “The immediate tasks are more mundane, but they are also more feasible: clearing projects, reducing poorly targeted subsidies, and finding more ways to narrow the current-account deficit and ease its financing. Over the last year, the government has been pursuing this agenda, which is already showing some early results. For example, the external deficit is narrowing sharply on the back of higher exports and lower imports,” writes Rajan in Project Syndicate.
 

Why were most of the projects not cleared earlier? The main reason was the conservative mindset adopted by the Indian government amidst a series of scams and corruption charges. They put all the projects on hold. “India’s investigative agencies, judiciary, and press began examining allegations of large-scale corruption. As bureaucratic decision-making became more risk-averse, many large projects ground to a halt,” Rajan explains.
 

Rajan believes that the Indian public are depressed and are often critical of the government, which have hampered the pace of reforms, though he feels that the government should have acted quicker. Rajan writes: “...while the government certainly should have acted faster and earlier, the public mood is turning to depression amid a cacophony of criticism and self-doubt that has obscured the forward movement.”
 

Due to paralysis and self-doubt, the current account deficit widened as government shut down mines and banned iron ore exports. Rajan states: “..as large mining projects stalled, India had to resort to higher imports of coal and scrap iron, while its exports of iron ore dwindled. An increase in gold imports placed further pressure on the current-account balance. Newly rich consumers in rural areas increasingly put their savings into gold, a familiar store of value, while wealthy urban consumers, worried about inflation, also turned to buying gold.”
 

In addition to corruption and decision paralysis by the government, Rajan traced India’s problems to the accommodative monetary policies (i.e. quantitative easing of US) of developed countries which were targeted at avoiding recession in the West. However, according to Rajan, the recession never happened while India continued to have high relative interest rates, which constrained credit to businesses and investment.
 

Quoting figures to state the case for India, Rajan said that most of the India’s macroeconomic numbers are far better than other emerging markets, and that the situation is not as bad as most people think. He writes, “India’s public finances are stronger than they are in most emerging-market countries, let alone emerging-market countries in crisis. India’s overall public debt/GDP ratio has been on a declining trend, from 73.2% in 2006-07 to 66% in 2012-13 (and the central government’s debt/GDP ratio is only 46%). Moreover, the debt is denominated in rupees and has an average maturity of more than nine years. India’s external debt burden is even more favorable, at only 21.2% of GDP (much of it owed by the private sector), while short-term external debt is only 5.2% of GDP. India’s foreign-exchange reserves stand at $278 billion (about 15% of GDP), enough to finance the entire current-account deficit for several years.”
 

He concludes with an optimistic tone: “India can do better – much better. The path to a more open, competitive, efficient and humane economy will surely be bumpy in the years to come. But, in the short term, there is much low-hanging fruit to be plucked. Stripping out both the euphoria and the despair from what is said about India – and from what we Indians say about ourselves – will probably bring us closer to the truth.”

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COMMENTS

Yerram Raju Behara

3 years ago

People in responsible positions capable of influencing the economy with their actions, have to be optimistic. Optimism generates positive energy. As I mentioned in yerrambehara.blogspot.com the economy started turning round but the wheels would move for sometime like those of the chariot wheels of Lord Jagannath of Puri where it is the millions of population that have to push the chariot and not the expensive diesel or gas.

shivaji rao h

3 years ago

I am glad as one of the billions in India, that our new Governor, RBI has a positive attitude and definitely lead India out of the present crisis, if it may be called so..
Shivaji Rao H

Vinay Isloorkar

3 years ago

Wordsmith alright ! We have to wait and see if he delivers and if he walks the talk. The real challenge will be lateral thinking on the toes. One can only hope that Rajan is not straitjacketed by any one particular school of economic thought

MG Warrier

3 years ago

Refreshing pragmatism indeed. Expectations are building up around Dr Rajan. We needed someone who will speak out without fear of loss of votes or his/her own job. I think, that person has arrived.

REPLY

Vinay Joshi

In Reply to MG Warrier 3 years ago

Because he has carried the mandate from North Block to Mint Street!
Is FRBM2.0 in the offing?
Why 'control', FDI term expanded 13th?

Regards,

MG Warrier

In Reply to Vinay Joshi 3 years ago

I am not sure, this space will allow a detailed discussion on the subject. As regards my views on challenges before new RBI Governor, please access my article on the subject published in September 2013 issue of Global ANALYST

nagesh kini

3 years ago

There are only confidence deficit policy paralysis concerns and no structural problems. We've had robust growth GDP on the upswing, great demand - otherwise the world's auto giants wouldn't set up shop here.Corporates are sitting cool on crores of cash.
The new RBI chief has to brandish the whip and not the magic wand - in Hindi it is rightly said - "Latho ke bhoot, baatose nahi manathey." What can be achieved with a strong kick can't be obtained by the use of sweet words.

nagesh kini

3 years ago

There are only confidence deficit policy paralysis concerns and no structural problems. We've had robust growth GDP on the upswing, great demand - otherwise the world's auto giants wouldn't set up shop here.Corporates are sitting cool on crores of cash.
The new RBI chief has to brandish the whip and not the magic wand - in Hindi it is rightly said - "Latho ke bhoot, baatose nahi manathey." What can be achieved with a strong kick can't be obtained by the use of sweet words.

Vinay Joshi

3 years ago

MLDT,

Raghuram Rajan had STATED this before he took office.

Let's see how he walks the talk!

Regards,

Ramesh Poapt

3 years ago

beutiful notes from new R Rajan.
mr.d subbarao, ex-guv.was very fearful being in his last phase of his post,depressed all.optimism in adversity,is new Mr.Rajan!Let us hope,wish and pray that he may save India from bad situation in the short/medium term!and we hope he will not be hindered by people,who hindered Mr.D.subbarao.That will be another though challenge to new Rajan!

Vinayak Bhimarao Mudholkar

3 years ago

India does not have structural problems....really?....We are wasting our demographic dividend !

REPLY

Suiketu Shah

In Reply to Vinayak Bhimarao Mudholkar 3 years ago

absolutely right.What load of rubbish he is talking.All fundamentals of the country are pathetic.

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