Housing sale down 4% in 8 cities in 2015; 6.9L units unsold

New Delhi: Housing sales fell by 4 percent to 2,63,720 units last year, lowest since 2010, in the eight major cities of the country on account of demand slowdown in the real estate market despite interest rate cut by the RBI.

The National Capital Region (NCR) continued to be the worst performing market in India with sales and launches at six year low, property consultant Knight Frank said in its report released today.

Launches of new homes fell by 21 percent in 2015 at 2,44,944 units in the primary market of eight major cities – NCR, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad.

The unsold inventories have declined marginally to 6.91 lakh units from nearly 7.15 lakh units in 2014. Developers would take more than 2.5 years to exhaust this unsold stock.

Commenting on the report, Knight Frank India CMD Shishir Baijal said: “2015 for Indian real estate had both the good and bad news. While the office market grew from strength to strength, residential did not perform as expected.”

Residential segment continued to face slowdown with launches at a five year low, despite the festive season.

“Sales in 2015 were lower than 2014 levels. Despite the 125 bps rate cut by RBI, demand did not see an uptake. Our outlook for 2016 remains muted. To further revive the demand, it is important to transmit the benefits of the rate cuts to consumers,” Baijal said.

In the Delhi-NCR market, housing sales fell marginally to 48,503 units in 2015 from 48,630 units in the previous year.

However, launches of new homes fell by 20 percent to 63,458 units in NCR. The unsold inventory in NCR stands at 2.06 lakh units at the end of 2015.

On housing prices, Knight Frank India National Director (Residential Agency) Mudassir Zaidi said the prices grew by an average 3 percent last year. However, he said the rate of growth has come down from 9 percent to 3 percent in the last 36 months.

In contrast to the housing segment, Knight Frank India’s Executive Director (North and Capital Markets) Rajeev Bairathi said the office space absorption stood at 40.4 million sq ft, highest since 2012, in six cities – Mumbai, NCR, Bengaluru, Chennai, Hyderabad and Pune.

Delhi-NCR witnessed absorption of 7.4 million sq ft of office space last year.

“Supply of quality office space is now a concern with vacancy levels at an eight year low. Rentals have firmed up as a result,” he added.

Among sectors driving growth, IT/ITeS continues to lead with start-ups. “This year, however, we saw e-commerce and start-ups contribute to the office space uptake in a major way. Going forward, we have to wait to see if this trend continues,” Bairathi said.

Pressure mounts on Reserve Bank of India to cut policy rate, say experts

With inflation falling to record low levels and industrial growth slipping to below 2 per cent, bankers and economists feel the pressure has increased on the Reserve Bank to cut benchmark interest rate next month. The six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel will meet on August 1-2 for the third bi-monthly monetary policy review of 2017-18. The MPC in its previous review in June had retained the repo rate at 6.25 per cent for the fourth straight time citing risk to inflation.

Private sector Kotak Bank is of the opinion that since the RBI has revised down its inflation trajectory sharply in the June policy, and given that inflation reading, the central bank has some room to be accommodative.

“We expect the MPC to cut repo rate by 25 bps in the August meeting,” the bank said in report.

BofA Merrill Lynch Global Research too expects the MPC to cut rates by 25 basis points (0.25 percentage point).

An SBI report said that most inflation risks are now on the downside and expect the retail inflation to be sub-2 per cent for the next month, sub-3 per cent for August-September and sub-4 per cent for October-November and 4-4.5 per cent between December and March.

For 2017-18, CPI inflation average could thus be below 3.5 per cent with a downward bias, the report added.

The retail inflation, which the RBI mainly factors in while deciding interest rate, has declined to historical low of 1.54 per cent in June. The wholesale price inflation for the month too has dropped to eight month low.

reserve bank of india news, banking and finance news, business news, indian express newsIndustry chamber CII is of the view that declining inflation, which has been undershooting the central bank’s inflation target by a large margin, should induce the RBI to resume its rate easing cycle.

CII said it “strongly recommends” a rate cut of 50 basis points in the forthcoming monetary policy to provide a fillip to demand.

Commenting on the retail inflation data, Chief Economic Advisor Arvind Subramanian had said the “paradigm shift” in inflationary process has been missed by all, who have made “systematic inflation forecast error”, apparently referring to the RBI.

In the MPC, RBI Governor Urjit Patel had argued for avoiding “premature policy action” and waiting for more inflation data.

“Incoming data is expected to provide greater clarity on the durability of recent food and non-food disinflation,” he had opined.

One of the MPC members Ravindra Dholakia, however, had advocated a 50 basis point cut in the repo rate, saying several noteworthy developments recently on prices and output fronts warrant a decisive policy action.

Non-performing assets: ‘Actions by RBI, government to mitigate bad loans by 2019’

The stressed assets problem plaguing Indian banking system is well documented. Gross non-performing asset (NPA) ratio for banks is at their peak and the problem seems to show no signs of abating. The question to ask in such a scenario is how big the actual problem is and what does it entail for the banks? To give an estimate, there are nearly Rs 12 lakh crore of stressed assets in the country’s banking system.

These constitute nearly 15 per cent of the outstanding loan books of these banks. Of this, banks have already sold around Rs 2 lakh crore worth of such loans to asset reconstruction companies (ARCs), leaving about Rs 10 lakh crore on their own books. Taking the past experience into account, nearly 35 per cent or Rs 3.5 lakh crore of the Rs 10 lakh crore will eventually need to be marked down by banks in the form of provisions and write-offs.

These numbers reflect a massive problem which requires a concerted and strong response. The Reserve Bank of India (RBI) and the government have gone about solving this in a very phased and planned manner. They have identified that the problem is of gigantic proportions and a one-shot resolution would serve no purpose and could potentially yield disastrous consequences. The response has evolved over the couple of years through a variety of steps, each designated to further push towards a clean-up in the banking system.

Asset quality review

The process started in 2015, with the AQR undertaken by the RBI. This pushed the banks towards transparency in recognition and classification of NPAs across the board. While this resulted in significant provisioning by banks and decline in profitability, it also established a clear picture of the nature of problem faced by the banks. The good news is that banks have already provisioned Rs 2 lakh crore of the Rs 3.5 lakh crore markdown they are expected to take on their stressed loans. Effectively, more than half the markdown is already over. Additionally, banks are now providing around Rs 35,000-40,000 crore every quarter. Usually, it takes 3-5 years for the provisioning and ‘real value’ to catch up. So, the required provisioning should be complete in another 4-5 quarters. This will effectively complete Phase-I where the mark to market for these stressed loans will be accomplished.

RBI, modi government, loans, bank loans, latest news, business newsRestructuring and NCLT

With the provisioning requirements almost taken care of, the time is now opportune for banks to aggressively get into restructuring mode. The economy, global as well as Indian, is also on an uptick, creating an amenable environment for promoters to agree to reasonable restructuring terms. This is because promoters also now see the potential of an upside in case the restructuring works out. This is in contrast to a couple of years ago when the relatively weaker growth meant that the promoters could afford to wait and drive a harder bargain as restructuring presented no viable benefits for them.

In such a scenario, the RBI direction on referring companies to the National Companies Law Tribunal (NCLT) could push the NPA clean-up process into its end-game. While the modalities to this are being worked out, the process has already been initiated for a few cases. Assuming most cases will be referred to the NCLT by October 2017, we could expect most resolutions/ restructurings to be in place by June 2018.

What next?

According to our estimates, more than 70 per cent of these cases will be restructuring and resolutions wherein the debt will be written down to sustainable levels. Banks will take equity positions in these companies and new investors will provide additional capital. These companies would be then run with higher governance oversight and stricter loan covenants. As banks will take debt haircuts, promoters will take significant equity haircuts and new investors will ensure better management of these companies going forward. Capital allocation and efficiency will be the key for these companies as they try to tread back the path to normalcy. We estimate that around Rs 40,000-50,000 crore of new additional capital will have to be infused to make these companies perform efficiently again. This will be infused by a mixture of existing promoters, ARCs, stressed asset funds and private equity (PE) investors. These investors will also drive the turnaround for these companies through stronger oversight.

Starting afresh

Driven by the strengthening economy and pushed by the government, regulators, banks and capital providers, we expect the bad loan situation to be significantly mitigated by 2019. The economy can then look forward to a fresh capital expenditure cycle. Coupled with strong consumption & savings, continued seminal reforms like the goods and services tax and aided by the continued trend of global capital flows, we can expect to see the Indian economy firing on all cylinders in the next few years.

Interview for RBI deputy governor post on July 29

A search panel headed by the Cabinet Secretary is scheduled to interview candidates on July 29 to find a successor for RBI Deputy Governor S S Mundra, who is completing his three-year term this month-end. The Financial Sector Regulatory Appointment Search Committee (FSRASC) has shortlisted about 10 names who have been called for interview on July 29, sources said.

Some of the bankers who have been shortlisted include Canara Bank Managing Director Rakesh Sharma, Andhra Bank Managing Director Suresh N Patel, Vijaya Bank Managing Director Kishore Sansi. Besides, former managing directors of Union Bank of India and Oriental Bank of Commerce Arun Tiwari and Animesh Chauhan, respectively are also in the fray for the position reserved for a banker.

A few names from the private sector have also been shortlisted, sources said. The central bank has four deputy governors -— two from within the ranks and one commercial banker and another an economist to head the monetary policy department. The members search committee includes RBI Governor, Financial Services Secretary and three independent members.

RBI, reserve bank of india, RBI Deputy Governor, RBI Deputy Governor interview, ss mundra, FSRASC, RBI governor, indian express news, india news, business newsIndependent members of the committee are Rajiv Kumar, senior fellow Centre for Policy Research; Manoj Panda, director, Institute of Economic Growth; and Bimal Patel, director, CEPT. According to the notice put up on the RBI’s website, applicants should have extensive experience as a full-time director or board member and possess understanding, at a very senior level, of supervision and compliance in the financial sector.

Strong com petencies working with financial performance data, including interpreting, summarising and communicating high-level output and strong and clear communication skills on matters of public policy are also listed as criteria for sending application, it said.

Last date for filing applications was June 21 and those applying for the post should not exceed 60 years of age as on July 31 2017. Following this about 90 applications had come and after scrutiny, about 10 were shortlisted. The appointment will be made for a period of three years and the person will be eligible for re-appointment. The post will have a fixed salary of Rs 2.25 lakh per month plus allowances.

Monetary Policy Committee members to get Rs 1.5 lakh per meet, disclose assets every year

The government appointees on the powerful Monetary Policy Committee will be paid Rs 1.5 lakh per meeting along with air travel and other reimbursements, but will need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”. The silent period and confidentiality requirements will also apply to the three RBI members, including the Governor, on the panel that has been deciding on policy rates since October last year, the central bank has said.

The members of the RBI Governor-chaired panel, which has to hold meetings at least four times in a year, are also required to be mindful of any conflict between their personal and public interest while interacting with profit making organisations and making personal financial transactions, the Reserve Bank said in its newly notified regulations for functioning of the committee.

The six-member MPC, constituted in September 2016, has three persons appointed by the central government while the rest, including the Governor, are from the RBI.

The members appointed by the government would “receive a remuneration of Rs 1,50,000 for devoting time and work for each meeting of the committee… which they attend and other expenses relating to air travel, local transportation and accommodation as may be decided by the central board from time to time,” as per the regulations.

The panel is required to meet at least four times in a year and the RBI has been convening a bi-monthly meeting of this committee.

Chetan Ghate, professor at the Indian Statistical Institute, Pami Dua, director at the Delhi School of Economics and Ravindra H Dholakia, professor at the Indian Institute of Management, Ahmedabad are the three government-appointed members.

Their appointment is for a period of four years or until further orders, whichever is earlier.

Apart from RBI Governor Urjit Patel, Deputy Governor Viral V Acharya and Executive Director M D Patra are also part of the committee.

The regulations do not mention whether any separate allowance would be given to the RBI members on the committee.

Earlier this year, Patel and his deputies got a big pay hike with the government more than doubling their basic salary to Rs 2.5 lakh and Rs 2.25 lakh per month, respectively.

The “basic pay of the Governor and Deputy Governors” have been revised retrospectively with effect from January 1, 2016 and marks a huge jump from Rs 90,000 basic pay so far drawn by the Governor and Rs 80,000 for his deputies.

According to the Monetary Policy Committee and Monetary Policy Process Regulations, 2016, MPC members should also take adequate precaution to ensure utmost confidentiality of its policy decision before that is made public and preserve confidentiality about the decision making process,

These regulations were notified by the RBI earlier this month.

“While interacting with profit-making organisations or making personal financial decisions, they shall be mindful of, and weigh carefully, any scope for conflict between personal interest and public interest,” the regulations said.

Each member of the MPC has one vote and in case the numbers are equal, the governor has the casting vote.

monetary policy committee news, banking and finance news, business news, indian express newsThe MPC, which has the responsibility of achieving a set inflation target, should submit a report to the government in case of failure to achieve the required target.

In such instances, the report shall be sent to the central government “within one month from the date on which the bank has failed to meet the inflation target”.

The regulations further said the schedule of the MPC meetings for the entire fiscal year needs to be announced in advance. At least 15 days of notice is required for convening a meeting ordinarily, but an emergency meeting can be called with 24 hours notice for each member and technology-enabled arrangements need to be made for even shorter notice period meetings.

All members need to disclose their assets and liabilities and update this information once every year.

“Members shall observe a silent or blackout period starting seven days before the voting/decision ray and ending seven days after the day policy is announced. During this period, they will avoid public comment on issues related to monetary policy other than through the MPC’s communication framework,” the RBI said.

Also, members cannot reveal outside the committee any confidential information accessed during the monetary policy deliberations.

After conclusion of MPC meeting, a resolution needs to be made public including on the policy repo rate and any other monetary policy measures at the discretion of the Chairperson while keeping in view the functioning and timing of financial markets.

10-year review of PSU banks’ equity return: Profitability fails to keep pace with govt capital infusion

Even as the government has progressively stepped up its capital infusion in state-owned banks throughout the last decade, the lenders have seen their bottomlines take a steady slide. In the past couple of years, public sector banks incurred combined net losses of over Rs 19,529 crore, even as the government capital infusion during these two years, at Rs 47,915 crore, was the highest in the last decade, according to data sourced from the finance ministry and stock exchanges.

Government infuses capital into PSU banks to support credit expansion and to help them tide over losses resulting from provisions that are to be made for non-performing assets (NPAs). Banks profits deteriorated sharply in the last two years as NPAs spiked and the RBI mandated asset quality review forced them to make higher disclosures of non-performing loans. State-owned banks earned the highest combined net profit of Rs 45,849 crore in 2012-13, in the year when the government infused a total of Rs 12,517 crore in the PSU banks. However, in 2015-16, when the government put in a record Rs 25,000 crore, the banks suffered the highest ever combined losses of Rs 20,003 crore.

While in any normal business higher profits are expected to accrue from greater allocation of capital, the data shows that PSU banks’ profits faltered even as they received large doses of capital — mainly due to rising NPAs requiring banks to set aside a portion of their profits towards provisions. The Gross NPA of banks has risen to 9.6 per cent in March 2017 from 9.2 per cent in September 2016, as per the RBI data. As against a net profit of Rs 36,264 crore in 2009-10, when the capital infusion was about Rs 1,200 crore, the data of 2016-17 shows a net profit of Rs 474 crore when the capital allocation Rs 22,915 crore.

To put the PSU banks’ house in order, the government has taken a series of measures in last 2-3 years including asking banks to agree to operating performance norms for getting capital, amending the loan recovery laws, merging associate banks with the parent State Bank of India, among others. Last year, the government enacted the Insolvency and Bankruptcy Code, and empowered the RBI this year to issue directions to banks to take defaulter companies to the National Companies Law Tribunal for initiating insolvency resolution.

In order to conserve capital allocation and to make banks efficient, the finance ministry has started signing memorandum of understanding (MoU) linking capital infusion into banks to operating performance. These agreements require banks agree to certain business turnaround initiatives, reduction in NPAs, generation of adequate return on assets, among others. Banks not meeting the performance conditions will have to shrink the size of their balance sheet and shut not-profitable branches.

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Rising capital needs

While these measures are expected to reduce the pressure on the government of providing capital to the banks, their capital is likely to erode sharply on account of initiation of corporate insolvency resolution for large defaulters. Experts argue that state-owned banks will require much higher capital than estimated by the government, which is already reassessing its estimates.

In 2015, the Centre launched the Indradhanush plan of banks reforms to infuse Rs 70,000 crore into public banks over a four-year period. The government that estimated that public banks would require about Rs 1.8 lakh crore of capital by 2019. In the current financial year, the Centre has planned to put in Rs 10,000 crore into public banks.
In a report last month on the 11 public sector banks that it rates, rating agency Moody’s said that these banks will require external equity capital of about Rs 70,000 crore to Rs 95,000 crore, which is much higher than the remaining Rs 20,000 crore budgeted by the government towards capital infusion until March 2019.

The initiation of the corporate insolvency resolution the process is expected to inflict more pain on the banks as resolution is unlikely to be possible without lenders’ taking large haircuts on the loan values. As per an analysis by rating agency Crisil, banks are likely to take a haircut of 60 per cent, worth Rs 2.40 lakh crore, to settle 50 large stressed assets with debt of Rs 4 lakh crore. These 50 companies are from the metals (30 per cent of total debt), construction (25 per cent) and power (15 per cent) sectors, and account for half of the Rs 8 lakh crore NPAs in the banking system as on March 31, 2017.

RBI sets rupee reference rate at 64.3580 against dollar

The Reserve Bank of India today fixed the reference rate of the rupee at 64.3580 against the US dollar and 75.0607 for the euro. The corresponding rates were 64.4494 and 75.1287,yesterday. According to an RBI statement, the RBI, repo rate. Dollar, rupees. Industrial output growthexchange rates for the pound and the yen against the rupee were 83.8778 and 58.05 per 100 yens, respectively, based on reference rates for the dollar and cross-currency quotes at noon.

The SDR-rupee figure will be based on this rate, the statement added.