How online marketplaces are changing the lives of thousands of merchants

From garages in Mumbai to sari shops in Varanasi, thousands of manufacturers and traders are today tapping a rapidly growing online retail market in India thanks to marketplaces like Flipkart, Snapdeal and Amazon. 

The ability to reach out to a nationwide market and lower costs are ensuring a sharp increase in sales for the over 80,000 merchants who sell just on these portals. A survey conducted by research firm Spire Research and Consulting this year showed that for offline retailers selling online, the latter is contributing up to 50% of overall sales Financial Astrology Trading Tips

Next year the online retail market is expected to reach $6 billion (over Rs 37,000 crore) in size. The online multi-category stores are responsible for almost 90% of the sales online, according to industry estimates, which means a bulk of this $6 billion will flow into bank accounts of merchants. No wonder then that online retail is changing the lives of thousands of merchants. 

"Five years ago I did not have a job, now my apparel business has grown 15-fold and I am targeting over Rs 1 crore in sales," said Mumbai-based Saumya Gupta, 26, whose apparel brand Ten On Ten sells only through online sites like Flipkart and Snapdeal. There are challenges of course. Inability to increase production capacity at the same pace as demand, issue of returns, and lack of infrastructure are just some of the worries that are tempering merchants' optimism about the sector Intraday Trading Tips

"There are now thousands of sellers in each category, so competition is growing," said Karan Chugh, owner of ethnic wear retail firm Florence Clothing from Surat. But for merchants, like the following six, online retail has meant success and a growth in ambition. 

Rahul Agrawal did not want to run his family business of distributing Banarasi saris and dress materials the traditional way. After graduating from IIT-Mumbai in 2009, Agrawal worked for a financial research firm in Delhi and then started an online games retailer in 2012. Running the games business helped him realise the potential of India's online retail market. 

"With the games site, we faced challenges of procurement, but our sari business already had a strong procurement network," said Agrawal. He gave up his stake in the games business and moved back to Varanasi in 2013 to run the three-decade-old Chandrakala Enterprises. In September that year, he started selling his Banarasi saris on sites like Amazon, Flipkart and Snapdeal Commodity Trading Tips

"Online is now contributing to about 25% of our business and could overtake our offline trade within the next two years," said Agrawal, 29. While issues like the inability of weavers to expand production rapidly remain, Agrawal is happy with his decision. 

"I would have had to eventually take over the family business but thanks to online retail I am having fun," said Agrawal, who is targeting sales of at least Rs 16 crore this fiscal from online sales. 

Yogesh Wadhwa's eight-year-old business of manufacturing laptop bags for original equipment manufacturers ran into rough weather about two years ago when companies like Samsung and Sony decided to stop making laptops. Wadhwa decided to launch his own brand of bags and luggage, Bleu Personal Numerology Trading Tips

"The conventional route would have required a lot of investments, so we thought of going online," said Wadhwa, 43, who started retailing on Amazon about 10 months back. "We put up 10 designs one day and by next morning it was sold out. We realised we had a winner." 

Around the time of launching on Amazon, he sold about 1,000 pieces of a toiletry kit on Groupon in one day. "I realised, apart from low prices, customers are attracted to products that are not easily available offline," said Wadhwa. 

DMP sells about 150 products on regular days across most major online portals and is targeting about Rs 4 crore online sales this fiscal. "If I had to do this offline I would not have been able to do that without a heavier infusion of capital," said Wadhwa. "We are a totally debt-free company." 

Karan Chugh's family has been running an apparel manufacturing and wholesale business, Majestic Silk, in Surat since 1960 and the family diversified into retail in 2007 Intraday Trading Tips

It was when Chugh, 25, started shopping online that he decided to retail the mass market Florence brand of saris and dress materials online. 

"The idea was to explore," recalled Chugh, who started with Snapdeal in 2012 and now sells on most top marketplaces. In the first month, Florence sold Rs 5 lakh worth of products, but Chugh could see the steady ramp up in orders. 

Within a few months, Chugh started Silk Bazaar, a more premium range priced up to Rs 30,000, just for the online market. With online retail accounting for over 70% of the company's overall sales, he has cut back offline operations from 30 stores to five. He also operates shop-in-shops in Vishal Megamart and at More. 

"The biggest advantage of online is the pan-India presence it provides at low cost," said Chugh, who is targeting overall retail sales of about Rs 16 crore this fiscal. The manufacturing and wholesale firm has a turnover of Rs 100 crore. "For me it was never about money," said Chugh. "But online retail helped me achieve success on my own and that was important for me Stock Market Trading Tips

India sees 964.84 billion rupees hit on state lenders from coal verdict

A Supreme Court order scrapping most coal extraction permits given to companies would have a likely impact of 964.84 billion rupees ($15.6 billion) on state-run lenders, the junior finance minister told parliament on Friday Stock Market Trading Tips

The government had deduced the impact of the cancellation of the so-called coal block allotments on banks due to likely stoppage of power production, Jayant Sinha said in a written reply to a lawmaker question on bad loans for state banks due to the verdict. 

It was, however, not clear whether he was referring to an increase in bad loans or loan exposure of banks to affected companies Financial Astrology Trading Tips

Bankers and analysts have previously said it was difficult to quantify the increase in bad loans as the scrapped coal blocks will be returned after March and as all the loans to the affected companies may not turn sour. 

Sinha said bad loans of state lenders were a provisional 5.32 percent of total loans as of end-September, while that of private sector lenders was a provisional 2.04 percent. 

Bad loans of state banks in coal industry was 0.23 percent as of end-September, while for private banks it was 0.22 percent Commodity Trading Tips

Success at WTO without any compromise: Nirmala Sitharaman

India has won a major victory at Geneva with theWTO accommodating its food security demands in a historic worldwide trade reform deal, which the government said was clinched without any conditions or concessions. 

Making a suo moto statement today in Lok Sabha on the trade pact clinched at the WTO meeting at Geneva on Thursday night, commerce minister Nirmala Sitharaman said besides accepting its concerns on public stockholding, the deal by the 160-member body allows India to continue with its policy to provide minimum support price to farmers Stock Market Trading Tips

"We have accomplished this without any concessions, compromise or new conditions," she said, adding that the deal vindicates the principal stand India had taken on food security. 

The agreement, she said, provides for continuing the "minimum support price policy which is a lifeline for millions of our low income resource poor farmer. It is also critical for food security in India and in countries which have similar policies Financial Astrology Trading Tips

Stating that New Delhi stood firm on its food security concerns, she said it was able resolve differences with the US earlier this month and persuade it to accept India's stand. This paved way for the WTO deal, which had been in limbo for nearly two decades. 

As per the agreement reached on Thursday, the WTO nations have committed to ease customs norms to facilitate trade and also agreed to extend the 'peace clause' till a permanent solution is found regarding its foodgrain stock piling. 

This is the first major trade pact reached by WTO ever since it came into existence in 1995 Personal Numerology Trading Tips

SC asks DLF to deposit Rs 480 crore penalty

The Supreme Court on Friday asked DLF to deposit the balance Rs 480 crore of a total Rs 630 crore penalty imposed on the realty major by the fair trade regulator CCI for allegedly exploiting its dominant position Financial Astrology Trading Tips

An apex court bench, headed by Chief Justice HL Dattu, said DLF could pay the amount in instalments of Rs 75 crore each from January 15 till the penalty is cleared. 

DLF was imposed the penalty of Rs 630 crore by theCompetition Commission of India (CCI) for allegedly exploiting its dominant position to the disadvantage of its customers in three projects in Gurgaon Intraday Trading Tips

The apex court was hearing a petition by the real estate major which has challenged the imposition of Rs630 crore penalty by the CCI on August 12, 2011. 

The CCI decision to impose the penalty was upheld by the Competition Appellate Tribunal in 2013 Personal Numerology Trading Tips

Infrastructure bonds: Bank can lend up to Rs 10 lakh

The RBI on Thursday allowed banks to extend loans up to Rs 10 lakh to individuals against long-term infrastructure bonds issued by them, thus easing loan norms for low-cost housing. 

"In order to provide liquidity to retail investors in such bonds, it has been decided that banks can extend loans to individuals against long-term bonds issued by them," RBI said in a notification. Such loans, the RBI said should be subject to "a ceiling, say , Rs 10 lakh per borrower, and tenure of loan should be within the maturity period of the bonds". However, banks are not permitted to lend against such bonds issued by other banks  Stock Market Trading Tips

Earlier, the RBI had exempted long-term bonds raised by banks from mandatory regulatory norms like CRR and SLR if the money raised is used for funding of such projects. 

The RBI said boards of the banks should lay down a policy in this regard prescribing suitable margins, purpose of the loan and other safeguards Financial Astrology Trading Tips

Markets on a roll: Sensex scales new peak, Nifty eyes 8,600

 Scaling a new peak, the total investor wealth in Indian stock market on Friday hit a record high of Rs 100 trillion, marking a jump of ten times in little over a decade. 

Measured in terms of total market capitalization of all listed companies on the country's biggest bourse BSE, the overall investor wealth in the Indian stock market rose to Rs 100.01 lakh crore in early morning trade at 1005 hours as benchmarkSensex soared by over 300 points in its continuing record rally Stock Market Trading Tips

The total market cap of all BSE listed companies had crossed Rs 10 lakh crore mark nearly 11 years ago in 2003, while it has doubled from about Rs 50 lakh crore five years ago in 2009. 

The 30 Sensex companies alone, which are among the biggest companies in the country, now account for nearly 50 per cent or about Rs 47 lakh crore of total investor wealth. 

This included TCS, the country's most valued firm and the only entity to have a market value of over Rs 5 lakh crore, followed by state-run ONGC and private sector behemoth Reliance Industries with market caps of over Rs 3 lakh crore each Financial Astrology Trading Tips

Those commanding market cap of over Rs 2 lakh crore include ITC, Infosys, HDFC Bank, SBI and Coal India. Besides, ICICI Bank, HDFC, Sun Pharma, HUL, Bharti Airtel, L&T, Wipro, Tata Motors, HCL Tech, NTPC and Axis Bank have market cap of over Rs 1 lakh crore each. Among these, ICICI Bank is very close to moving into Rs 2 lakh crore club. 

Of the overall stock market wealth, promoters command nearly 50 per cent share, while foreign investors own close to 20 per cent and the rest is shared between institutional and retail investors from India. 
Equity markets were on a roll on Friday morning with both Sensex and Nifty hitting record life highs after crude oil hit multi-year lows as OPEC, a consortium of oil producing countries, decided to maintain the current production rate. 

The Sensex hit a new record high at 28,766 while Nifty hit a high at 8,591 in early trades on Friday Intraday Trading Tips

Brokers, however, warned that the rally could be tempered on Monday after GDP data for the July-September quarter is published on Friday evening which is expected to show a slowing trend for the economy. 

On Thursday, prices of crude oil, the biggest import item for India, fell to $72 per barrel, a level not seen since 2010. This happened in the face of demand for reducing supplies by some of the OPEC members which could have supported the price Commodity Trading Tips


 Double delight — ​Industrial output up, price rise slows
(Traders at a brokerage firm. File photo)
As a result of the fall, oil stocks rallied with HPCL up 9.6% at Rs 600, BPCL was up 6.2% at Rs 765 and IOC was up 5.4% at Rs 368. Along with oil stocks, banking stocks also rallied as a lower oil price has the potential to lead to lower inflation, and rate of interest, which is good for lenders. SBI gained 4% at Rs 318 while Axis Bank was up 3.1% at Rs 483 Nifty Trading tips

Got a flat in the DDA 2014 draw? Now what?

DDA on Tuesday declared the winners of its much-awaited housing scheme on its website after holding a computerized draw of lots. Names of 25,040 applicants were announced by the housing agency Stock Market Trading Tips

The randomization of data in the system began around 9am.

The entire draw was webcast live on the internet on a dedicated url — www.ddadrawlive.in.

"We have created a dedicated website for the draw, and instead of directly webcasting through a YouTube channel, we decided to create a separate window for the event altogether, where online user can see the proceedings live," DDA's director (Systems) VS Tomar had said.

A large number of people had started to gather at the at the agency's headquarters, 'Vikas Sadan' since morning Financial Astrology Trading Tips

DDA had initially announced the tentative day for holding the draw as November 5 but it was postponed to November 17. The housing agency then had failed to hold the draw on November 17 too after its trial runs were not found successful in wrapping up the whole process within two hours.

The agency has reportedly been having problems in dealing with the humongous number of application forms.

More than ten lakh people had applied for the housing scheme Commodity Trading Tips

C-DAC (Centre for Development of Advanced Computing), which had conducted the draw for DDA's last housing scheme in 2010, has been roped in this time again for the event.

25,000 flats across various categories were on offer by the DDA this time. They are in the price range of Rs 7 lakh to Rs 1.2 crore.

This latest housing scheme was launched on September 1. The last date for application was initially set for October 9 before it was extended till October 15 Financial Astrology Trading Tips

Government moving to online approval system for over 200 permits needed to start business

By April 2015, starting a new business in India would no longer require budding entrepreneurs to make multiple trips to myriad government offices, with the Narendra Modi government moving to an online approval system for more than 200 permits required by different industries from central and state government departments. 

The new system for registering and seeking clearances for any business would allow entrepreneurs to apply for and track the status of all permits and licences online to start with, and eventually on mobile phones, in line with PM Modi's vision of bringing governance to people's fingertips. 

This initiative could be highlighted when Cabinet Secretary Ajit Seth meets India Inc on Friday with the commerce and industry secretaries to discuss measures to improve the ease of doing business. India is currently ranked 142nd on the World Bank's index for this and the government is committed to improve this to 50 Stock Market Trading Tips

Promising to simplify business processes and regulations in six months, the PM had told US businesses in October: "Whatever may have been India's ranking on the ease of doing business index, I have now told officials that I don't want to be so low on this ranking." 

PM Modi told US businesses in October that he had given officials "specific parameters to improve quickly". 

While the Modi administration has stoked a revival in investor interest in India, foreign investors spooked by policy uncertainties and the country's notorious red tape are still looking for tangible signs of change in the business environment. This initiative could be a key enabler in changing the narrative, feel experts Financial Astrology Trading Tips

"The cabinet secretariat is prodding all ministries and state governments to complete the exercise by March 2015, so that anyone setting up a new venture in any sector or state can apply for the requisite permits and even pay fees online," said a senior government official aware of the development. 

The proposed national portal for registrations and clearances would also free up entrepreneurs from the guesswork associated with seeking clearances in India's cumbersome and uncertain bureaucratic landscape, a system that spawns brokers and agents who charge for helping out aspiring businessmen. 

"There will be a start-up matrix on the portal that will tell applicants what permissions are needed for which sectors. So if you are about to set up a pharma unit in Gujarat, it will tell you what are the permits needed from the health ministry and the state government," the official explained Personal Numerology Trading Tips

As of now, 81 state-level clearances, including those relating to acquiring land, setting up a factory and associated nods such as registering a boiler and operating a diesel genset are being digitised. 

Another 133 clearances granted by different central ministries and departments, including tricky security nods from the home and defence ministries, will also be put online. More than 50 of these central clearances pertain to the railway ministry alone. 

"Moving to an online system for granting clearances is a good start, after years of creating multiple single windows for investors that only sent them to other official windows," said former Boston Consulting Group chairman and Planning Commission member Arun Maira. "But it's equally important to re-engineer the processes involved in the clearances and create an intelligent back end. If people using the new system have a bad first experience and throw their hands up saying even this doesn't work, it could backfire," he told ET, stressing the importance of doing things in the right order Nifty Trading tips

Tax dept goes for friendly image makeover

NEW DELHI: Tax authorities are making a fresh bid to engage with taxpayers as they attempt to present a friendly face and wipe out the ghosts of controversial tax disputes of the past, which attracted global criticism.

Reaching out to the taxpayer, both small and large, the department has lined up several activities to present a new image and also to create awareness about the importance of paying tax as it takes on the battle of deepening the base. "Our tax system has to be friendly with tax payers and that is what we are trying to do step by step," finance minister Arun Jaitley said, while replying to a debate on black money in Lok Sabha Stock Market Trading Tips

He also said there was a misconception that high tax rates lead to higher revenues. "The direct and indirect tax rates have to be brought to reasonable level so that the basket increases and there is no incentive for evasion."

The Narendra Modi government has taken several measures to reverse the damage that the economy suffered due to a spate of high profile tax litigations and the retroactive tax rules imposed by the UPA government Financial Astrology Trading Tips

On Wednesday, attorney general Mukul Rohatgi advised the government against appealing the verdict of the Bombay high court, which ruled in favour of Vodafone in a transfer pricing case, involving a tax demand of Rs 3,200 crore.

Sources said the government is also unlikely to appeal against another order of the Bombay high court, which ruled in favour of Shell India in the Rs 15,000 crore transfer pricing case.

Earlier this month, the Central Board of Direct Taxes ( CBDT) on Friday issued 12 commandments to its field offices, asking them to stick to appointments, address grievances and avoid unnecessary harassment of taxpayers. They have been advised not to cancel or postpone an appointment, unless unavoidable, especially when a taxpayer is willing to attend a meeting Commodity Trading Tips

The recent trade fair in the capital saw the department pulling out all stops to attract taxpayers to spread its message and shed its stern image. Visitors jostled to get their caricature drawn by one of the department's ace artistes B Sajjive, an assistant commissioner. A kids zone with an art competition was thrown in as an added attraction. "I have been doing 100-150 caricatures a day," said Sajjive. The paper on which he draws has a message: "Make India through Tax India." "This is how the message will spread," he said Personal Numerology Trading Tips

Rupee down 6 paise against dollar in early trade

The rupee depreciated by 6 paise to trade at 61.93 against the US dollar in early trade on Friday, extending Thursday's weakness due to sustained month-end demand for the American currency from importers. 

The dollar's gains against other currencies overseas also put pressure on the local unit but a record opening in the domestic equity market limited the losses, forex dealers said. 

The rupee had lost 3 paise to end at 61.87 against the greenback in Thursday's trade on month-end dollar demand from importers Personal Numerology Tips

NSE cuts trading fees for select segments

To make it cheaper for investors to trade on its platform, NSE, the country's largest stock exchange by turnover, on Thursday cut charges for trading on its currency derivatives platform and equity options segment by up to 40%. The bourse also introduced liquidity enhancement schemes, an incentive process for brokers to bring in higher volumes, for these two segments.

Market players pointed out that NSE's decision to cut charges came at a time when BSE, its only competitor and the country's oldest exchange, is gaining market share at a faster clip after it rolled out a new trading technology in the last one year Stock Market Trading Tips

Under the revised structure, NSE will charge about Rs 3,000 for every Rs 1 crore worth of premium in the equity options segment, down from Rs 5,000 earlier. In the currency derivatives segment, it will charge Rs 110 per Rs 1 crore worth of trades, NSE circulars showed.

Market sources said the cut in transaction charges on NSE is expected to bring in more participants since at higher charges traders were finding it difficult to recover their costs. "In a business (like broking) where margins are wafer thin, cost levied by an exchange is often the determining factor," said a market analyst. NSE said that the revised charges were being rolled out on a pilot basis Financial Astrology Trading Tips

On a comparative basis, however, even the reduced trading charges on NSE are much higher than BSE's. In the equity options segment, BSE charges Rs 50 per Rs 1 crore of premium. Here again, while NSE charges on both sides of the trade, that is for buying as well as selling, BSE charges are only for the sell side. In the currency derivatives segment, BSE charges Rs 2 per Rs 1 crore worth of trade.

In the past few months, BSE's currency derivatives segment, which was launched just about a year ago, is clocking volumes that are around 50% of NSE's. On Thursday, turnover for this segment on BSE was Rs 4,343 crore, compared to NSE's Rs 7,122 crore.

In the equity options segment, however, NSE remained much ahead of BSE. On Thursday, NSE clocked a turnover of Rs 16,992 crore, compared to BSE's Rs 1,141 crore. BSE's equity derivatives segment, after remaining dormant for several years, is gaining traction since it launched the new technology platform in February this year, sources said Jackpot Trading Tips

Fixed income outlook: Indian bonds to remain in vogue for next few quarters

In the past two months, bond yields have drifted lower across the yield curve to the tune of 40-45 basis points (bps), despite the lack of policy rate easing by the Reserve Bank of India (RBI). Yields have been pushed down by the abundant liquidity and macroeconomic improvement and a slew of policy reforms by the government. As a result, capital gains have supplemented interest income on fixed income instruments and portfolios. We believe this is only the start of a downward cycle in interest rates - a process that is going to last for the next couple of quarters Stock Market Trading Tips

There has been some good news on the macroeconomic front. Inflation is trending downwards, with the average rate drifting from 8.2 per cent in the first half of 2014 to below seven per cent in the past four months, thanks to measures taken by the government to ease food inflation, place hoarding restrictions and limit increases in procurement prices. Easing global commodity prices, such as fuel, combined with a weak demand environment, have also helped diminish the producers' pricing power.
Financial Astrology Trading Tips
Headline Inflation has moved gradually lower to 5.5 per cent year-on-year in October 2014. The Reserve Bank of India has kept the focus on achieving of Consumer Price index-based inflation rate of six per cent by January 2016, rather than the immediate target of eight per cent by January 2015. The lower inflation reading may not be sufficient for RBI to initiate any policy rate cut in the upcoming policy meeting, as it prefers to maintain a sustainably low inflation instead of cyclical inflation. We expect to see policy easing coming in through 2015 to 7.25 per cent from eight per cent currently 

Although the fiscal deficit has exceeded 80 per cent of the annual target so far, subsidies in fuel, food and fertiliser subsidy appear to be under control, given the drop in commodity prices. A balanced approach on rural employment guarantee scheme has managed to contain overall social spend growth. Government spending has also shifted towards quality, which will be anti-inflationary and pro-growth. In the coming months, focus will be on monetising public sector holdings, auctioning of telecom spectrum and mineral rights, and increasing the tax base. These efforts are expected to help achieve the fiscal deficit target of 4.1 per cent, with a potential to reduce further Intraday Trading Tips

Liquidity conditions have also improved post-elections, led by a strong demand for Indian bondsfrom foreign investors, RBI's efforts to stabilise the domestic currency and increased government spending. This is also the first time that foreign institutional investment flows into fixed income ($23 billion) outnumbered flows into equities ($14.5 billion). This foreign demand is expected to continue in the near term, led by improvement in macroeconomic outlook in India relative to other emerging economies Free Stock Share 

There is no room for foreign institutional investors to buy more government securities, although corporate bonds offer further leeway of another Rs 100,000 crore. Demand could, thus, be skewed towards corporate bonds, with further yield spread compression against government securities. Any further significant shift in the mid- to long-end of the yield curve would be mainly driven by RBI's policy stance.

We prefer long-end (duration) funds, as higher sensitivity on the long-end helps generate superior returns on investment. We favour an overweight allocation to long-end instruments, through a combination of long-dated government and higher-rated corporate bonds, AAA-rated tax-free instruments and duration funds Commodity Trading Tips

Debt recast or postponing the inevitable?

While both bad assets and loan restructuring by the bankshave shown a secular rising trend over the last few years, bank wise data will show the distribution is skewed. According to latest data compiled by the finance ministry,public sector banks have a major share of the non-performing assets as well as recast loans. 

 

As on September 30, 2014, stressed assets in terms of gross advances for government-owned banks were at over 12.5 per cent while in case of private sector banks the ratio was below 5.5 per cent. Bankers often say, to which the government also seems to agree, that the reason for rising NPAs is due to falling economic growth Stock Market Tips
 

“NPAs have risen to 5.32 per cent (provisional) as on Sept 2014 in respect of PSBs ... due to sluggishness in the domestic growth during the recent past, slowdown in recovery in the global economy and continuing uncertainty in the global markets,” said a note prepared by the finance ministry that was circulated among government bank chiefs for a meeting held last week.

ALSO READ: Current system protects large promoters: Rajan

 

If sluggish growth and global factors were true, then why it is not reflecting in private bank’s books?

 

Clearly, there is more to the theory of slowing economic growth. Post the 2008 crisis, private banks have adopted stricter loan sanctioning mechanism and was cautious in loan disbursement in the years when economic growth was slowing down. On the other hand, some of the public sector banks recorded credit growth of 35 per cent in 2013-14 while the overall credit growth was 15 per cent!

Stock Market Trading Tips

 

Most of the loans given during the past two years are now coming up for restructuring. Debt restructuring is a legitimate activity. It is the tendency of banks to recast an unviable account to avoid NPA classification and leave it to the next chief executive who will take charge in few months. This process is now being questioned.

 

If an account becomes an NPA, it requires 15 per cent provisioning, while a restructured asset needs 5 per cent provisioning. From April 1, 2015, banks will forgo this forbearance as banks have to classify all recast assets as NPAs and have to make provisioning accordingly. Bankers have been asked to extend the forbearance period for one more year Financial Astrology Trading Tips

 

“...forbearance is ostrich-like behaviour, hoping the problem will go away. It is not realism but naiveté, for the lesson from across the world is that the problems only get worse as one buries one’s head in the sand,” RBI governor Raghuram Rajan said in a speech at Anand, Gujarat yesterday. 

  

Clearly, the former chief economist of International Monetary Fund is in no mood to postpone the inevitable. And rightly so! Intraday Trading Tips

Banks propose fund to cure power sector's woes

The Supreme Court verdict deallocating coal mines and its curbs on operating iron ore mines have not only put power and steel companies in a bind, but also banks. The lenders are a worried lot as loans for infrastructure development, including power and roads, form the lion's share of "stressed assets" that sit on their balance sheets.

Given the moribund state of the power sector and the number of stalled projects, the past few weeks have seen efforts to find solutions to the problem. One possibility is a Rs 60,000-crore power sector fund, with state-owned power companies contributing 49 per cent of the financing and the rest coming from banks and foreign investors. Another option, as proposed by the Association of Power Producers to Reserve Bank of India Governor Raghuram Rajan, is allowing banks a 10 per cent exposure to power projectsbeyond the current ceiling Stock Market Trading Tips

Both are driven by the object of getting things moving. But a major portion of the burden to salvage the situation seems to be falling on the financial sector. Many lenders have reached the sectoral exposure ceiling. They have also hit the single client limit of 15 per cent of its capital funds and group exposure of 40 per cent. There are, therefore, risks of slippages leading to huge provisioning.

At present, banks and financial institutions lend money to the infrastructure sector for a maximum period of 15 years. In reality, projects begin to see steady cash flows only in the long term. But often, it is in the early period of a project when the returns are hardly there that the bulk of the repayment has to be made. The delays in project execution and lack of fuel linkages have complicated matters Financial Astrology Trading Tips

Pushing for solutions
One way out of the mess is a new financing structure. Under the 5/25 structure, banks may fix longer amortisation periods for loans to infrastructure projects: a 25-year credit with periodic refinancing, say every five years.

The country's largest lender, State Bank of India (SBI), has sought more flexibility in restructuring exposures to metal and power companies that have been affected by the Supreme Court verdict. Its view is that though the problem of raw material shortages could be resolved over the medium to long term, in the short term, the power and steel industry would need relief to tide over the shortages that could otherwise weaken the price outlook Intraday Trading Tips

An existing project would need flexible restructuring in line with the economic life of the underlying asset, and this can be achieved through a 5/25 scheme, says SBI. Such a restructuring would enableloan repayment to be co-terminus with cash flows from the projects. It would also improve the company's debt-servicing capacity and viability of operational projects.

In the push to find answers to the sector's riddles, private power producers too met RBI Governor Rajan last week and pleaded for a 10 per cent additional debt exposure by lenders to overcome the hurdle of fuel shortages. The Association of Power Producers sought easier rules for banks to fund stranded projects. Companies hit by delays include Reliance Power, Tata Power, Jindal Power, and the Adani, GMR, GVK, Essar, Indiabulls, Lanco and Welspun groups Nifty Trading tips

While seeking the banking sector's support in creating an enabling environment for participants in power projects - project developers, lenders, distribution companies and consumers - the Association of Power Producers said that the stressed assets as well as the stalled projects could actually yield positive results earlier than new projects with higher capital expenditure, interest rates and foreign exchange requirements. "The revival of existing projects will result in faster capacity addition at affordable rates," says a member of the association Intraday Trading Tips

Limits of banking support
Amid all this, RBI has given clear hints about the limited support that the banking sector can offer to troubled infrastructure projects. Deputy Governor M Mundra told an investors' forum last week that pinning the entire expectations of the infrastructure sector on an accommodative monetary policy and regulatory forbearance would be overlooking the obvious.

The banking system already has a high level of exposure to the sector and it cannot have an infinite appetite towards a single sector, he said, and suggested that the infrastructure sector needed multiple originators of credit as also an efficient "originate and distribute" model to leverage capacity and expertise of each player in the act Jackpot Trading Tips

The long-term funds available with the pension and insurance sectors could play a very critical role in funding investments in the infrastructure sector. However, there is a need to upgrade the credit appraisal and monitoring capabilities of banks, especially public sector banks, to face the challenges involved in project financing.

Earlier this month, global rating agency Moody's retained its negative outlook on India's banking system. The high leverage in the corporate sector could prevent any meaningful recovery in asset quality over the next 12-18 months, it said. India's corporate sector is highly leveraged, with a debt-to-equity ratio of more than 3.0. In particular, said Moody's, companies engaged in infrastructure projects face both structural and cyclical challenges. Without a stronger economic recovery, significant deleveraging would occur only beyond the horizon of this negative outlook Personal Numerology Trading Tips
GETTING POWER PROJECTS OFF THE GROUNoD

According to the Association of Power Producers, a grouping of private power companies, projects of 136,000 Mw involving a capital outlay of over Rs 620,000 crore have been affected due to various factors. Now, an expert panel headed by India Infrastructure Finance Company Chairman Santosh B Nayar has looked into their demands on ways to rescue the stressed assets and has submitted its recommendations to the Union finance ministry.

The panel has suggested that for projects stuck in court cases, the account may be allowed to continue as "standard" till a final settlement is reached. In other words, the assets should not be considered as stressed by banks if the reasons for delay in the commencement of commercial operation of a project is beyond one's control. For existing projects, delayed beyond two years, the provisioning by banks should be kept at 0.4 per cent instead of 5 per cent that is required at present 
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The panel also said that all viable projects may be allowed a one-time dispensation for refinancing with an extension in the repayment tenure. Besides, in order to tackle the issue of funding of cost overruns, the lenders may be allowed to decide on the quantum of funding and revise the repayment schedule. The Reserve Bank of India may impose strict timelines for processing such overrun funding.

Among other things, the committee is in favour of refinancing of viable non-performing assets to stagger the debt repayment over a project's life. It said that any shift in the date of commencement of commercial operation and additional funding pursuant to change in management may not be construed as restructuring, provided such a dispensation is allowed only once for a project Commodity Trading Tips

The committee also sounded a word of caution on loans to distribution companies. It said lenders should link any additional funding to distribution companies with implementation of a financial restructuring plan. The power ministry should come out with a policy on long-term fuel linkage for projects whose coal blocks have been cancelled. It said lenders may re-examine the viability of stranded gas projects and take up the matter for a special package only after there is sufficient clarity on the availability of additional gas Jackpot Trading Tips