FRANKFURT: Twenty-five banks including Italy’s Banca Monte dei Paschi di Siena SpA failed a stress test led by the European Central Bank, which said almost half of them must act to raise more capital. The central bank in Frankfurt identified a 25 billion-euro shortfall ($32 billion) for the region’s lenders, and said 12 of them have now raised enough funds. Eleven banks need more capital, including Monte Paschi with a gap of 2.1 billion euros. “Although this should restore some confidence and stability to the market, we are still far from a solution to the banking crisis and the challenges facing the banking sector,” Colin Brereton, economic crisis response lead partner at PwC, said in an e-mailed statement. “The Comprehensive Assessment has bought time for some for Europe’s banks.” That two-part exam, comprising an Asset-Quality Review of balance sheets as of Dec. 31, 2013, and a stress test, forms one pillar of the ECB’s drive to move the euro zone forward after half a decade of financial turmoil by making its impact on the banking system transparent. Banks will have from six to nine months to fill the gaps and have been urged to tap financial markets first. The ECB’s stress test was conducted in tandem with the London-based European Banking Authority. The EBA’s sample largely overlaps the ECB’s, though it also contains banks from outside the euro area. The ECB assessment showed Italian banks in particular are in need of more funds as they cope with bad loans and the country’s third recession since 2008. Monte Paschi, Italy’s third-biggest bank, Banca Carige SpA and two other smaller cooperative lenders have a combined 3.3 billion-euro gap that must be replenished because the measures taken this year weren’t sufficient, the Bank of Italy said in a statement today. http://economictimes.indiatimes.com/news/international/business/25-european-banks-fail-stress-test-12-have-fixed-holes-already/articleshow/44939750.cms?prtpage=1
NEW CHALLENGES FOR NEW-LOOK RBI
When a conglomerate embarks on a restructuring exercise, it’s big news for business newspapers. A central bank doing so doesn’t attract much attention as it has no bearing on its fight against inflation or, say, foreign exchange management. Taking advantage of that, the Reserve Bank of India (RBI) is restructuring itself without the distracting noise of newspaper headlines. Last week, it announced reshuffling of the portfolios of its four deputy governors, close on the heels of creation of two new positions for executive directors, and appointment of three (one against an existing vacancy). The highlight of the latest development is breaking down the silos and merging all critical operations. For instance, different executives currently look after regulation of commercial banks, cooperative banks and non-banking financial companies. Now, a single person will oversee regulation across segments. A few years back, the interior of RBI central office on Mint Road in Mumbai was overhauled with a glass and leather finish. Now, governor Raghuram Rajan is restructuring the entire organization. Indeed, there have been tweaks in the past. For instance, the financial stability unit was carved out of the monetary policy department. The financial markets department was also created in the same way, but there has been no full scale restructuring. It needs to do that for a couple of reasons. The RBI—an institution with a bloated bureaucracy—must reposition itself to meet the needs of the changing times. It is about to give licences to new sets of banks like payments banks and small banks and put the licence of full-service banks on tap. Unless it hones its own skills and develops expertise, it will not be easy to manage. If RBI doesn’t change itself, changes will be thrust upon it. http://www.livemint.com/Opinion/3euUm9JzZSTJfI0ClZ9NGP/New-challenges-for-newlook-RBI.html?facet=print
BANKS STEP UP RESTRUCTURING OF STRESSED ASSETS
Mumbai: Indian banks have only two quarters left to restructure stressed assets without significantly dragging down their profits—a fact that’s prompting banks to step up the recast of loans that may eventually need restructuring. Effective 1 April 2015, the Reserve Bank of India’s regulatory forbearance, under which banks were allowed to qualify restructured assets as standard, will come to an end. For now banks are setting aside 5% of the value of the loan to cover the risk of default on any restructured assets. Starting in the next financial year, when all restructured assets will be termed as non performing assets (NPAs), or bad loans, the requirement will increase to a minimum 15%. The change will also mean banks’ bad-loan portfolio will swell. In fact, fearing an increase in bad assets once change takes effect, bankers have already started asking RBI to extend the forbearance for another year, the Business Standard reported on 15 October. The bankers, according to the report, have told RBI that if the window is not extended, their gross NPA ratio will rise to 10% from 4% in March 2014. Bad loans in the banking system rose to 4.03% of total advances in 2013-14 from 3.42% in 2012-13 and 2.94% in 2011-12, finance minister Arun Jaitley told the Parliament on 1 August, as slower economic growth and delays in securing statutory approvals such as environmental clearances and completing land acquisition stalled many big-ticket projects, hurting companies’ ability to generate cash flows and repay loans on time. The economy grew less than 5% in each of the previous two years. http://www.livemint.com/Industry/1nB7QEBJWg95sU4RcQNUeJ/Banks-step-up-restructuring-of-stressed-assets.html?facet=print
BOND YIELDS LIKELY TO FALL, RUPEE MIGHT WEAKEN
Mumbai: Government bond yields are likely to fall further this week, with expectations increasing for a rate cut by the Reserve Bank of India in the current financial year itself, which is triggering bond-buying among traders. The rate cut expectations are fuelled by softening inflation numbers. The yield on the 10-year benchmark government bond is already at a one-month low. The yield ended at 8.36 per cent on Wednesday compared to the previous close of 8.37 per cent. The bond market was shut on Thursday and Friday on account of Diwali. “The yield on the 10-year bond may fall to 8.30 per cent this week. The broad trading range is seen at 8.30-8.38 per cent. The bias is towards falling yields,” said the head of treasury of a state-run bank. The Street expects that six months down the line, the 10-year yield might even fall to eight per cent. Consumer Price Index-based inflation cooled to 6.46 per cent in September, the lowest since January 2012, owing to falling prices of fruits and vegetables. The rupee is expected to fall this week, weighed down by month-end dollar demand from importers and dollar demand after a two-day holiday in the domestic foreign exchange market. http://www.business-standard.com/article/finance/bond-yields-likely-to-fall-rupee-might-weaken-114102500545_1.html
NO CAUSE FOR CHEER YET IN Q2 EARNINGS
Mumbai: Second-quarter earnings of Indian companies are trickling in and a review of the financial statements show that a sustained recovery in earnings growth remains elusive. In fact, operating profit growth in the three months ended 30 September slowed as sales remained sluggish amid tepid demand. Drug maker Biocon Ltd reported flat September quarter net profit and a marginal increase in sales. Kotak Mahindra Bank Ltd’s consolidated September quarter profit rose 23.2% from a year earlier and met analysts’ estimates, because of higher other income and lower provisions. Axis Bank Ltd’s profit rose 18.2%, as the bank earned more from its core lending business. Housing Development Finance Corp. Ltd, the nation’s largest mortgage financier, reported an in-line 7% rise in September-quarter profit, excluding those of its units. Reliance Industries Ltd reported a 4.5% increase in second-quarter profit, driven by improved gross refining margins and lower input costs. Cairn India Ltd reported a 33% drop in net profit in the quarter ended 30 September because of lower crude oil prices and shutdown for maintenance at its Rajasthan block. http://www.livemint.com/Companies/Jrs6Slj9UIlPlz8yhbqOMI/No-cause-for-cheer-yet-in-Q2-earnings.html?facet=print
HDFC BANK: COMFORT ON EARNINGS STAYS
HDFC Bank’s (HDFCB) Q2FY15 PAT (profit after tax) grew 20% year-on-year (in-line) to R23.8 bn. A 10 basis point quarter-on-quarter improvement in NIM (net interest margin) was to an extent compensated by lower-than-expected other income (+11% y-o-y) and higher opex (+19% y-o-y), resulting in in-line PAT. After six quarters of 10% y-o-y growth, the bank reported some traction in fee income (+13% y-o-y) on account of a pickup in third-party business, higher retail liability fees and good traction in transactional banking fees. Post an average 5% growth over the last four quarters, opex grew 19% y-o-y, led by 23% y-o-y growth in other operating expenses on account of higher DSA (direct sales agent) commissions (traction in retail disbursements and strong branch additions). The cost to core income ratio increased to 46.9% from 45.4% in Q1FY15. Other highlights: (i) net stressed loans declined 12bp q-o-q led by a 10bp reduction in restructured loans, (ii) ex-FCNR (foreign currency non-repatriable) deposits raised in Q3FY14, core loan and deposits growth stood at 18.8% and 18.4% respectively, (iii) CV/CE (commercial vehicle, construction equipment) q-o-q growth (+4%) turned positive after three quarters of continuous decline and (iv) CASA (current account savings account) deposits grew 20% y-o-y (+5% q-o-q). CASA ratio rose +20bp q-o-q to 43.2%. Valuation and view: HDFCB is best-placed in the current environment, with a CASA ratio of 43%, growth outlook of at least 1.3x industry, least asset quality risk and healthy CET1 (common equity tier-1) of 11%+. While restriction on FII (foreign institutional investors) limit remains an overhang, we believe valuations are reasonable. Comfort on earnings (23%+ CAGR) remains high. RoE (return on equity) is likely to be 23%+. Maintain Buy. http://www.financialexpress.com/news/hdfc-bank-comfort-on-earnings-stays/1302180
ICICI LOMBARD EASES CLAIMS PROCESSING FOR AP CYCLONE VICTIMS
Hyderabad: To provide speedy relief to those who were affected by the recent Hudhud cyclone in Andhra Pradesh, ICICI Lombard is processing claims with minimum documentation. According to RBI norms, the documents required for property insurance claims are loss estimate with asset-wise break-up, surveyor’s assessment report and KYC (Know Your Customer) papers. For vehicle claims, the company requires the duly filled claims form. In the case of vehicles that have suffered total damage or loss, an FIR would also be necessary. One also needs to carry a copy of the registration certificate of the vehicle and final repair invoice bill from the repairer. “We understand the hardships faced by our customers in this hour of need. We have also installed a hotline facility on our helpline number to provide immediate assistance to our customers,” Sanjay Datta, Chief, Underwriting & Claims, ICICI Lombard General Insurance, said in a release. http://www.thehindubusinessline.com/todays-paper/tp-news/icici-lombard-eases-claims-processing-for-ap-cyclone-victims/article6536098.ece
SKS MICROFINANCE RESULTS SHOW IT’S BACK IN A SWEET SPOT
SKS Microfinance Ltd’s September quarter results show it is in a sweet spot. With its Andhra Pradesh portfolio written off and regulatory uncertainty over in the microfinance space, the firm can focus on growth in an under-penetrated market. A successful `400 crore capital-raising earlier this fiscal year means that operating leverage will boost its profitability as its loan book expands. It has been successful in doing precisely that in the September quarter as well. SKS’s loans outstanding, excluding those in Andhra Pradesh, jumped 50% from a year ago to `3,043 crore, in what is traditionally seen as a lean quarter. Even sequentially, loan book growth was 37%. Disbursements were strong partly because the average ticket size of the loans also increased 10% from a year ago. The return on its average gross loan portfolio increased to 7.3%, an improvement of 90 basis points (bps) over the June quarter. That was largely driven by an improvement in gross yields to 25.9%, up 3.8 percentage points over the June quarter. One basis point is one-hundredth of a percentage point. SKS’s gross costs on interest bearing liabilities increased to 14% in the September quarter, up 1.2 percentage points over the April-to-June number. That said, its cost of funding is likely to come down in the coming quarters. For one, general interest rates in the economy could come down over the course of the next year. Secondly, SKS’s credit rating for bank borrowings was upgraded in June. The fact that the firm is confident about funding costs going down can also be seen from the fact that it cut lending rates by 1 percentage point from the beginning of the current quarter. Ultimately, a larger portfolio will help it spread out costs even more and drive operational efficiency. http://www.livemint.com/Money/hphYwucS0Z0KkeZN9JhR3L/SKS-Microfinance-results-show-its-back-in-a-sweet-spot.html?facet=print
MF INVESTMENTS IN IT STOCKS HIT ALL-TIME HIGH IN SEPT
New Delhi: This also marks the fourth consecutive rise in mutual fund (MF) industry’s exposure to software stocks. Mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. The funds’ investment in software stocks stood at Rs 31,834 crore as on 30 September, 2014, accounting for 10.83 per cent of their total equity assets under management (AUM) of Rs 2.94 lakh crore, according to data available with the Securities and Exchange Board of India (SEBI). At current levels, the MF industry has the highest exposure to software sector since August 2009. Data is not available for sector-wise exposure before August 2009, when the equity funds had deployed Rs 11,913 crore (6.71 per cent) in software shares. The previous high was in August this year when investment in the sector rose to Rs 29,668 crore. According to market participants, MFs have been showing interest in software stocks since the beginning of the year amid rising equity market. They believe that the ongoing market rally might see mutual fund assets getting diversified. This year has seen a consistent growth in investment in software stocks by equity fund managers and fund infusion has grown from Rs 27,772 crore in January to Rs 31,834 crore in September. Besides, mutual fund managers raised their exposure in bank stocks to an all-time high of over Rs 55,398 crore in September this year, which is the highest among all the sectors. http://www.millenniumpost.in/NewsContent.aspx?NID=73559
SEBI-DLF CASE MAY HAVE WIDER RAMIFICATIONS FOR REALTY SECTOR
New Delhi: As realty giant DLF fights a three-year capital markets ban imposed by regulator Sebi, the case is being seen as one having wider ramifications for the entire real estate sector and the regulatory framework applicable to them. Sebi barred DLF and six others, including the company’s chairman and other top executives, earlier this month from accessing capital markets for three years for “active and deliberate suppression” of material information at the time of its public offer more than seven years ago in 2007. The company has challenged the order through an appeal before the Securities Appellate Tribunal (SAT), which would hear the case next on October 30. During the first hearing last week, the company sought an interim relief from the Tribunal, while the regulator faced the flak for delay in passing the order and also for the adverse impact suffered by minority shareholders of DLF in the form of a huge 30 per cent plunge in the company’s market valuation in a single day post the order. While promoters own 74.93 per cent stake in DLF, foreign institutional investors have close to 20 per cent and retail shareholders have about 4 per cent among others. As the case progresses, the industry experts are of the opinion that it could potentially become a watershed case for the capital markets and other regulations applicable to the real estate companies. Without willing to be named, as the matter is currently before SAT, top executives from real estate sector and capital markets intermediaries said the case needs to be seen in a different perspective from those pertaining to sectors other than real estate. http://www.dailypioneer.com/business/sebi-dlf-case-may-have-wider-ramifications-for-realty-sector.html
