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Indian Economy News & Discussion - Aug 26 2015

All threads that are locked or marked for deletion will be moved to this forum. The topics will be cleared from this archive on the 1st and 16th of each month.
periaswamy
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Re: Indian Economy News & Discussion - Aug 26 2015

Postby periaswamy » 17 Nov 2017 11:42

It is quite alright to put a political spin on economic events if that pays your bills as a political operator, but it gets tiresome when "intellectuals" of the Pratap Bhanu Mehta and Mihir Sharma get all gleeful when Indian economy does poorly, and nothing good to say when things actually go right for a change.

Anyway, it is delicious to see the pretentious fakers like Mihir Sharma lose it on good news about the Indian economy or its appraisal by third-party observers. Mihir Sen Sharma is a dishonest "harvard edamacated economist" with a glorious track record of not getting a single thing right in the past few years w.r.t. the Indian economy. The Lutyens crowd in New Delhi makes sure that he enjoys a high profile as an "eminent economist" and he has his cheerleaders in congressi think tanks in bangalore like Rohini Nilenkani's Takshashila insitution and in Nehru-porn purveyors like Ram Guha.

These congress drones very good at maintaining a charade of political neutrality when they write articles for the Hindu or Business Standard about the Indian economy -- you know that when you notice that their views are not objective, when you would expect them to be, if you considered them politically neutral. They will stay silent when there is some positive set of economic event, and never stay silent if there is a negative spin of economic events-- the usual trademark of "neutral" political spinners.
Last edited by periaswamy on 17 Nov 2017 11:51, edited 1 time in total.

pankajs
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Re: Indian Economy News & Discussion - Aug 26 2015

Postby pankajs » 17 Nov 2017 11:45

It is good to see their surprise and disbelief and a lot of heartburn.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby hanumadu » 17 Nov 2017 11:50

In other news, it seems for the first time in a decade, India's ROI is greater than cost of capital. Private investment is expected to improve because of this.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Austin » 17 Nov 2017 12:55

Finance Minister Arun Jaitley Press Conference On Moody's Upgradation Of India's Rating: Highlights

https://www.ndtv.com/india-news/finance ... rpush=true

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Aditya_V » 17 Nov 2017 13:17

Austin wrote:Finance Minister Arun Jaitley Press Conference On Moody's Upgradation Of India's Rating: Highlights

https://www.ndtv.com/india-news/finance ... rpush=true


I personally do not trust Moody or NDTV. These are more wrong than right.

Rather we should look at stuff what was India's Budget deficit as a % of GDP 2009-14 Vs 2014-17 and proper statictics.

What was India power generation in actuals

What was India's imports from China in 2003-04 and imports from China in 2011-12 and what is it in 2016-17 and so in 2017-18. Was the growth rate similair?

Hard proper statics is what this nation requires and not media narratives.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Uttam » 17 Nov 2017 20:02

Austin wrote:Finance Minister Arun Jaitley Press Conference On Moody's Upgradation Of India's Rating: Highlights

https://www.ndtv.com/india-news/finance ... rpush=true



This is a BIGGGG f******* deal!!! Though long overdue. This will impact every sector of the economy. The sovereign rating forms the largest driver for treasury's borrowings, which in turn is the starting point for calculating corporate cost of capital. Typically, corporate cost of capital = treasury yield + default risk premium + liquidity risk premium + premium for systematic risk of the security (please don't worry about the exact formulation of this formula, this is for illustration purpose only). This rating upgrade should result in a drop of cost of capital by about 40 basis points, coming from the drop in treasury yield. This is based on the yield spread between Baa3 (11 nations including India) and Baa2 (9 nations) (Source: Prof. Aswath Damodaran, NYU). Most of this should be realized within a short period of time.

How does it affect the economy?
1) The asset valuation will immediately go up. For valuation calculation, the cost of capital appears in the denominator and cash flows in the numerator. A drop of 42 basis points in the denominator should result in an immediate rise of about 1/3 percent in asset value. This is somewhat evident from the rise in stock price today.
2) This will lower the cost of fund for all the infrastructure projects, encouraging public and private spending in this sector. This will have a long-term improvement in the numerator (cash flows) of the valuation formula cor corporation.

Overall, this is a wonderful recognition of the management of the economy. Kudos to Modi and his team.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby chetak » 17 Nov 2017 20:17

periaswamy wrote:It is quite alright to put a political spin on economic events if that pays your bills as a political operator, but it gets tiresome when "intellectuals" of the Pratap Bhanu Mehta and Mihir Sharma get all gleeful when Indian economy does poorly, and nothing good to say when things actually go right for a change.

Anyway, it is delicious to see the pretentious fakers like Mihir Sharma lose it on good news about the Indian economy or its appraisal by third-party observers. Mihir Sen Sharma is a dishonest "harvard edamacated economist" with a glorious track record of not getting a single thing right in the past few years w.r.t. the Indian economy. The Lutyens crowd in New Delhi makes sure that he enjoys a high profile as an "eminent economist" and he has his cheerleaders in congressi think tanks in bangalore like Rohini Nilenkani's Takshashila insitution and in Nehru-porn purveyors like Ram Guha.

These congress drones very good at maintaining a charade of political neutrality when they write articles for the Hindu or Business Standard about the Indian economy -- you know that when you notice that their views are not objective, when you would expect them to be, if you considered them politically neutral. They will stay silent when there is some positive set of economic event, and never stay silent if there is a negative spin of economic events-- the usual trademark of "neutral" political spinners.


Don't mind. :)

It is Mihir Swarup Sharma. In this case, a smug rose by whatever name can smell just as shitty.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Dipanker » 17 Nov 2017 21:27

Moody upgrades India's sovereign ratings from Baa3 to Baa2, is this really a big deal?

Some perspective can be had from looking Moody's rating for nations in sorted order (click on rating's up/down arrow) from this Wikipedia Link:
https://en.wikipedia.org/wiki/List_of_c ... #Moody.27s

Per this table, India has jumped (depending on interpretation) 7 positions from #59 to now #52


So what does upgrade from a #3 to a #2 in the same category means? From Moody's website:

Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that
generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities
firms.*


Moody Ratings:
https://www.moodys.com/Pages/amr002002.aspx
https://www.moodys.com/researchdocument ... =PBC_79004

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby A_Gupta » 17 Nov 2017 21:30

Uttam wrote:This rating upgrade should result in a drop of cost of capital by about 40 basis points, coming from the drop in treasury yield. This is based on the yield spread between Baa3 (11 nations including India) and Baa2 (9 nations) (Source: Prof. Aswath Damodaran, NYU). Most of this should be realized within a short period of time.


If we take India to be a $2.3 trillion GDP economy, and with a 69% debt-to-GDP ratio, and if all the debt is instantaneously refinanced with a drop in interest rate of 40 basis points that saves India $2.3 * 10^12 * 0.69 * 0.4/100 per year ~ $6.3 billion.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Uttam » 17 Nov 2017 21:44

Here is the list of other nations in Baa2 and Baa3:

Country GDP (in billions) Moody's rating
South Africa 314.6 Baa2
Philippines 284.8 Baa2
St. Maarten 1.5 Baa2
Colombia 292.1 Baa2
Panama 52.1 Baa2
Uruguay 53.4 Baa2
Bulgaria 12.9 Baa2
Italy 1821.5 Baa2
Spain 1199.1 Baa2
Namibia 11.5 Baa3
India 2095.4 Baa3
Indonesia 861.9 Baa3
Bahamas 8.9 Baa3
Montserrat 1.5 Baa3
Trinidad and Tobago 23.6 Baa3
Hungary 121.7 Baa3
Kazakhstan 184.4 Baa3
Romania 178 Baa3
Slovenia 42.8 Baa3
Andorra (Principality of) 3.25 Baa3


India is the fastest growing nation among its rating peers. The high growth rate comes with improving fiscal situation. This government has given a fairly free hand to RBI to manage the monetary policy. That should result in calm inflation for a long period of time. Improving Tax/GDP ratios will result in lowering fiscal deficit. Thus, I believe the next upgrade should not take 13 years.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Uttam » 17 Nov 2017 21:51

Dipanker wrote:Moody upgrades India's sovereign ratings from Baa3 to Baa2, is this really a big deal?

Some perspective can be had from looking Moody's rating for nations in sorted order (click on rating's up/down arrow) from this Wikipedia Link:
https://en.wikipedia.org/wiki/List_of_c ... #Moody.27s

Per this table, India has jumped (depending on interpretation) 7 positions from #59 to now #52


So what does upgrade from a #3 to a #2 in the same category means? From Moody's website:

Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that
generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities
firms.*


Moody Ratings:
https://www.moodys.com/Pages/amr002002.aspx
https://www.moodys.com/researchdocument ... =PBC_79004


Moody's started using these modifiers (1,2,3) in 1983. S&P and Fitch started using similar modifiers even before that. The modifiers are meaningful because they have a real impact on the cost of borrowing. As I mentioned earlier, the difference is about 40 basis points between Baa3 and Baa2.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Supratik » 17 Nov 2017 22:14

The next big reform left is labor - the big moo moo.

Rest is mostly dependent on the states to improve ease of business ratings e.g. construction permits. Are their ease of business ratings for Indian states? If not it should be started.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 18 Nov 2017 02:50

Dipanker wrote:Moody upgrades India's sovereign ratings from Baa3 to Baa2, is this really a big deal?

Some perspective can be had from looking Moody's rating for nations in sorted order (click on rating's up/down arrow) from this Wikipedia Link:
https://en.wikipedia.org/wiki/List_of_c ... #Moody.27s

You're confusing credit rating with Cricinfo rankings. This isn't about ranking in a list, and it's irrelevant who else has Baa2/Baa3. It's about the absolute cost of sovereign credit associated with rating. BaaX is Moody's line of long term credit ratings (there are separate short term credit ratings). the S&P / Fitch tier corresponding to Baa2 is BBB .

In absolute terms of how it matters to us, well, it doesn't. Ratings upgrades IMHO are trailing indicators. Demand for Indian sovereign credit significantly outstrips supply, such that ratings themselves do little to push down yields compared to what the mismatch between demand and supply already does. Current FPI data shows that central government debt limit for foreign investors is ~99% utilized, i.e. GoI says FPIs can invest Rs.X total in Indian government debt, and 99% of that has been utilized. Even corporate bond investment limits are ~98% utilized.
India bonds are so hot to foreigners they’ve bought all they can
Attracted by one of the highest yields in Asia, foreigners bid for Rs10,442 crore ($1.6 billion) of corporate debt quotas, exceeding the Rs7,418 crore target and taking inflows to near the overall cap of $51 billion. On Tuesday, the government got bids for 1.3 times the quotas being offered, exhausting 99.63% of the cap on sovereign debt.

The success of the quota auctions means global funds don’t have much room to add to their purchases, undermining ongoing borrowing plans of companies. The nation’s caps on foreign ownership of its debt have been a sore point with fund managers chasing returns in one of the world’s fastest-growing economy.

“Companies should be able to access capital at lower rates, and given the size and liquidity of the local corporate market, without controls,” said Kenneth Akintewe, senior manager at Aberdeen Asset Management Plc in Singapore. “A good starting point would be to remove the limits on corporate bonds.”

Wednesday’s sale was the first for corporate debt after the market regulator in November 2012 allowed global funds to invest without seeking approval until overall holdings touched 90% of the cap, a limit that was raised to 95% last week.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby vijayk » 18 Nov 2017 03:31

Deleted
Last edited by Suraj on 18 Nov 2017 03:55, edited 1 time in total.
Reason: Can't you stop using this place to vent streams of swearwords ?

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Karan M » 18 Nov 2017 04:02

"“Companies should be able to access capital at lower rates, and given the size and liquidity of the local corporate market, without controls,” said Kenneth Akintewe, senior manager at Aberdeen Asset Management Plc in Singapore. “A good starting point would be to remove the limits on corporate bonds.”

Is this a valid translation: "Allow us to make tons of money and also give us the freedom to roil your markets as we see fit, whenever we need to pull the plug, your economic stability ain't our concern"

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 18 Nov 2017 05:06

Bond markets are generally not as volatile as equity markets. Turnover of bond funds are generally much lower than that of aggressive equity funds. The comment is a reflection of the desire to partake in Indian government and corporate debt. These are all Rupee denominated by the way. Any capital flight will hurt the seller since depreciation of the Rupee in such a situation costs them. RBI controls the door when it comes to switching their Rupees back to forex, since the Rupee is not fully convertible on the capital account (only on the current account, which relates to convertibility of export/import currency).

So if the plan is to sell en masse they : a) give up gains on account of any bond early redemption penalties b) line up at RBI and wait to convert their depreciating Rupees to $/Euro/whatever. RBI can tell them 'sorry, bank holiday / we don't have enough $/Euro, come next week / something else'. Not quite a situation where we're at their mercy. More like the other way around. That's the power of others holding our debt in our currency, even though our currency is not fully convertible.

The demand for Indian sovereign debt IMHO is much in excess of the perceived creditworthiness of Baa2/BBB level , i.e. on (Moody's or S&P's) paper we are not particularly creditworthy and yet the demand for our debt is very high. Government debt offerings are often oversubscribed by 30-50%, and despite raising the ceiling up to which foreigners can hold Indian government and corporate debt, they remain almost entirely subscribed.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Cosmo_R » 18 Nov 2017 06:04

"The demand for Indian sovereign debt IMHO is much in excess of the perceived creditworthiness of Baa2/BBB level"

Primarily from OCIs and very short term.

Very volatile.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 18 Nov 2017 06:16

These are long term debt and the ratings themselves pertain to long term debt (i specifically said short term debt has a separate set of ratings) so calling it short term is a misnomer .

OCIs have very little to do with holdings of government debt . The average OCI probably doesn’t even know the current sovereign rating level unless it’s in the news. Most of these are large foreign bond funds like those in Fidelity, Vanguard, PIMCO, Doubleline etc . Several well known EM/world bond funds allocate anywhere from 3-15% of their corpus in Indian rupee debt . Its easily seen in their prospectuses .

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Prem » 18 Nov 2017 11:34


Supratik
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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Supratik » 18 Nov 2017 16:40

Nothing much seems to be happening in Pak except a thin line along Indus. Bdesh and parts of Nepal seems to be doing fine. Maoist corridor in India is still in dark. Why low electricity consumption along western ghats right upto Kerala?

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Dipanker » 18 Nov 2017 20:23

Supratik wrote:Nothing much seems to be happening in Pak except a thin line along Indus. Bdesh and parts of Nepal seems to be doing fine. Maoist corridor in India is still in dark. Why low electricity consumption along western ghats right upto Kerala?


Because of Western Ghats! The lit coastal area falls on the west side of ghats.

https://en.wikipedia.org/wiki/Western_Ghats

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Supratik » 18 Nov 2017 20:30

Maybe western ghats have low population density. Also Punjab seems to be deficient.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby chetak » 19 Nov 2017 16:20

https://www.youtube.com/watch?v=5CGVqhlo-qc


Here Is Why Moody's Raised India's Credit Rating



Suraj
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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 20 Nov 2017 02:34

Govt may grant infrastructure status to logistics sector soon
The logistics sector will soon get the status of infrastructure, a move that will help the industry raise funds at competitive rates and boost India's trade, a senior government official said.

"Huge investments are required in the sector to boost the country's trade, and granting infrastructure status would help the industry attract investments," the government official said.

This status would help the sector get credit at competitive rates and on a long-term basis as rising logistics cost impacts global competitiveness of exporters.

Logistics costs of exports are very high in India and due to this, Indian goods are less competitive in global markets.

According to a report, around 14 per cent of the total value of goods goes into the logistics cost. On the other hand, in other major economies, this is just 6-8 per cent.

Dec roll out of fertiliser DBT in Punjab, Haryana, Chhatisgarh, MP, Andhra
The government will introduce direct benefit transfer (DBT) of fertiliser subsidies in five more states, including Punjab, next month, a senior Fertiliser Ministry official said.

Last month, the DBT facility for fertiliser subsidies was rolled out in 14 states and Union Territories (UTs).

The government bears about Rs 70,000 crore annually as fertiliser subsidy to provide cheaper farm nutrient to farmers.

"Fertiliser DBT is working smoothly in 14 states. We have shortlisted five big states -- Punjab, Haryana, Chhatisgarh, Madya Pradesh and Andhra Pradesh -- that will go live in December," Fertiliser Joint Secretary Dharam Pal told PTI.

The states and UTs where the DBT facility has been rolled out are: Maharashtra, Rajasthan, Uttarkhand, Goa, Nagaland, Manipur, Tripura, Assam, Mizoram, Daman and Diu, Dadra Nagar Haveli, Andamana and Nicobar, Delhi and Puducherry.

For the remaining 12 states such as Karnataka, Uttar Pradesh, Gujarat and West Bengal, the DBT scheme will be rolled out in January 2018.

The difficult phase is over and the software is working better now, the official said, adding that glitches in implementation are being resolved on a daily basis.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Supratik » 20 Nov 2017 21:32

Govt plans to introduce social security scheme for entire labor force.

http://www.livemint.com/Politics/o9xY2t ... -plan.html

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby JayS » 20 Nov 2017 22:57

Status of Infra for Logistics given. Saw AJ's tweet.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Karan M » 21 Nov 2017 01:18

Wow, Suraj - thanks for that tour de force. Learnt a lot from that single explanation.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Katare » 21 Nov 2017 02:39

Cosmo_R wrote:"The demand for Indian sovereign debt IMHO is much in excess of the perceived creditworthiness of Baa2/BBB level"

Primarily from OCIs and very short term.

Very volatile.


This is correct but we must preserve and develop domestic debt market from global uncertainties. Even more important is to ensure that most of our national and private debt is held internally in domestic currency. Cheap money abroad is easy to get now but when tide goes low it would pull out with similar speed leaving a trail of panic and destruction. Until our interest rates come down to global levels, long term inflation expectations are anchored and debt market has depth (several trillion dollar) and fluidity, we must be very careful.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 21 Nov 2017 02:47

Ok, so post data showing where OCIs hold most of our foreign holdings of Rupee debt, and how they managed to hold 10 year GoI bonds as 'short term' debt :)

In reality, OCI/PIOs cannot invest in most India based debt mutual funds. Only a handful of funds permit it because of (Dodd Frank ?) US reporting requirements associated with it. the US reporting requirements are onerous. The primary foreign holders are FPIs from large AMCs like Vanguard, Fidelity, Templeton, T Rowe Price, PIMCO, Schwab...

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Hari Seldon » 21 Nov 2017 09:29

Image

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Yagnasri » 21 Nov 2017 10:48

China is just 1.7%??? How is that possible from all the reports we are reading?

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby shaun » 21 Nov 2017 10:54

Yagnasri wrote:China is just 1.7%??? How is that possible from all the reports we are reading?

The trick lies in the "Chinese banking regulatory commission" :wink:

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 21 Nov 2017 10:55

Yagnasri wrote:China is just 1.7%??? How is that possible from all the reports we are reading?

Shadow banking.
Soaring rates of 'shadow banking' add to fears of Chinese debt, warns World Bank
Please don't discuss in this thread though. There's a PRC economy thread for more.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Yagnasri » 21 Nov 2017 11:19

Indian economy is in fact much tightly regulated as far as NPAs are concerned. In fact, in recent times RBI went overboard also when pressurised Banks to make provisioning to the accounts where are otherwise regular.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Aditya_V » 21 Nov 2017 11:37

Hari Seldon wrote:Image


During UPA times India would have been reported 1.7% in paper but in reality it would have been 10%, the looting of deposits of Middle class by the rich is the biggest scam of UPA. I have seen this personally in AUdit experience.

China probably doing the same trick of rescheduling loans, transferring a loan from one Bank to another to under report Bad loans.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby pankajs » 21 Nov 2017 12:33

The old tried and tested method is "evergreening" i.e. keep lending more money to ensure that interest and principal re-payment dues are met on time so that on the books all loans are current. Chinese SOE loans are kept current by Chinese banks by lending more and more with each tranche. This is plain, old and simple banking. Problem solved.

Shadow banking, Special purpose vehicle, wealth management products, etc comes after the mainstream banking refuse to oblige with further loans mostly to non-SOE firms. With SOE it is right hand lending to the left hand of the same entity i.e. Chinese government so that lending continues as before but for a larger and larger amount to account for accumulated interest and losses.

Not new and has been done in India too otherwise how do you have firms like Bhushan steel having bank dues 5x+ times bigger than their net worth? A prudent bank/lending practice would have cut them off much earlier.

Till RBI/GOI forced banks hands India too had a low NPA.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Deans » 21 Nov 2017 14:09

Aditya_V wrote:During UPA times India would have been reported 1.7% in paper but in reality it would have been 10%, the looting of deposits of Middle class by the rich is the biggest scam of UPA. I have seen this personally in AUdit experience.

China probably doing the same trick of rescheduling loans, transferring a loan from one Bank to another to under report Bad loans.


Banks in the US and UK took huge loan write-offs after the 2008 crisis, so their NPA figure (for new loans) is relatively healthy now.
China's declared NPA figure is a joke. In 2016 it was suggested that China's actual NPA's were 9 times higher than official figures. This excluded a lot of exotic non balance sheet products, which were issued with no real hope of repayment.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Uttam » 21 Nov 2017 19:57

First solid evidence of how Sovereign Rating upgrade is going to help the economy:

The Moody's effect: RIL raises $800 mn at lowest rate ever for 10-yr bonds
The bonds were priced at 3.66%, the lowest coupon ever achieved by an Indian corporate for a 10-year issuance, says RIL


This is just 130 basis points above 10-year US treasury.

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Re: Indian Economy News & Discussion - Aug 26 2015

Postby Suraj » 22 Nov 2017 00:46

India’s $207 billion NPA mess: Uday Kotak says it’s an once-in-lifetime opportunity
For India, it’s a $207 billion mess, a pile-up of bad loans years in the making that’s dragging on growth. For the nation’s wealthiest banker, it’s the kind of opportunity that very rarely presents itself. What has billionaire Uday Kotak salivating is the government’s attempt to finally draw a line under delinquent loans, with recent steps to overhaul India’s bankruptcy laws and recapitalize state-owned banks. The moves are intended to lift a burden from the country’s banks and encourage them to accelerate lending, supporting economic growth.

Over the next year, the assets and debts of about 50 of India’s biggest defaulters may be sold off by court-appointed professionals, in a process in which banks are expected to take deep haircuts on their loans. The companies’ borrowings total an estimated 3 trillion rupees ($46 billion), close to one-third of total recognized bad loans in India’s banking system. “The whole insolvency and bankruptcy process is a once in a lifetime event,” said Kotak, the managing director of Kotak Mahindra Bank Ltd., in an interview. “Through this you could actually get assets that would give disproportionate returns for long periods of time.”

“India is now as open and transparent as you can get anywhere else in the world. The rules of the game are very clear,” Kotak said. “There is no bias against or for foreign players versus the Indian ones” except in a small number of sectors where foreign ownership is capped by the government, he added. Kotak, whose $10.2 billion fortune makes him the seventh richest person in India and the wealthiest banker in Asia according to the Bloomberg Billionaire’s Index, said the government’s move to resolve the bad-debt crisis is a watershed moment for his country. The insolvency and bankruptcy law put in place by Prime Minister Narendra Modi’s government shifts the balance in favor of the creditor from the borrower, creating greater accountability for the family owners of India’s major companies, Kotak said. “For the first time, founders fear losing control of the company if dues are not paid,” he said.

The sense among some Indian executives that they could walk away from their debts without facing consequences was a major factor limiting past efforts to bring delinquent loans in check. The government’s announcement last month that it will inject a record 2.1 trillion rupees into state-owned banks is another sea change, in that it should give the lenders sufficient capital to write off bad loans weighing down their balance sheets.

However, Kotak expressed concern about the way that the founders of defaulting companies are free to put in bids to regain control of those same assets through the courts. “In the absence of a change in the law, the promoter is well within his rights to bid,” he noted. As a result, creditors should put in place safeguards, such as forensic audits of any such bidders, to ensure they haven’t willfully defaulted on their loans, he said. “If it is so, then they should not be allowed to bid,” said Kotak. “If the issue is that underlying asset got into trouble because of extraneous circumstances, like the marketplace or government policy, and not because of any issues with the promoter, then it’s a different category.”

ShauryaT
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Re: Indian Economy News & Discussion - Aug 26 2015

Postby ShauryaT » 22 Nov 2017 07:08

^The public's money has been used to bail out corrupt banks managed by a corrupt set of government officials. So, how many of these corrupt have been prosecuted for these government owned banks to earn this reprieve. What structural assurances have been built to not enable a repeat of these NPA in say another 10-15 years? The defaulting promoters should have gotten jail times especially if it was proven that much of the loan funds were not put to intended use.

An honest government would recognize that governments should not be in the business of banking but yet we have seen NO sign of government disinvestment. As long as government control remains a repeat is not only possible but inevitable.


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