S&P differs with Moody’s, upgrades Indian banking sector

“In our view, banking regulations in India are in line with international standards and the regulator RBI has a moderately successful track record,” S&P said while upgrading the risk profile (BICRA) a notch higher to ‘Group 5’

New Delhi: Differing with the downgrade accorded by Moody’s, leading ratings agency Standard & Poor's (S&P) has upgraded the Indian banking sector saying its domestic regulations are in line with international standards, reports PTI.

“In our view, banking regulations in India are in line with international standards and the regulator Reserve Bank of India (RBI) has a moderately successful track record,” S&P said while upgrading the risk profile (BICRA) a notch higher to ‘Group 5’.

The latest BICRA (Banking Industry Country Risk Assessments) of S&P comes a day after US-based Moody’s changed the outlook for the sector to negative from stable, a move which evoked sharp criticism from Indian government and bankers.

The new economic risk score of ‘Group 5’ by S&P reflects that India has ‘high risk’ in ‘economic resilience,’ ‘low risk’ in ‘economic imbalances’, and ‘high risk’ in ‘credit risk in the economy,’ S&P said.

In the ‘Group 6’ score on India’s economic imbalance was ‘intermediate risk’ which has now been upgraded to ‘low risk’.

S&P, however, noted that India’s economic resilience is constrained by its weak economic structure. “We note that a large and persistent fiscal deficit limits the government’s ability to stimulate growth through fiscal policies,” it said.

It said the Indian banking system has level of ‘stable, core customer deposit’, which limits dependence on external borrowing.

“We consider governance standards as generally adequate, though disclosures are somewhat inadequate,” S&P analyst Geeta Chugh and Deepali Seth said in the BICRA report.

Other countries in BICRA ‘Group 5’ are China, Portugal, Thailand and Turkey.

A BICRA analysis covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. It is rated on a scale of 1 to 10, ranging from the lowest-risk banking systems (Group 1) to the highest-risk (Group 10).

S&P, which had in September downgraded standalone ratings of State Bank of India (SBI), said high credit risks in the Indian banking sector reflects that the country has a weak payment culture and legal system that often result in low recoveries and delayed settlement of foreclosures.

“Nevertheless, we consider the lending and underwriting standards to be moderately conservative, and the sector concentrations as well as the currency risk exposures low,” it said.

It further said that while the loan growth in India has been high, banks have a limited share of high-risk lending and a negligible presence of complex and innovative products.

“Banks have a track record of stable profits, but returns are lower than Indian corporates’ though,” it said.

S&P also classified the Indian government as ‘highly supportive’ which reflects “our expectation that the government is likely to provide timely financial support to the banking system, if needed”.

Wednesday’s Moody’s downgrade of the banking sector could make overseas borrowings by banks costlier.

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Life insurers' premium income down 21% in Apr-Sept

Experts said life insurance players are not coming out with new products and hence, the new business premium income of these companies is declining. A lower number of unit-linked products (ULIPs) in their product basket is also reducing their policyholder base, they said

New Delhi: The premium income of life insurance companies declined by 21% in the first six months of the 2011-12 fiscal on account of a lower number of products hitting the market, reports PTI.

The total gross premium of the 23 players in the life insurance market declined by 21% to Rs49,046 crore in the April-September period of the current fiscal, as per Insurance Regulatory and Development Authority (IRDA) data.

The figure stood at Rs62,361 crore in the April-September of 2010.

The country’s largest insurer Life Insurance Corporation of India (LIC), which enjoys a 75% share of the total life insurance market, saw its premium income dip to Rs36,721.4 crore in the six-month period.

This was 20% lower than the Rs45,691 crore premium LIC earned in the corresponding period last year.

Experts said life insurance players are not coming out with new products and hence, the new business premium income of these companies is declining. A lower number of unit-linked products (ULIPs) in their product basket is also reducing their policyholder base, they said.

Private players also witnessed a 26% decline in premium income to Rs12,325 crore during the six-month period ended 30th September.

Industry players said the second half of this fiscal would be comparatively better, as the new guidelines on pension products would help increase sales of regular premium unit-linked pension products.

On Wednesday, insurance regulator IRDA asked all insurers selling pension products to disclose maturity benefits in the policy documents.

The new guidelines replace the earlier requirement of providing a minimum guaranteed return of 4.5% on all pension products, which did not find favour with life insurers.

On the other hand, the non-life insurance industry witnessed a 26% increase in gross premium collections during the April-September period to over Rs28,600 crore.

The four PSU general insurers—New India Assurance, United India Insurance, National Insurance and Oriental Insurance—witnessed a 25% increase in premium collections during the period.

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Kingfisher faces more turbulence, over 30 flights cancelled

The Directorate General of Civil Aviation (DGCA) had on Wednesday issued a show-cause notice to Kingfisher asking why it had not taken the regulator’s prior approval to curtail its flight schedules as required by the Aircraft Rules, 1937

New Delhi: Cash-strapped Kingfisher Airlines got into more turbulence on Thursday by cancelling over 30 flights for the fourth consecutive day even as some pilots and cabin crew did not turn up for duty by reporting sick, reports PTI.

Thousands of passengers across the country were inconvenienced by the cancellation of flights and in some cases paid a premium of 20%-40% to travel by other airlines.

Over the past four days, the Vijay Mallya-owned airline has cancelled more than 120 flights maintaining they were taking some aircraft off their schedule to add business class seats in them.

Asked about reports of 100 pilots quitting Kingfisher in the recent past, its CEO Sanjay Agarwal told PTI that this had happened over the past seven months. “We have over 650 pilots on our rolls now.”

“We decided to reduce frequency in some of the routes where we had multiple flights like Delhi-Mumbai or low passenger load like Nanded-Mysore,” he said, adding the entire exercise was part of route rationalisation to ‘improve profitability’.

The Directorate General of Civil Aviation (DGCA) had on Wednesday issued a show-cause notice to Kingfisher asking why it had not taken the regulator’s prior approval to curtail its flight schedules as required by the Aircraft Rules, 1937.

“We have explained that cancellations were temporary in nature because we have cancelled flights only up to 19th November. We are also rationalising our frequencies,” Mr Agarwal said.

Asked whether there was any plan to close down the airline, he vehemently said “no. The question does not arise.”

Airline sources said 30-odd pilots and cabin crew have not reported for duty in the past few days on grounds of sickness. The payment of October salary and allowances of the airline staff has been delayed.

The airline has suffered a loss of Rs1,027 crore in 2010-11 and has a mounting debt of Rs7,057.08 crore.

Kingfisher’s flight schedules have also been severely hit with three oil companies —HPCL, IOC and BPCL—stopping granting credit to it for lifting jet fuel and asking it to make payments on a daily basis.

Industry sources said the airline has grounded eight of its leased turboprop ATR aircraft.

The cash-strapped carrier also has unpaid dues to the operators of airports and other agencies, which have been putting pressure on it.

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