Rs 32 per day poverty line not ridiculous: Montek

New Delhi: Amid raging controversy over Rs 32 per capita per day poverty line, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said "it is not all that ridiculous" in Indian conditions.

"The fact is that Rs 4,824 per month for a family (of five persons) to define poverty is not comfortable but it is not all that ridiculous from Indian conditions," Ahluwalia said in a letter to Attorney General Goolam Vahanvati.

Vahanvati has agreed to appear in Supreme Court on behalf of the Planning Commission in connection with the Public Interest Litigation (PIL) filed by the Right to Food Campaign.

The Planning Commission has drawn flak from several quarters, including civil society for pegging poverty in urban areas at Rs 32 per capita per day. The figure in rural area is Rs 26 a day.

Referring to the criticism on poverty line, he said, "Social activists have vociferously criticised the latest poverty line of Rs 3,905 for rural areas and Rs 4,824 in urban areas as 'cruel joke' by converting the figure into per person per day i.e. Rs 26 and Rs 32 respectively.

"Many people are persuaded by this because they sometimes think of daily allowance as meant for family budget...it does not need to be emphasised that the poverty line is not a comfort line of acceptable living for the aam aadmi (common man). It is poverty line which by definition implies considerable stress."

On states' criticism that Planning Commission is understating poverty, leaving out deserving individuals, Ahluwalia explained, "The fact is that states gave many more below poverty line (BPL) cards than their entitlement and what is worse is, they often did not give the cards to deserving people."

Source: ibnLive...

Read More

Food inflation at 9.41%, remains a worry for govt

NEW DELHI: Food inflation accelerated to a three-week high in late September due to costly vegetables, pulses and some protein-based items, prompting finance minister Pranab Mukherjee to reiterate that prices are a matter of concern. Data released by the commerce and industry ministry on Friday showed food inflation stood at 9.41% in the week to September 24, rising from the previous week's 9.13%. It touched 16.88% in the same period a year ago.

Food inflation has hovered around the 9% mark for the past several months. It briefly went below 9% in early September at 8.84%. On Friday, Mukherjee once again said high inflation is a matter of concern for the government. Policymakers have been way off the mark while predicting the trend of food prices which have remained volatile for the past several months. "We shall have to see how to bring it down to a moderate level. I am constantly in touch with the RBI," FM said.

The data showed pulses prices, which displayed signs of softening in the previous weeks, rose 7.54% in the week to September 24, while vegetable prices were up 14.88%. Potato prices rose 9.34%. The government expects food prices to moderate as supplies improve on the back of a robust monsoon.

Inflation has remained stubbornly high and way above the Reserve Bank of India's (RBI) comfort level. Overall inflation is near double-digits and the August reading came in at 9.78%. The RBI has raised interest rates 12 times since March 2010 and has said it is ready to sacrifice some growth in the short-term to calm price pressures. Some economists expect it to pause in its rate tightening cycle against the backdrop of the global economic slowdown.

The index for food articles group rose by 0.2% to 197.7 from 197.3 for the previous week due to higher prices of fish-inland (13%), gram (4%), ragi, egg, urad and condiments & spices (2% each) and masur, moong, arhar, fruits and vegetables, rice, pork and barley (1% each). But the prices of sea fish (14%) and jowar, maize, tea, bajra and poultry chicken (1% each) declined. The index for the fuel and power group remained unchanged at its previous week's level of 169.4 and the annual rate of inflation, calculated on point to point basis, also remained unchanged at its previous week's level of 14.69%.

Source: THE TIMES OF INDIA...

Read More

Moody's cuts credit ratings on UK banks RBS and Lloyds

Credit rating agency Moody's downgraded Britain's part-nationalized banks Lloyds and Royal Bank of Scotland on Friday, although Britain's finance minister said UK banks were well-placed to cope with a European debt crisis.

The cuts to RBS and Lloyds formed part of a broader downgrade of 12 British financial companies by Moody's, which had already been flagged by the agency earlier in the year.

Moody's cut RBS by two notches to A2 from Aa3, and downgraded Lloyds TSB by one notch to A1 from Aa3. It also cut its ratings on Santander UK, the Co-Operative Bank, Nationwide Building Society and seven other smaller British building societies.

Moody's did not change its rating on Barclays and HSBC, which along with RBS and Lloyds represent the "Big Four" group of lenders that dominate British banking.

"Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift," it said in a statement.

"However, it is more likely now to allow smaller institutions to fail if they become financially troubled. The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government," it added.

RBS shares were down 1.8 percent in early morning trade, while Lloyds fell by 2.6 percent. The shares of both banks have consistently traded well below the level at which the British taxpayer originally acquired their RBS and Lloyds stakes following the 2008 bailouts of the companies.

"The downgrades have been well flagged, reflecting removal of government support through guaranteed liquidity schemes and low probability of future tax-payer bail-outs," Oriel Securities said in a research note.

OSBORNE SEEKS TO REASSURE

Europe's sovereign debt crisis, sparked by Greece's economic woes, has led to concerns that many banks will need further injections of capital.

Earlier this week, France and Belgium intervened to prop up European bank Dexia, whose financial strength had been eroded by the sovereign debt turmoil.

However, British finance minister George Osborne said Britain's banks remained well-capitalized and in better shape than many of their European rivals, who face bigger losses on writedowns to their holdings of Greek government debt.

In an interview with BBC radio, Osborne also said that the Bank of England's decision to pump more money into the economy and the government's deficit reduction plans would help shield Britain from the euro zone debt crisis.

Osborne said: "People ask me 'how are you going to avoid Britain and the British taxpayer bailing out banks in the future?'

"This government is taking steps to do that, and therefore credit rating agencies and others will say 'well, actually these banks have got to show that they can pay their way in the world'.

"And I am confident that British banks are well capitalized, they are liquid, they aren't experiencing the kind of problems that some of the banks in the euro zone are experiencing at the moment."

Lloyds said the Moody's downgrade would only have a "minimal" impact on its funding costs, while RBS reiterated that it remained strongly capitalized and had strengthened its credit profile.

Britain ended up with an 83 percent stake in RBS and a 40 percent holding in rival Lloyds after rescuing both banks during the 2008 credit crisis with taxpayer bailouts.

However, the British taxpayer is currently sitting on losses of billions of pounds on their RBS and Lloyds stakes.

RBS was trading at 23.76 pence, more than 50 percent below the average 49.9 pence price at which the taxpayer acquired its stake in the lender, while Lloyds was at 35.58 pence -- again a fraction of the 63 pence price at which Britain got its stake in the bank.

Source: Reuters..
Source: Reuters...

Read More

Moody’s cuts SBI rating Asset quality a big worry

Mumbai, Oct. 4: Ratings agency Moody’s Investors Service today downgraded the State Bank of India (SBI) by a notch because of concerns over its capital and rising bad loans.

Moody’s cut SBI’s financial strength rating, or standalone rating, to D+ from C-. Analysts see the downgrade as a wake-up call for the Government of India, which has been dragging its feet on capital support.

Financial strength rating indicates Moody’s opinion of a bank’s intrinsic safety and soundness and they exclude certain external credit risks and credit support elements that are considered by its bank deposit ratings. Within financial strength rating, banks rated D display modest intrinsic financial strength, potentially requiring some outside support. On the other hand, banks rated C have adequate financial strength.

Explaining the rationale for the downgrade, which led to a selloff in banking stocks, Moody’s said it came as a result of the SBI’s capital situation and asset quality.

“The rating action considers the SBI’s capital situation and deteriorating asset quality. Our expectations that non-performing assets (NPAs) are likely to continue rising in the near term — due to higher interest rates and a slower economy — have caused us to take a negative view on the SBI’s creditworthiness,” Beatrice Woo, Moody’s vice-president and senior credit officer, said.

According to Moody’s, State Bank’s Tier 1 capital adequacy ratio (CAR) of 7.60 per cent for the first quarter ended June 30 does not provide sufficient cushion to support growth and absorb higher costs from its deteriorating asset quality.

The CAR is the ratio of a bank’s capital to its risk weighted assets (loans); Tier I capital is the core capital of a bank that comprises equity capital and reserves.

Moody’s added that the 7.60 per cent Tier 1 capital itself pushed the SBI into a lower rating band and it was below the 8 per cent ratio that the central government had committed to maintaining in nationalised banks. Besides, the bank’s CAR was lower than its peers such as Axis Bank, HDFC Bank and ICICI Bank, which are all C-rated.

Banks can fund its capital requirements by raising money from the market either through a rights issue or a follow-on offering. However, the SBI’s proposal for a rights issue has been hanging fire with the Centre. The bank had planned a Rs 20,000-crore rights issue, and the government’s share would have been Rs 12,000 crore in proportion to its 59.4 per cent stake.

However, Moody’s said that a Rs 20,000-crore rights issue would raise Tier I CAR to 9.30 per cent, but after three years it would once again be below 8 per cent.

“However, we estimate that capital deployed for loan growth, assuming 15 per cent per annum for the next three fiscal years, will cause the Tier 1 ratio to fall below 8 per cent, thereby necessitating another capital exercise,’’ Moody’s added. The SBI’s non-performing assets, too, have reached a three-year high of 3.52 per cent of loans as of June 30.

While non-performing loans could rise due to a slowing economy and higher interest rates, Moody’s said that under a stress scenario, which assumed a gross NPA ratio of 12.07 per cent, the SBI would require Rs 37,400 crore to replenish its Tier 1 capital ratio to 8 per cent.

“To put this into perspective, the SBI’s ability to absorb losses in a stress situation is below that of the C-rated Indian banks,” it noted.

Stocks dip

Moody’s action spooked investors with the SBI stock plummeting nearly 6 per cent soon after the news. However, the stock came off these lows to end at Rs 1786.70, a drop of 4 per cent over its last close.

“It (Moody’s action) has brought to the fore not only issues such as rising NPAs, which we all knew, but also some tough challenges that the country’s largest bank is facing,” a banking analyst with a foreign brokerage said.

The downgrade not only hit the SBI’s shares but also the overall sentiment in a market where worries over the Eurozone debt crisis persist.

The Sensex lost 287 points to end below 16000 at 15864.86. The NSE 50-share Nifty fell 77.35 points to 4772.15.

The BSE Bankex was the largest percentage loser among the sectoral indices. ICICI Bank fell 4.59 per cent, HDFC Bank was lower by 1.78 per cent, while PNB lost 1.40 per cent.

Source: The Telegraph...

Read More

Fitch cuts India's GDP growth projections to 7.5%

MUMBAI, OCT. 3:

Fitch Ratings has revised India's GDP growth projections to 7.5 per cent from 7.7 per cent, for FY 2011-12 and to 8 per cent from 8.2 per cent for FY 2012-13 on the back of deteriorating global growth prospects.

In its latest quarterly Global Economic Outlook, Fitch said that growth forecasts for all major advanced economies (MAE) were being revised downwards as Q2 2011 were weaker than previously forecast by Fitch. MAE growth has been stalling at rates not seen since 2009, the report said.

According to Fitch, despite having more robust growth prospects, 2011 and 2012 GDP forecasts for Brazil, Russia, India, and China have been revised downwards, signalling that emerging markets will not de-couple from MAEs.

GROWTH IN INDIA

India has hit a difficult part of the cycle with growth and inflation heading in opposite directions. Real GDP moderated for the third consecutive quarter, rising 7.7 per cent year-on-year in Q2 2011, down from a 7.8 per cent y-o-y rise in Q1 2011.

“It appears that the combination of rising inflation and interest rates has taken a toll on the Indian consumer. Private consumption rose 6.3 per cent y-o-y in Q2 2011, down from an 8 per cent y-o-y increase in Q1 2011. While India is not a trade-oriented economy, the deterioration in global growth prospects will have knock-on effects,'' Fitch said.

INFLATION

Inflation is persistent. The headline measure of inflation, the wholesale price index (WPI), rose 9.8 per cent y-o-y in August 2011, up from 9.2 per cent y-o-y in July. Inflation is likely to remain high as commodity prices show no signs of abating and the rupee fell 6.4 per cent against the US dollar since end-June.

RBI MAY TAKE CAUTIOUS APPROACH

High inflation means that the RBI may still need to tighten monetary policy despite raising its benchmark rates 12 times since early 2010.

Even after the RBI raised its key repurchase rate by 25 basis points to 8.25 per cent on September 16, real interest rates (adjusted by WPI) remain negative. However, it is reasonable to expect that the RBI will take a more cautious approach in the coming months given the deterioration in the global economy, Fitch said.

Source: Business Line...

Read More