Thursday, 20 August 2015

finance


Small finance bank licences likely next month: Raghuram Rajan

RBI had yesterday granted in-principle approval to eleven applicants for payments banks

BS Reporter  |  Mumbai 
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Raghuram Rajan | Photo: Kamlesh Pednekar


After granting in-principle approval to eleven applicants for payments banks, Reserve Bank of India (RBI) governorRaghuram Rajan today said licences for small finance banks will be announced next month.
Payments banks and small finance banks will help deepen financial inclusion in the country, he said. 

“Payments banks will compliment universal banks. They are not competing with them. Universal bank have edge over the payments banks with wider product and service,” said Rajan at an event held in Mumbai.

 RBI had received a total of 113 applications from players keen to set up niche banks like payments banks and small finance banks. There were 72 applications for small finance banks and 41 applications for payments banks. 

Rajan said that payments banks will help reduce costs for customers.

Payments banks can accept deposits of up to Rs 1 lakh and can offer current and savings account deposits. They can also issue debit cards and offer internet banking. But they are not allowed to lend or issue credit cards.

On the other hand, small finance banks will be similar to existing commercial lenders and will undertake basic banking activities of accepting deposits and lending to unserved and under-served sections. However, the maximum loan size and investment limit exposure to single and group obligors cannot be more than 10% and 15% of its capital funds, respectively. Apart from this, at least 50% of their loan portfolio has to include loans and advances of up to Rs 25 lakh, as per RBI regulations. 

After draft guidelines for small finance banks had come out, the enthusiasm for it was limited. However, in the final guidelines, RBI had removed the restrictions on geography for the area of operations thus leading to a greater interest by players.

The credit growth of the banking system has slowed down and a key factor has been high lending rates. India Inc has preferred borrowing from the market where rates have fallen.  Though RBI has cut the repo rate or the rate at which banks borrow from the central bank by 75 basis points, banks have been reluctant to pass on the cuts.

“Banks need to frontload transmission of monetary policy. They should reduce lending rates for boosting demand especially in retail,” said Rajan. According to Rajan there is an uptick in demand. “If the rains are good, we may see rural demand coming back in the system,” he said.

He said that the challenge for banks in the medium term is the risk of tremendous amount of churn. When it comes to public sector banks, the middle piece (talent at the mid-level) is missing due to freeze on recruitment in the past. 

“RBI faces challenges in attracting talent. The risk is skill them, they are grabbed by the market,” he said.

In recent times, bad loans have been on the rise. According to Rajan, the thing that worries RBI is that how banks recognise distressed assets in the first place.

On China's move to devalue the yuan, Rajan said, “Across the globe there has been low demand. There has been a tendency to weaken the currency. We have seen examples of this. China moved on many fronts. Boosting stock market and then action on the currency front.”

He said yuan devaluation had had an impact on emerging market currencies and the rupee was not an exception. 
HERE are nine things making news in business and finance around the world today.
1. SYDNEY — The Australian dollar regained earlier losses after the minutes of the US Federal Reserve July policy meeting showed there were doubts about a September interest rate hike. At 0630 AEST on Thursday, the local unit was trading at 73.54 US cents, slightly up from 73.53 cents on Wednesday.
2. SYDNEY — The Australian market looks set to open lower following losses on Wall Street. At 0641 AEST on Thursday, the September share price index futures contract was down 53 points at 5,300.
3. WASHINGTON — The Federal Reserve saw US economic conditions “approaching” the point of being able to weather an increase in near-zero interest rates at July’s policy meeting, a Fed report says.
4. LUXEMBOURG — Eurozone finance ministers have formally approved the first tranche of a new 86 billion euros ($A129.21 billion) bailout for Greece after parliaments in member states backed the rescue-for-reforms deal.
5. SHANGHAI — China’s central bank has made $A23 billion available to more than a dozen financial institutions to help boost the economy, a day after injecting nearly $US100 billion into two government policy banks.
6. WASHINGTON — The IMF says it has extended by nine months the scheduled revision of its elite currencies basket, giving more time for adjustment to the potential inclusion of China’s yuan.
7. WASHINGTON — Facebook remains the dominant social network for US internet users, while Twitter has apparently failed to keep apace with rivals like Instagram and Pinterest.
8. WASHINGTON — US consumer prices rose slightly in July, extending a slow year-over-year rise since April as the Federal Reserve plans an interest rate increase this year.
9. TOKYO — The successor-in-waiting at SoftBank says he would buy a whopping $A657 million in company shares, after his move to the Japanese mobile carrier from Google.
MUMBAI (Reuters) - Reserve Bank of India governor Raghuram Rajan said China's devaluation of the yuan was not a concern, but warned of the dangers of "tit-for-tat" actions by other countries if the move was part of a long-term competitive devaluation.
The comments come after China's central bank this month devalued the yuan, sparking concerns that policy makers were aiming to help struggling exporters - a scenario they feared would ignite a "currency war."
The rupee has fallen more than 2 percent against the dollar since the yuan devaluation, slumping at one point to its weakest since September 2013, when India was in the midst of its worst currency turmoil in more than two decades.
The outlook on emerging Asian currencies in the past two weeks also deteriorated to its worst in years, as bearish bets on the Chinese yuan hit their largest in more than five years after the surprise devaluation, a Reuters poll showed on Thursday.
Although Rajan added he did not believe the actions from the People's Bank of China were an indication of a long-term devaluation, he warned of the dangers.
"I think if the Chinese depreciation holds to about this level, it's not something that one should be overly concerned about," Rajan said at a banking event in Mumbai.
"If it's part of a process of getting competitive advantage through ... longer term depreciation it has to be worrisome across the world, partly because you could have tit-for-tat actions," he added.
Rajan, a former chief economist for the International Monetary Fund, has repeatedly warned about the dangers of competitive devaluations for emerging markets such as India.
Without naming examples, he expressed concerns that there were already such devaluations taking place over the past few years.
"Across the globe because of weak demand we have seen significant efforts to depreciate one's currency," he said on Thursday.
"That's a worrisome trend across the globe because there is only so much global demand and if we all are trying to capture it by depreciating our currency then it becomes a free for all."
(Reporting by Suvashree Dey Choudhury and Himank Sharma; Writing by Rafael Nam; Editing by Shri Navaratnam)
By Krishna N. Das
NEW DELHI (Reuters) - Adani Group is in talks with Japan's Softbank (9984.T) and Foxconn (2354.TW), maker of Apple's iPhone, to secure investment in a $3 billion project to make solar cells and panels in the country, two sources with knowledge of the matter said.
Prime Minister Narendra Modi's government expects clean energy to yield business worth $160 billion in India in the next five years, based on the country's power generation targets.
Softbank, Foxconn and Bharti Enterprises have already pledged to invest about $20 billion in solar projects in India. A new deal with Adani, one of the country's largest conglomerates, would boost Modi's efforts to promote manufacturing and create sorely needed jobs.
One of the sources, who is involved in the negotiations, said that over the past few weeks, the billionaire founder of the mines-to-power Adani Group, Gautam Adani, had held talks with Softbank Chairman Masayoshi Son and Foxconn head Terry Gou.
"(Adani) are talking to Softbank, they are talking to Foxconn. They may partner with both of them. Something will be finalised in the coming few months," the source said.
Both sources said the deal was yet to be finalised. Under the current discussions, Softbank and Foxconn, which have a string of planned and executed in investments in India, could directly inject money into the project.
Foxconn Technology Group, Softbank and Adani all declined to comment.
One of the sources said the talks had gathered pace after Adani and U.S. solar power company SunEdison (SUNE.N) two months ago ended a $4 billion agreement struck earlier this year, on a similar project.
"That deal could not mature," said the India-based source. "They were charging too much on the technology fee."
A SunEdison spokesman declined to comment.
HERE COMES THE SUN
Under the planned project, Adani is looking to set up a plant to produce 3 gigawatts (GW) of solar cells and panels, probably in Modi's home state of Gujarat by 2020, said the source. Adani is based in the state and is said to be close to the prime minister.
The first phase of 1 GW will be completed by 2018 and the company has already started buying equipment for it.
India is relying on renewables to fight climate change rather than committing to emission cuts like China, arguing that any target could hinder economic growth vital to lifting millions of its people out of poverty.
Modi has set clean-energy targets including raising solar capacity fivefold to 100 gigawatts (GW) by 2022, as India's peak power demand doubles over the next five years from about 140 GW now.
But most of the investment in the sector is expected to come either from foreign investors or companies such as SunEdision, Trina (TSL.N) and First Solar (FSLR.O).
(Additional reporting by Tommy Wilkes, Swetha Gopinath and Jatindra Dash; Editing by Clara Ferreira Marques and David Evans)
By Colin Packham
SYDNEY (Reuters) - Australian farmers Rob and Jill Baker started growing native finger limes almost a decade ago. Today, top restaurants across Asia and Europe can't get enough of the fruit known as "citrus caviar" due to the burst of tangy flavour when chewed.
Finger limes are just one of a number of premium Australian agricultural products, including olive oil, honey, wagyu beef and organic baby food, now being sold in some of Asia's top stores as Australia pushes to become Asia's delicatessen.
While Australia's main agricultural products like wheat, rice, sugar and beef have traditionally fed Asia, there is now a wave of farmers like the Bakers moving to premium crops.
"Australia can meet only a small percentage of Asia's current food demand – let alone its future demand. That suggests that our opportunity isn't so much to be the supermarket to Asia as its delicatessen – offering high-value, high-margin products," said Rob McConnel, Deloitte agribusiness lead.
The Australian Council of Learned Academies forecasts the value of all food exports doubling to A$710 billion ($520 billion) by 2050.
International demand for Australia's finger limes, an ancient Aboriginal food and now a delicacy for Asia's growing middle class, is pushing prices as high as A$40 to A$60 ($29.37 to $43.99) a kilo. "Chefs love them. They cover the three components of a modern dish, texture, visually they are very pretty as they look like caviar, and they give a dish an acid component," said daughter Jacquie Baker, who oversees the sale of finger limes.
"In modern food, especially Asian, you need an acid element," explained Baker.
However, Australian farmers must overcome a lack of brand awareness in Asia, compared with established premium products from nations like France, to tap this lucrative market.
"Products in a delicatessen are considered to be worth the extra expense because they are brand name products with a good, well-established reputation for being 'better' than the average product," says the Australian Farm Institute.
And despite China's estimated 4 million millionaires, the slowing growth of the world's second-biggest economy could cast a cloud over Australia's "Asian delicatessen" policy.
VOGUE CROPS SPREADING
This season, a record amount of chickpeas and lentils have been planted, alongside vogue products such as chia seeds and quinoa at the expense of traditional crops.
Ten years ago the irrigated Ord Valley in Australia's far northwest was dominated by sugar farming, but today it is the world's largest producer of the South American crop chia, driven by former wheat farmer John Foss.
His Chia Co now exports to 36 countries and Chinese regulators last year granted it permission to sell into mainland China.
Global sales of chia, a nutrient-rich seed popular in smoothies and snack foods, are forecast to reach A$1.1 billion by 2020 due to demand for its use in cereals, snacks and beverages, according to a 2013 report by Food Navigator.
Australia's Capilano Honey has seen strong demand from Asia, particularly for its Mānuka honey that is often used in alternative medicines for its antibacterial properties.
Manuka honey is native to Australia and New Zealand and with limited supply prices can approach nearly A$150 a kilo in Asia.
"If I feel sick or have a gastric ulcer, then I would immediately go buy the honey in Korean department stores even though the price is almost double," said Korean Su-Jung Bin, shopping at a store where 1 kg (2.2 pounds) of Manuka honey was being offered for 132,000 Korean won ($110.93).
Capilano doubled its sales to Asia in the year to March 2014 and posted 29 percent growth in sales revenue in Asia in the past year, according to its last two annual reports.
With soaring export demand, the total value of Australia's honey and beeswax production is forecast to hit record levels, having nearly doubled in the last six years to A$107 million.
Australian organic baby food company Bellamy is making inroads into one of Asia's toughest markets, China, and has customers in Hong Kong, Taiwan, Singapore, Malaysia and Vietnam.
At the upmarket IAPM mall in Shanghai's French Concession, Bellamy's Organic infant formula costs a hefty 398 yuan ($84).
Bellamy sells its organic formula range in 160 Wal-mart stores in Guangdong and Guangxi, as well nationally to OLE supermarkets, and have distribution in select regional premium supermarkets and mother-and-baby chains across China.
"We expect that this step into supermarket distribution will contribute to increasing the brand profile in the China market," said Bellamy, a family firm started in 2004 in the island state of Tasmania and now a A$100 million company fuelled largely by fast-growing sales in Asia.
($1 = 1,189.9000 won)

($1 = 1.3646 Australian dollars)
By Henning Gloystein
SINGAPORE (Reuters) - Oil markets opened up weak on Thursday following sharp falls the previous session, with U.S. contracts hovering slightly above $40 per barrel, levels not seen since the credit crunch of 2009, and globally traded Brent tested support at $47.
U.S. West Texas Intermediate (WTI) crude oil slumped over 4 percent on Wednesday to hit a 6-1/2-year low as a huge unexpected stockpile build in the United States reinforced concerns about a growing global oil glut.
U.S. crude inventories rose 2.6 million barrels last week to 456.21 million barrels, the government's Energy Information Administration said.
And markets opened up weak again on Thursday. U.S. crude futures (CLc1) were trading at $40.69 per barrel at 0024 GMT, levels not seen since the peak of the global financial crisis of 2008/2009. Brent (LCOc1) was down 11 cents at $47.05 a barrel.
"WTI prices plunged to the lowest level in more than six years after an EIA report showed that U.S. crude stockpiles unexpectedly rose 2.6 million barrels against market expectations for a small decline," ANZ bank said on Thursday.
"Despite the weak price environment, the biggest OPEC producer, Saudi Arabia, boosted its oil exports," it added.
Saudi Arabia exported 7.365 million barrels per day (bpd) in June, up from 6.935 million bpd in May, figures published by the Joint Organisations Data Initiative (JODI) showed.
The bearish sentiment is also visible in the long-term derivatives market.
Contracts for delivery of crude oil in the future on the big commodities markets such as the New York Mercantile Exchange (CME.O) and the InterContinental Exchange (ICE.N) show the price of oil for delivery in five years' time has collapsed in recent months, implying that traders do not expect a price recovery any time soon.
U.S. crude prices for delivery in 2020 cost only about $20 more than they do now, a price difference that falls further when adjusted to expected inflation and interest rates.
(Editing by Michael Perry)
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