Indian inflation rises to nearly 9%

India's inflation unexpectedly accelerated in March to nearly nine percent, data showed on Friday, piling pressure on the central bank to be more aggressive as it battles to tame price rises.

Annual headline inflation, measured by the wholesale price index, India's main price measure, leapt to 8.98 percent in March from 8.31 percent the previous month, stoked by higher food, fuel and manufacturing costs.

The figure was far above market expectations of 8.30 percent and the highest of any major Asia-Pacific economy.

The commerce ministry also sharply revised upwards January's inflation reading to 9.35 percent from 8.23 percent earlier.

"With inflation numbers of this magnitude, especially core inflation, the Reserve Bank of India (RBI) may feel compelled to be a bit more aggressive next time around," said HSBC chief India economist Leif Lybecker Eskesen.

India released the data on the same day China revealed that inflation in the world's second-biggest economy had soared to a 32-month high.

The Asian Development Bank warned last week that controlling inflation was the region's "top priority" as strong growth, turmoil in the Middle East and Japan's nuclear crisis drive up food and oil prices.

The RBI has raised its key policy rates eight times since March 2010, making it the most hawkish central bank in Asia.

"Inflation is the most important short-term problem," said Montek Singh Ahluwalia, deputy head of India's Planning Commission, who urged the RBI to use "all the flexibility" at its disposal.

Price rises are a major political headache for the embattled Congress party-led government, which is also reeling from a string of corruption scandals.

Poorer households, the backbone of the party's support, have been especially hard hit by inflation which is a traditional lightning rod for political discontent in the country of 1.2 billion.

Fuel and power prices climbed 12.92 percent while food rose 9.47 percent, the commerce ministry data showed.

Economists expect the central bank to hike rates again at its next meeting on May 3, even with recent data showing industrial output slowing sharply as a result of monetary tightening.

"Today?s inflation number cements the case for a hike at next month?s meeting," said Credit Suisse economist Robert Prior-Wandesforde.

Bank policymakers have sought to minimise the risks to economic growth by raising rates in quarter point steps, but economists now say it may move more boldly with a possible half a percentage point rise in May.

Ahluwalia warned high interest rates could derail the government's nine percent growth target for this year by slowing investment and consumption.

"We may not hit nine percent," he told reporters.

Economists now say inflation, initially fuelled by spiralling food prices, has spilled over into the general economy, pushing up wages and other costs.

Asian economies including South Korea, China, Indonesia and Taiwan are all battling inflation pressures with global prices of crude oil riding at $122 and other commodities costs rising.

China reported Friday 2011 first-quarter growth slowed slightly to 9.7 percent while inflation hit 5.4 percent year-on-year in March -- its highest since July 2008.

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Rabobank gets licence for banking operations

Mumbai: Netherlands-based Rabobank Nederland announced on Friday that it had received permission from the Reserve Bank of India (RBI) to start full-fledged local banking operations, as it seeks to take advantage of growth prospects in the world’s second fastest expanding major economy.

“This will help Rabobank to substantially expand its current range of services in the Indian market,” the Dutch lender said. “Rabobank’s application for this licence is part of the bank’s international strategy to expand its activities in major growth markets with a strong food and agriculture base.”

The licence comes nine months after it sold an 11% stake in private sector Yes Bank Ltd. It still has a 4.82% holding in the Indian lender, according to the Bombay Stock Exchange.

Under Indian banking regulations, a foreign bank holding more than 5% equity in an Indian lender can’t apply to open branches in the country.

Rabobank was a promoter in Yes Bank, holding as much as 20% when the private bank got a licence in 2004. This stake was reduced to 15.82% as Yes Bank sold shares to raise capital.

In India, the Rabobank Group also runs Rabo India Finance Ltd, a non-banking financial company that lends to food and agri-businesses and renewable energy companies, besides advising on mergers and acquisitions.

A Rabo India Finance spokesperson said the bank received the RBI approval on Thursday.

“The licence gives us an opportunity to start banking operations, but it is too early to say on what we will do with Rabo India,” she said.

Globally, Rabobank is focused on the food and agriculture business with origins in the local loan cooperatives that were founded in the Netherlands nearly 110 years ago, according to its website.

“India’s food and agriculture sector is currently estimated to be €185 billion (Rs11.7 trillion) and it is estimated to reach a size of €400 billion by 2025,” Rabobank said, adding that with a likely gross domestic product (GDP) growth of 7-9% annually, India could become the third largest economy by 2030.

The Indian licence will allow Rabobank to accept deposits and provide working capital loans to companies, besides dealing in foreign exchange, domestic fixed-income products and trade finance.

With the credit to GDP ratio at just about 60%, India presents an opportunity for new entrants such as Rabo, said Rajeev Mehta, research analyst with India Infoline Ltd.

Credit to GDP ratio is bank loan or credit as a percentage of GDP. Lower credit to GDP ratio means there is a huge scope for banks to lend more.

“Developed countries have a credit to GDP of more than 100%, so India presents a huge opportunity,” he said. “But with only one branch, Rabo will start with wholesale and corporate banking.”

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RBI to conduct Rs 600 bn special repo auction today

The Reserve Bank of India (RBI) will be conducting a special fixed rate term repo auction at 4.75% per annum (p.a.) against eligible securities for Rs 600 billion on Monday, Sep. 7, 2009.

The move will provide liquidity to mutual funds (MF), non-banking financial companies (NBFC) and housing finance companies (HFC) either on incremental or on rollover basis.

The reversal of the auction will take place on Sep. 22, 2009. There is no amount outstanding under this facility as on Aug. 31, 2009.

The apex bank had increased the daily liquidity adjustment facility (LAF) till Mar. 31, 2010 up to a cumulative amount of Rs 600 billion on outstanding basis exclusively for the purpose of meeting requirements of MFs, NBFCs and HFCs.

Sensex fails to maintain initial gains, ends lower by 81 pts

Mumbai, Apr 22 (PTI) In high volatility, the Bombay Stock Exchange 30-share Sensex today failed to maintain its initial gains and ended lower by 81 points due to persistent selling pressure in view of political uncertainty and fall in US index futures.
Realty, consumer durables, capital goods and auto were the main losers despite key rate cuts by the Reserve Bank of India yesterday.

Dealers attributed the volatility in the market to investors' cautious approach as also the uncertain political situation because of no clear indication as to who will form the next government.

The Bombay Stock Exchange bellwether Sensex showed signs of recovery in the morning with a jump of 138 points in response to the Reserve Bank's rate cuts yesterday but it failed to maintain its rally in the afternoon session.

The BSE-30 share index resumed higher at 10,968.60 and hovered in a range of 11,036.24 and 10,715.66 before finishing the day at 10,817.54, showing a net loss of 80.57 points or 0.74 per cent from its previous close.

The 50-share Nifty of the National Stock Exchange also fell by 35 points or 1.04 per cent to end at 3,330.30 from its last close.

Foreign institutional investors (FIIs) pulled out Rs 191.01 crore yesterday, as per provisional figures issued by stock exchanges.

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Repo boost: Experts hail move, want further policy steps

Experts unanimously hailed the Reserve Bank’s repo rate cut by 100 basis point as positive, but added that the impact on capital markets would not be much. Most experts felt that confidence in the market was low and decisions needed to be taken to counter short-selling and volatility.


The RBI today cut the repo rate cut — the first since 2003 — in a bid to infuse liquidity into the system. (Read: RBI cuts repo rate) After the announcement, the Sensex rose about 500 points but negated the rise later in the day to end 247 points up.


Terming the cut as a prompt move carried out in the best interests in the economy, Deven Choksey of KR Choksey Securities said this is the beginning of a cut and we may see interest rates coming down gradually.


Ajay Bagga, CEO, Lotus India Asset Management Company, feels the rate cut was a big positive that surprised the market. “After nearly three years, this is the first rate cut. It signals the resolve of the regulators to move to a pro-growth stance.”


Shashank Khade, VP, Portfolio Management Services, Kotak Securities, felt the rate cut was expected even as it came a little ahead of time. “I am not sure whether the equity markets will really have too much to cheer immediately. Given the way the volatility in the markets has been, there has to be a much higher reward to actually invest in equity.”


What ails markets now?

Ambareesh Baliga of Karvy Stock Broking said the markets have their own set of problems. “There is a lack of confidence, which will not come just because of a CRR or a repo rate cut.”

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Liquidity adequate, global exposure small: ICICI Bk

Chanda Kochhar, Joint MD and CFO, ICICI Bank, said the bank has adequate rupee and global liquidity of Rs 12,000 crore. "We have no international investments, only loans on our balance sheet. We do not use rupee liquidity to fund global activities."


Kochhar said the bank has not seen a scale-down in deposit growths. "The focus this year is on current and savings accounts."



According to her, the bank has not seen an increase in NPAs, or Non Performing Assets, as the corporate sector is holding up. "About 90% of total loans are India related."

She feels the current investment pipeline is strong enough to ensure a 7.5% GDP growth.

Commenting on the banks' UK operations, Kochhar said exposures in the market there are very small given our size and profitability. "NPAs at 0% in UK subsidiary. Over 90% of investment in UK market are to companies with atleast 'A' rating."

She said there is a cash collateral of USD 45 million from the Bumi Group. "The net loan stands at USD 100 million for which there is adequate cover."

Here is a verbatim transcript of the exclusive interview with Chanda Kochhar on CNBC-TV18. Also watch the accompanying video.

Q: You have made four clarifications in the last fortnight or so. The RBI has clarified your liquidity position, but your stock is down 25% today. Is there any reason that you can think of why the stock market is hammering your stock down?

A: We have always believed that we would concentrate on our performance. The other thing we would do as a responsible bank is talk about facts. The rest of the movement if it happens is on the basis of rumours – we are on the point where we have to concentrate on our performance and on facts.

Q: You have actually spoken quite a bit about your liquidity position etc, obviously the market is worried about something. Are there any issues which might affect your performance or your balance sheets significantly in the foreseeable future – something that you’ve not had reason to report yet?

A: One of the things – the rumour that has been going around is about liquidity and as mentioned even in the morning that we have adequate and more than adequate rupee liquidity. We also have adequate global liquidity worth more than Rs 12,000 crore and also we do not use rupee liquidity to fund the growth of our international operations. So that’s one clear statement of fact and every rumour going around it which is not true has to be kind of discounted.

Secondly, in the recent past people have had questions on our international book on which we have clarified in the past. So I again clarify that in the ICICI Bank balance sheet we have no international investments as such. There are only loans which are primarily to Indian companies for their global operations. While they are foreign currency loans, they are related to the global operations on the Indian companies. As far as our UK subsidiary is concerned, yes, we do have certain amount of investments.


We have more than clarified about what the size of those investments is. Also more than 90% of those investments are still A minus and above ratings and given the context of our size of the group, having a balance sheet of Rs 4,84,000 crore and a net worth of Rs 47,000 crore – these exposures are very, very small. We have to look at them in that context. So if people have fears around that, I am only re-clarifying that these are small exposures given our size and our profitability.


Q: Have you seen a sharp increase in NPAs for ICICI Bank that you might report this quarter or in the next few?


A: No. The NPA levels continue to remain where they have been even in the last quarter. Even as we report earnings for Q2, you will not see anything untoward as far as the NPAs are concerned. In that context, even our UK subsidiary – as far as its entire loans and advances book is concerned there is actually zero NPA there.



Q: The other set of rumours doing the rounds is ICICI has lent to international companies, very clean loans at that time when they were lent with adequate collateral in terms of shares. But those shares have fallen and therefore some of those loans are now backed by inadequate collateral, and one of the names being mentioned is the Bumi Group. Are there generally fears that loans lent to global companies either from your global branches or from the Indian units are now being threatened that the stock market has fallen and not for any other reason?

A: Our total loans and advances even globally, 90% is India related. So, first of all global loans are very small even if a few of the loans exist.



The total amount of loan that Bumi Group loan has borrowed is USD 150 million. We have cash collateral against it to the extent of USD 45 million. So, the net loan amount is close to USD 100 million. Against that, we have more than adequate cover.



So, the non-India related loans are very few transactions – less than 10% of our global loans and advances, maybe a few transactions again which in some way or the other are related to India because again this is a company that exports a lot of coal to India and there is a whole lot of Indian linkage in terms of people buying coal from this company into India.



We have adequate security not just in the form of shares or other security, but in the form of pure cash collateral. Also, this is a company which has EBITDA of more than USD 500 million. So, there are underlying cash flows, there are other forms of securities, and we have a cash collateral sitting against it.


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