SBI says no interest rate hike likely in six months

Despite inflationary pressure, there will be no increase in the interest rate on loans in the next six months because of surplus liquidity in the market and rising deposits

The country's largest lender, State Bank of India (SBI), has said that there will be no hike in lending rates in the next six months as there is surplus liquidity in the market, reports PTI.

Despite inflationary pressure, there will be no increase in the interest rate on loans in the next six months because of surplus liquidity in the market and rising deposits, SBI chairman OP Bhatt told reporters.

Mr Bhatt said that there is a good amount of liquidity in the market and credit offtake is slowly picking up.

Referring to the ongoing merger process of SBI associate banks, Mr Bhatt said that SBI is a major stakeholder in SBI associate banks like State Bank of Saurashtra and State Bank of Indore.

"In fact, we did not have less than 75% stake in any of these banks and owned 100% in State Bank of Hyderabad and State Bank of Patiala which were with us for the last 50 to 60 years," he said.

State Bank of Saurashtra has already merged while the process was on with regard to State Bank of Indore, Mr Bhatt said.

The merger would improve SBI in terms of efficiency in operation, release of capital, economies of scale and avoiding waste and duplication. "More importantly, we are getting good quality people," he said.

However, the merger process, he said, should not be viewed in terms of a benefit as it was a process of restructuring within a family.

The SBI chairman did not think that the Indian economy had been affected by the recession. "The recession did not hit India the way it had affected European countries last year. There was only a slowdown in the growth rate which came down to 7% from 9%," he said.

Replying to a question on withdrawal of stimulus package by the government in the prevailing situation, Mr Bhatt said that the bailout package should not be taken back but 'phased out'.
Mr Bhatt claimed that the 8% interest on home loans announced by the SBI had provided market stability.

Buyers have started coming back and the cement and steel sectors have started improving, he said and also ruled out any further cut in the interest rate. In fact, SBI has forced other banks to follow suit, he added.

About SBI's tie-up with an Australian company to enter the general insurance sector, Mr Bhatt described it as “a meeting of minds” as it was looking for a partner for the purpose.

Mr Bhatt said, "The Australian company has the best technology, risk and product management (tools), whereas we have a large captive clientele to tap," he said.


Power tariffs in open market crash to Rs2-Rs5 per unit

Power tariffs in the open market have crashed to Rs2-Rs5 per unit in December from Rs12-Rs14 per unit in June 2009. Seasonal fluctuation leading to low demand is being stated as the reason for these low tariffs

Riding on high merchant power tariffs, a number of power companies have planned huge capacity expansions to cater to merchant power trading. The recent drop in merchant power tariffs, however, has shown that prospects are highly seasonal in this sector.

Power tariffs have fallen to Rs2 to Rs5 in December from a high of Rs12 to Rs14 per unit in June 2009. Merchant power tariffs have been on a downturn since September. They were quoted in the range of Rs6 to Rs8 by the end of September and the beginning of October 2009. In November they fell to Rs2 to Rs4 per unit, with power traded during non-peak hours falling to below Rs2 in mid-December 2009. During the last week of December, day-ahead market prices for merchant power on the Indian Energy Exchange ranged between below Rs2 per unit to Rs5 per unit.

Analysts believe that this drop is a seasonal phenomenon as power demand goes down in the winter. The situation will change from March onwards, with the onset of summer, they said.

Earlier, Moneylife had reported on how the volume of power trading over the past three years has jumped at a 22% compounded annual growth rate (CAGR) to 21 billion kilowatt hour (kWh) in 2008. These units were also traded at comparatively high tariffs—557 million units were traded between Rs8-Rs10 per unit (as against nil in 2007) and 5,292 million units were traded for Rs6-Rs8 per unit (as against 461 million units in 2007).

These high prices enjoyed in merchant power trading are due to the liberty that merchant power-generating companies have to trade power at any price during periods of peak shortage. The cost of electricity generation ranges between Rs1.75 per unit for coal-based power projects to Rs3.50 per unit for thermal power plants. Selling at Rs5 and above ensures super profits. At times of peak demand, power trading can fetch as much as Rs14 per unit, as reported in June 2009.

However, merchant power trading also has a downturn. Such high tariffs could be enjoyed only during the peak demand season; the prices could fall well below Rs5 per unit during off-peak demand seasons like winter—as in November 2009 and December 2009. As companies will not be able to cover their fixed costs and thus incur losses, companies trade power even at lower tariffs.

Lured by high merchant power tariffs, a number of companies have set aside some share of their total power production for merchant power sale. According to a report by broking firm Enam Securities Pvt Ltd, new power projects of 62 gigawatts (GW) will come up between 2011 and 2014. Of this, 13.3GW will come from merchant power projects.

Recently, Shree Cement Ltd announced plans to set up a 300 megawatt (MW) merchant power capacity at Beawar in Rajasthan. The power generated from this plant will be sold in the open market and not used for captive purposes.

Cement major Shree Cements has planned merchant power plants; drug manufacturer Torrent Ltd also plans similar expansions. Torrent is planning power projects of 3,647MW, 40% of which will be sold as merchant power. Adani’s 6,600MW power project includes 1,848MW for merchant power.

Huge power capacity is also expected from Jindal Steel & Power Ltd, which plans to ramp up capacity for merchant power from the current 4,000MW to 11GW by FY12 and 30GW by FY17.

Sterlite Industries Ltd also plans to set up a 2,400MW power project through Sterlite Energy, which is its 100% subsidiary, to gain space in the merchant power segment. Sterlite is planning power projects for a total of 4,400MW, out of which 40% would be merchant power projects.


Stocks shed early gains but close higher

Market to remain volatile till expiry of December contracts on Thursday

Stock market indices ended marginally higher on Tuesday after hitting 19-month highs during the day, but shed most of their gains towards the close of trading. The BSE Sensex ended 41 points higher at 17,402 while the NSE Nifty closed at 5,188, up 10 points.

Indian markets will remain volatile as traders roll over positions in the derivatives segment from December 2009 series to January 2010 series ahead of the expiry of the near-month December 2009 contracts on Thursday (31st December). Also, trading volumes are likely to remain low for the rest of the week as most foreign fund managers are on a year-end vacation. The market will remain closed on Friday (1st January) for the New Year holiday.

During the day, Bharti Airtel rose 2%, while Reliance Communications and Idea Cellular ended flat, on reports that the Indian telecom industry had an awesome run in 2009, adding some 170 million phone connections to take the subscriber base to nearly 550 million. India’s tele-density went up to an impressive 46.32% at the end of November 2009, against 32.34% a year ago. Meanwhile, the auction of spectrum for third-generation (3G) mobile services has reportedly been postponed by over a month and is likely to start by the end of February 2010.

Reliance Infrastructure jumped 3% on reports that its subsidiary, Reliance Power Transmission, has bagged two transmission projects worth Rs4,100 crore.

Reliance Power shot up 5% after the first 300MW unit of the company’s 1,200MW Rosa power plant in Uttar Pradesh started supplying electricity to UP Power Corporation, ahead of schedule.

Oil & Natural Gas Corporation dropped 1% following reports that the company will lend Rs4,000 crore to its overseas unit, ONGC Videsh, for investing in a gas field off Myanmar’s coast and a pipeline to carry the fuel to China.

ETC Networks jumped 5% after the company’s board approved a merger of the company with Zee Entertainment Enterprises.

Reserve Bank of India (RBI) deputy governor Shyamala Gopinath said the focus of India’s monetary policy is shifting to managing recovery and containing inflation from one concentrated on fostering growth after the global downturn. She said rising food prices were fuelling concerns of broader price pressures and the policy challenge was to address the supply-side constraints. She added that effective assessment of the inflation process and using monetary policy actions at the right time would be critical.

Meanwhile, petroleum secretary RS Pandey said the government has no immediate plans to raise fuel prices after a recent media report suggested that auto-fuel prices could be increased anytime early next year.

Indian companies have reportedly lined up equity raising plans of Rs1,50,000 crore in calendar 2010, which is close to two-and-a-half times what they raised through share sales in 2009. Earlier on Monday, prime minister Manmohan Singh said that the economy will grow at 7% or a little more in the current fiscal (2009-10).

Emerging-market equity fund inflows tripled last week as the outlook improved for developing-nation exporters, EPFR Global said on Monday. These funds attracted $1.7 billion in the week ended 23rd December, up from $571.4 million in the previous week, EPFR said. EPFR also said that this inflow added to a record $80.30 billion of investments in emerging-market stock funds so far this year, compared with outflows of $48 billion in the same period in 2008.

Asia ex-Japan equity funds also posted modest inflows of $179 million for the past week, with investors in this region rotating some exposure from smaller markets like Taiwan and Singapore to bigger ones such as China. China equity funds took in another $153 million, maintaining their record-setting pace, and dedicated BRIC equity funds also remain on track for a record-setting year after absorbing another $451 million.

India and Japan signed two important agreements on Monday for implementing the ambitious Rs3.6 lakh crore Delhi-Mumbai Industrial Corridor (DMIC) project which seeks to create integrated investment regions and industrial areas across six states. The agreements include collaborating in the development of eco cities that are environmentally and ecologically sustainable along the corridor and setting up of a project development fund to undertake activities like master planning & feasibility studies, preparing project reports and obtaining approvals and bid process management for projects.

During the day, Asia’s key benchmark indices in Singapore, Japan and China were up by between 0.04%-0.72% on the back of Japan’s industrial production surge and on reports that China has raised its economic growth forecast. However, indices in South Korea and Taiwan were down 0.05% and 0.78%, respectively.

On Sunday (27th December), Chinese premier Wen Jiabao indicated that the government is unlikely to withdraw its stimulus package until the ongoing recovery is sustained.

Japanese industrial production rose for the ninth straight month in November on increased output of cars for foreign customers, but the nation's retail sales continued to fall, signalling that Japan’s economic recovery remains fragile. As per the data released by the ministry of economy, trade and industry, the output at Japanese factories and mines gained by a seasonally adjusted 2.6% last month from October.

Meanwhile, Hong Kong’s exports rose for the first time in more than a year, helped by the global economic recovery. Exports rose 1.3% in November 2009 from a year earlier to HK$234.1 billion, the first increase since October 2008.

Imports in November also increased 6.5% from a year earlier to HK$254.8 billion.

In the US markets on Monday, the Dow Jones Industrial Average was up 27 points while the S&P 500 and the Nasdaq Composite rose by 5 points each.

According to the figures from MasterCard Advisors’ SpendingPulse, which track all forms of payment, retail sales rose 3.6% from 1 November 2009 to 24 December 2009, compared with a 2.3% drop a year ago.


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