India expects demand and inflation to moderate following a recent monetary tightening by the central bank and after fiscal steps taken by the government, the finance minister said on Friday.
The Reserve Bank of India (RBI) said on Thursday it was raising the cash reserve ratio, the proportion of deposits banks must keep with it, by 50 basis points to 8 percent to calm inflation in Asia's third largest economy. The rise will take place in two phases, on April 26 and May 10.
"It will moderate demand. Therefore, it will have a moderating effect on prices," Finance Minister Palaniappan Chidambaram told reporters after a function.
But he added: "It will take some time. Don't expect miracles."
Government data showed on Thursday the wholesale price index rose 7.14 percent in the 12 months to April 5, slightly less than expected and falling from the previous week's rate of 7.41 percent, which was the highest since November 2004.
The RBI had said it wanted to keep inflation at close to 5 percent by the end of the 2007/08 fiscal year on March 31 and its medium-term aim is to contain inflation around 3 percent.
The RBI's surprise move on Thursday follows several duty cuts and export bans ordered by the government in recent weeks to ease price pressures.
Chidambaram said inflation in India has been fueled by global price spikes in crude oil, metals and food products.
"We can take some steps domestically but we don't have control over international prices," he said.
"We will be able to moderate inflation," he added.
At a separate function, Trade Minister Kamal Nath said the government was considering steps to curb price rise in steel.
"Steel prices have risen faster than input costs. We want steel companies to make profit. (But) we don't want them to profiteer," he said.
Saturday, April 19, 2008
RURALISATION STARTS
Standard Chartered is poised for an expansion unprecedented in scale and one that will transform the bank by giving it a sizeable presence in the rural areas, including a consumer finance brand.
Already the largest foreign bank in India, Standard Chartered has sought the Reserve Bank of India’s permission to open 100 rural branches, which are in addition to its annual plan of 40 new branches and 300 ATMs this year, which it has submitted to RBI for approval.
Asked if the rural thrust was influenced by the United Progressive Alliance government’s war cry of inclusive growth, Peter Sands, the UK-based bank’s group chief executive, said: “Absolutely. In all the markets in which we operate, we seek to understand what a community or a government is trying to achieve.”
The bank, which now has 83 branches in 33 cities in the country, has announced that it is investing $250 million to take its total capital base in India to $1.9 billion.
Apart from organic growth, Standard Chartered, which opened its first branch in India in Kolkata in April 1858, has grown rapidly in the last eight years by acquiring ANZ Grindlays, American Express and UTI Securities.
Its current expansion drive appears significant in view of the government’s commitment to open up the sector next year, removing the limitations on operations of wholly-owned subsidiaries of foreign banks and treating them on a par with Indian banks. This will allow them to list on bourses, dilute equity and acquire other banks subject to the equity ceiling of 74 per cent.
The rural expansion that Standard Chartered has planned, the first such by a foreign bank in India, will change it in several ways. “I think it will significantly reposition the bank. If we go on this sort of rural expansion, it will be a dramatic change,” said Sands.
The products and services delivered in small towns will certainly be different from those in the metros.
“The kinds of products and the way you would deliver them would be somewhat different… The products that would appeal to small businesses in rural communities are not the same as the products that will appeal to India’s largest corporate houses,” said Sands.
The Standard Chartered branches in the rural areas will be supplemented by the outlets of Prime Financial, a consumer finance brand it acquired in Hong Kong and brought to India some time ago.
“We are always looking at what more we can offer. Prime Financial is one example. UTI Securities is another. We keep looking at the way our customers’ needs are evolving,” said Sands.
He is determined to go much beyond merely token involvement. “It is often said that an international bank is only interested in serving major corporate houses and certain parts of the population. By unilaterally submitting an application for these 100 rural branches, we are indicating that actually we are ready to serve the border range of the population and business communities,” he said.
The hunt for manpower — it is an issue in the banking industry, even more so for an expanding bank — has already taken Standard Chartered to more than two dozen business schools. Earlier, it would only hire from the top five or six Indian Institutes of Management.
In fact, it has also begun to hire non-MBAs.
The bank is setting up a $500 million micro-finance facility with the target to touch an estimated 4 million people in the emerging markets.
In India, the bank aims to partner with over 20 micro-finance institutions by December this year and extend operations to the North and the North-East.
Already the largest foreign bank in India, Standard Chartered has sought the Reserve Bank of India’s permission to open 100 rural branches, which are in addition to its annual plan of 40 new branches and 300 ATMs this year, which it has submitted to RBI for approval.
Asked if the rural thrust was influenced by the United Progressive Alliance government’s war cry of inclusive growth, Peter Sands, the UK-based bank’s group chief executive, said: “Absolutely. In all the markets in which we operate, we seek to understand what a community or a government is trying to achieve.”
The bank, which now has 83 branches in 33 cities in the country, has announced that it is investing $250 million to take its total capital base in India to $1.9 billion.
Apart from organic growth, Standard Chartered, which opened its first branch in India in Kolkata in April 1858, has grown rapidly in the last eight years by acquiring ANZ Grindlays, American Express and UTI Securities.
Its current expansion drive appears significant in view of the government’s commitment to open up the sector next year, removing the limitations on operations of wholly-owned subsidiaries of foreign banks and treating them on a par with Indian banks. This will allow them to list on bourses, dilute equity and acquire other banks subject to the equity ceiling of 74 per cent.
The rural expansion that Standard Chartered has planned, the first such by a foreign bank in India, will change it in several ways. “I think it will significantly reposition the bank. If we go on this sort of rural expansion, it will be a dramatic change,” said Sands.
The products and services delivered in small towns will certainly be different from those in the metros.
“The kinds of products and the way you would deliver them would be somewhat different… The products that would appeal to small businesses in rural communities are not the same as the products that will appeal to India’s largest corporate houses,” said Sands.
The Standard Chartered branches in the rural areas will be supplemented by the outlets of Prime Financial, a consumer finance brand it acquired in Hong Kong and brought to India some time ago.
“We are always looking at what more we can offer. Prime Financial is one example. UTI Securities is another. We keep looking at the way our customers’ needs are evolving,” said Sands.
He is determined to go much beyond merely token involvement. “It is often said that an international bank is only interested in serving major corporate houses and certain parts of the population. By unilaterally submitting an application for these 100 rural branches, we are indicating that actually we are ready to serve the border range of the population and business communities,” he said.
The hunt for manpower — it is an issue in the banking industry, even more so for an expanding bank — has already taken Standard Chartered to more than two dozen business schools. Earlier, it would only hire from the top five or six Indian Institutes of Management.
In fact, it has also begun to hire non-MBAs.
The bank is setting up a $500 million micro-finance facility with the target to touch an estimated 4 million people in the emerging markets.
In India, the bank aims to partner with over 20 micro-finance institutions by December this year and extend operations to the North and the North-East.
TIME STARTS FOR SME
UK-based financial institutions and banks are keen on investing in Indian small and medium scale enterprises (SMEs) and a large number of establishments are also keen to invest in public-private partnership (PPP) and private finance initiative (PFI) projects in India. Mayor of London David Lewis, on his business delegation visit to Pune, said this on Friday.Lewis pointed out that sectors like infrastructure, pharmaceuticals, health and automobile are at the top priority for UK's financial firms. "The SME sector remains the most attractive segment for UK investors. The private sector in general will grow at a rapid speed in India. We also want companies from this particular segment to enter UK and set up offices there," Lewis stated.The initiatives taken by the UK-India Business Council have also produced excellent results in this particular sector over last three months. Council CEO Sharon Bamford told reporters that since January 1 this year, 26 new business proposals are nearing completion in UK through the council. "We are helping the small Indian companies to set up offices in UK and their investment needs are met through UK-based investors," Bamford stated.The mayor of London, will meet Prime Minister Manmohan Singh in New Delhi next week to discuss ways to further liberalise business processes in India. "At present, the trade from UK to India is worth Rs 70,000 crore and the same can further increase. However, issues like restrictions on foreign banks and law firms in India as well as the red-carpet attitude has put breaks on business processes. We will raise all these concerns with concerned ministers in Delhi," he added.
Discussion Forum on CRR Hike
What do experts read into the rate hike?
MBN Rao, CMD, Canara Bank, said the CRR hike has been triggered by over 7% inflation. “The fact that RBI increased CRR as against increasing the repo rate is to control the money supply availability at the disposal of banks in terms of credit expansion. To that extent, we will take it as a hint that there should be a reallocation of credit to sectors. Banks will have to await RBI policy to review interest rates. This hike does not signal a rate hike,” he added.
ICICI Prudential's Nilesh Shah also shares Rao’s reactions. He feels inflation is a concern right now and probably RBI would like to manage liquidity rather than raise rates. “Somewhere, liquidity management will become key to manage inflation rather than just raising rates, which could be counterproductive with growth. Inflation is a bit driven by supply side limitations and you can only create capacity by lending money, not by restricting money. RBI would like to wait and see the impact of a CRR hike rather than raise rates during the Credit Policy.”
Shubhada Rao, Chief Economist, Yes Bank, said the fact that RBI brought it ahead of the Credit Policy carries some amount of surprise but elevation of inflation at over 7-7.5% is what has prompted it. “The impact of this would be felt a bit later. If one looks at the fiscal measures and CRR, one would tend to think that a repo rate hike possibility is now at abeyance. But I still would not rule out some additional measures on April 29. There could be a possible small hike in the repo rate but the probability has reduced clearly.
HDFC Chairman Deepak Parekh said a CRR hike was expected with this level of inflation. “Rs 18,500 crore mop up over a two-week period is not a very large bump up, the liquidity today in the market is reasonable. If this liquidity continues, we may not even increase interest rates, so it is too early to tell what the impact on interest rates is going to be.”
Parekh does not expect a further increase on April 29. “This will be the last of actions for the next few weeks to come in the foreseeable short future.”
However, Nitin Jain, Primary Dealers Section, ICICI Securities, feels conditions are ripe for a series of action by RBI. “This will be just a precursor to the rate hike in the policy.”
Does this hike imply a rise in deposit rates?
Chanda Kochhar, Joint MD, ICICI Bank, does not think so. She said one should not jump to conclusions that deposit rates would rise as there is currently liquidity in the system. “This measure is going to take away a large part of that liquidity. But it is still not creating a negative gap. We have to watch over the next one month as this becomes effective and how other parts of liquidity in the system moves."
However, Keki Mistry, MD, HDFC, feels deposit rates are not going to go up significantly though wholesale funding cost might go up a little bit. “The hike was expected. We need to see what kind of impact it has on change in costs of funds and deposits, i.e. the rate at which we raise funds. We will then take a call on lending rates."
Will loans get expensive now?
HN Daruwala, Chairperson, Central Bank of India, said the bank will take a holistic view after the April 29 Monetary Policy. “Inflation has to be curtailed and contained, then it goes without saying that we will have to go in for a higher lending rate. RBI Governor YV Reddy may increase interest or increase the repo rate. So, we will take a call on whether to raise rates after the Monetary Policy gets announced.”
The waiting game is also being played by HDFC Bank. Ashish Parthasarthy, Head-Treasury, HDFC Bank said the India’s second largest private sector bank would wait for the policy and take a appropriate decision thereafter.
How will bond markets react on Monday?
HDFC Bank’s Parthasarthy said bond yields would go up. “Though there was an expectation of monetary action now or at policy time, you will see bond yields moving up because of the action. Pure supply could also take the 10-year to 8.25%. However, if repo rates were to go up sometime if not immediately, you could see the 10-year anywhere between 8.25-8.5%. I don’t think it will go beyond that.”
Even ICICI Securities’ Nitin Jain sees the 10-year bond crossing 8.5% post policy. “The 10-year paper could go anywhere on Monday. It depends on how the market takes collectively all these measures and what view they form on Monday. Now, the talk is also of a reverse repo rate hike, not just a repo rate hike. RBI is reducing growth target to 7-7.5%. If that materializes, then the 10-year can cross even 8.5% after the policy.”
JP Morgan’s Krishnamurthy Vijayan said the hike is certainly going to effect investors who are thinking in terms of long-term bond funds. “After the last glorious year of equity, it was only now that people have started thinking in terms of asset allocation. That might affect sentiment a bit. Surprisingly, the bond markets had factored this in last week. Most bond fund managers have already built it into their strategy though NAVs may not be that drastically impacted there.”
MBN Rao, CMD, Canara Bank, said the CRR hike has been triggered by over 7% inflation. “The fact that RBI increased CRR as against increasing the repo rate is to control the money supply availability at the disposal of banks in terms of credit expansion. To that extent, we will take it as a hint that there should be a reallocation of credit to sectors. Banks will have to await RBI policy to review interest rates. This hike does not signal a rate hike,” he added.
ICICI Prudential's Nilesh Shah also shares Rao’s reactions. He feels inflation is a concern right now and probably RBI would like to manage liquidity rather than raise rates. “Somewhere, liquidity management will become key to manage inflation rather than just raising rates, which could be counterproductive with growth. Inflation is a bit driven by supply side limitations and you can only create capacity by lending money, not by restricting money. RBI would like to wait and see the impact of a CRR hike rather than raise rates during the Credit Policy.”
Shubhada Rao, Chief Economist, Yes Bank, said the fact that RBI brought it ahead of the Credit Policy carries some amount of surprise but elevation of inflation at over 7-7.5% is what has prompted it. “The impact of this would be felt a bit later. If one looks at the fiscal measures and CRR, one would tend to think that a repo rate hike possibility is now at abeyance. But I still would not rule out some additional measures on April 29. There could be a possible small hike in the repo rate but the probability has reduced clearly.
HDFC Chairman Deepak Parekh said a CRR hike was expected with this level of inflation. “Rs 18,500 crore mop up over a two-week period is not a very large bump up, the liquidity today in the market is reasonable. If this liquidity continues, we may not even increase interest rates, so it is too early to tell what the impact on interest rates is going to be.”
Parekh does not expect a further increase on April 29. “This will be the last of actions for the next few weeks to come in the foreseeable short future.”
However, Nitin Jain, Primary Dealers Section, ICICI Securities, feels conditions are ripe for a series of action by RBI. “This will be just a precursor to the rate hike in the policy.”
Does this hike imply a rise in deposit rates?
Chanda Kochhar, Joint MD, ICICI Bank, does not think so. She said one should not jump to conclusions that deposit rates would rise as there is currently liquidity in the system. “This measure is going to take away a large part of that liquidity. But it is still not creating a negative gap. We have to watch over the next one month as this becomes effective and how other parts of liquidity in the system moves."
However, Keki Mistry, MD, HDFC, feels deposit rates are not going to go up significantly though wholesale funding cost might go up a little bit. “The hike was expected. We need to see what kind of impact it has on change in costs of funds and deposits, i.e. the rate at which we raise funds. We will then take a call on lending rates."
Will loans get expensive now?
HN Daruwala, Chairperson, Central Bank of India, said the bank will take a holistic view after the April 29 Monetary Policy. “Inflation has to be curtailed and contained, then it goes without saying that we will have to go in for a higher lending rate. RBI Governor YV Reddy may increase interest or increase the repo rate. So, we will take a call on whether to raise rates after the Monetary Policy gets announced.”
The waiting game is also being played by HDFC Bank. Ashish Parthasarthy, Head-Treasury, HDFC Bank said the India’s second largest private sector bank would wait for the policy and take a appropriate decision thereafter.
How will bond markets react on Monday?
HDFC Bank’s Parthasarthy said bond yields would go up. “Though there was an expectation of monetary action now or at policy time, you will see bond yields moving up because of the action. Pure supply could also take the 10-year to 8.25%. However, if repo rates were to go up sometime if not immediately, you could see the 10-year anywhere between 8.25-8.5%. I don’t think it will go beyond that.”
Even ICICI Securities’ Nitin Jain sees the 10-year bond crossing 8.5% post policy. “The 10-year paper could go anywhere on Monday. It depends on how the market takes collectively all these measures and what view they form on Monday. Now, the talk is also of a reverse repo rate hike, not just a repo rate hike. RBI is reducing growth target to 7-7.5%. If that materializes, then the 10-year can cross even 8.5% after the policy.”
JP Morgan’s Krishnamurthy Vijayan said the hike is certainly going to effect investors who are thinking in terms of long-term bond funds. “After the last glorious year of equity, it was only now that people have started thinking in terms of asset allocation. That might affect sentiment a bit. Surprisingly, the bond markets had factored this in last week. Most bond fund managers have already built it into their strategy though NAVs may not be that drastically impacted there.”
INDIAN LUGGAGE INDUSTRIES TEND TO GROW MAFIFOLD
UK-based luggage brand, Antler, today forayed into the Indian market through a marketing tie-up with leading travel goods player, Safari Industries.Antler products will now be available in India in the price range of Rs 4,695-Rs 11,995, and would offer a variety of travel goods in the premium segment, Antler's Head of Export Division, Clarie Willoughby, told reporters here.These include roller cases, trolleys, laptop cases, casual bags and messenger bags, amongst others, Willoughby said, "We outsource our products from China but with increasing labour wages and fluctuating currency of China, we will have to look at other markets like Vietnam, Sri Lanka and India," she said.Safari is eyeing at around 14-15 per cent marketshare from the premium brand in the next three years, Safari Industries' Managing Director, Amul Mehta, said.Safari plans to roll-out 55 outlets by this year-end of which 15 would be premium outlets, he said. "We will invest around Rs 5 crore for rolling-out these outlets," he said, adding that at present, the company had 45 stand-alone outlets.The company decided on a tie-up with Antler as it would be easy to enter the premium-end of the market through an established premium brand, Mehta said."Premium products are driven more by popularity," he said.
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