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Journalism of Courage
Banking: In the backdrop of subdued economic activity and weak corporate top line during first 9 months of FY13,the banking sector witnessed deceleration in credit and deposit growth as well as some moderation in profitability indicators. Total credit for Scheduled Commercial Banks (SCBs) registered a y-o-y growth of 16.0 per cent to reach Rs 50,512 billion as on January 25,2013. The non-food credit growth has been declining since December 2010 on account of host of issues. On the demand side,higher cost of borrowings,policy paralysis and the resultant postponement in projects impacted the credit demand from corporates. While on the supply side,risk aversion on part of banks due to credit slippages and rise in quantum of restructured debt impacted the credit growth. In addition,consistent high interest rates have impacted the debt repayment capacity of corporates thereby resulting in asset quality deterioration and rise in the quantum of restructured assets across the banking sector. On a y-o-y basis,Gross NPAs have grown by 42.6 per cent from Rs 1.28 trillion as of December 31,2011 to Rs 1.83 trillion December 31,2012. On a relative basis,gross NPA ratio has increased from 2.88 per cent at the end of December 2011 to 3.53 per cent as on Dec 31,2012. On the restructuring front,the total outstanding restructured assets in the banking system increased to Rs 3.2 trillion as on December 31,2012,up 23 per cent year to date in comparison to March 2012 level. Restructured assets as a percentage of advances reached 6.1 per cent as on December 31,2012 as compared to 5.4 per cent as of March 31,2012. Margins of banks also saw some pressure on account of rise in cost of deposits and interest reversals/sacrifices on account of weakening asset quality parameters. Capital Adequacy of banking system,however,continued to be comfortable above 12 per cent as of Dec 2012.
NBFC: Total assets of the NBFC sector witnessed good growth during FY12 even amidst uncertainty in the global markets. As per RBIs report on trends and progress of banking in India (2011-12),total assets of NBFCs (excluding non-systemically important non-deposit accepting small NBFCs that account for less than 10 per cent of the sector) increased from Rs 7.61 lakh in FY11 crore to Rs 9.21 lakh crore in FY12 witnessing a y-o-y growth of 21 per cent. There was deterioration in asset quality for NBFC-Ds (deposit-accepting NBFCs category as Gross NPA ratio (Gross NPA / Gross Advances) increased from 0.7 per cent for FY11 to 2.1 per cent for FY12. Gross NPA ratio for NBFC-ND-SIs (non-deposit accepting systemically important NBFC) also increased to 2.08 per cent at end FY12 as compared with 1.72 per cent at end FY11. However,NBFCs have improved their risk profile by reducing the asset-liability mismatches as well as reducing exposure to unsecured lending. Going forward NBFCs are expected to maintain the growth momentum along with the overall economic growth.
Insurance: Domestic non-life insurance industry grew at 24.19 per cent in 2011-12,with the total premium collection at Rs 52,876 crore as against Rs 42,576 crore in the previous year. Motor insurance with 45.84 per cent of total premium and Health insurance with 22.27 per cent of total premium were the major segments of the non-life insurance industry. The share of four public sector players – National India,New India Assurance,Oriental Insurance and United India stood at 57.8 per cent. Gross premium in the life insurance sector decreased y-o-y by 1.57 per cent during FY12 with 4.52 per cent decline in premiums of private life insurers and 0.29 per cent fall in premiums of LIC. New regulatory requirements by IRDA with respect to ULIPs affected the growth of the sector with a 36.12 per cent decline in ULIP premiums during FY12 leading to decline in ULIPs share in total premium to 24.26 per cent during FY12 from 37.38 per cent in FY11. However the impact is expected to be a medium-term adjustment as long-term growth will be driven by increasing penetration levels in India that are still low compared to other countries. LIC still continues to have the dominant market share of 70.68per cent.
MUTUAL Funds: Total AUM (monthly average) of the industry increased by a modest 5% y-o-y to Rs.7.47 lakh crore as at September 2012 impacted by the overall volatility in the stock markets and tight liquidity conditions.
Proposal and Impact
Budget proposals: Proposed capital infusion of Rs 14,000 crore in public sector banks in 2013-14.
IMPACT: Expected to help public sector banks achieve the Basel III capital adequacy levels.
Budget proposals: Infrastructure tax-free bonds allowed up to Rs 50,000 crore to be issued.
IMPACT: Boost to infrastructure segment as well as the companies eligible to issue such bonds as the same would help reduce cost of funding.
Budget proposals: The Rajiv Gandhi Equity Savings Scheme liberalised to enable the first time investor to avail tax benefits by investing in mutual funds or listed shares in three successive years. The income limit of the first time investor raised from Rs 10,00,000 to Rs 2,00,000.
IMPACT: Aimed at increasing the retail participation in equity/MF segment.
Budget proposals: Person taking a loan for his first home from a bank or a housing finance corporation up to Rs 25,00,000 during the period 1.4.2013 to 31.3.2014 will be entitled to an additional deduction of interest of up to Rs 1,00,000.
IMPACT: Expected to improve the housing loan demand in Tier-II & III cities thereby positively impacting the banks/Housing finance companies.
Budget proposals: Additional budgetary support of Rs 100 crore provided to India Microfinance Equity Fund set up by SIDBI.
IMPACT: Credit positive for the sector as it will bolster their equity capital.
Budget proposals: Allocation of Rs 500 crore to SIDBI to set up a Credit Guarantee Fund for factoring.
IMPACT: Positive for factoring companies specially given the largely unsecured nature of factoring transactions.
Budget proposals: Rural Housing Fund set up through the allocation to Rural Housing Fund set up under National Housing Bank raised from Rs 4,000 crore to Rs 6,000 crore. The budget also proposes setting up of Urban Housing Fund with a corpus of Rs 2,000 crore under NHB.
IMPACT: Expected to provide a fillip to rural and affordable housing.
Budget proposals: Insurance companies will be empowered to open branches in Tier-II cities and below without prior approval of IRDA.
IMPACT: Insurance companies stand to benefit on account of the simplification on the branch opening processes.
Budget proposals: The list of eligible securities in which Pension Funds and Provident Funds may invest will be enlarged to include exchange traded funds,debt mutual funds and asset backed securities.
IMPACT: Broadening of investor base would help increase market volumes.
AUTOMOBILE
Automobile industry is sensitive to economic cycles. Factors like interest rates,fuel prices,disposable income,inflation,consumer confidence etc have strong influence on the industry demand. However,the extent of cyclicality differs across passenger vehicles (PV),commercial vehicles (CV) and two-wheeler (TW) industry. For instance,medium and heavy commercial vehicle (M&HCV) along with the PV industry is highly sensitive to factors like interest rates,fuel prices and consumer spending whereas TW and light commercial vehicles (LCV) are comparatively less sensitive to the aforesaid factors.
The PV industry bore the brunt of economic slowdown during FY13 on account of high interest rates coupled with high inflation and spiralling fuel prices. The CV industry was worst hit in FY13 witnessing sharp drop in growth levels compared to previous two fiscals. This drop in growth levels was mainly due to significant decline in the demand for M&HCVs,however healthy demand for LCV helped to offset the negative impact to some extent. The TW industry managed a moderate growth due to low dependence on financing and support from rural demand.
In a year when vehicle sales were trembling,UV segment witnessed growth of around 50 per cent. The UV segment was benefited due to emergence of affordable mini UV segment with some successful launches like Duster,Quanto and Ertiga,combined with vast offerings in diesel category coupled with shifting consumer preference towards more powerful and spacious vehicles. In the similar fashion LCV segment was able to buck the trend and posted a healthy growth on account of increasing demand for small commercial vehicles.
While the fundamentals for the sector remain intact,growth is currently constrained by the general economic slowdown. Interest rates,fuel pricing,infrastructure and agriculture spending would be decisive factors for the automobile sector to emerge out of the current slump in the short term.
Proposal and Impact
Budget proposals: Proposed sanction of Rs 14,983 crore under JNNURM Scheme.
IMPACT: This move provides a relief on the backdrop of sluggish demand in the bus segment of CV industry. The sanctioned amount will be utilised to purchase up to 10,000 buses in FY14.
Budget proposals: Hike in basic excise duty for Sports utility vehicle from 27 per cent to 30 per cent.
IMPACT: Demand for SUVs comes from affluent consumers and tour operators. The hike will have lower impact on overall demand,as govts decision to keep tour operators untouched from the hike significantly limits the negative impact on the demand for the segment.
Budget proposals: Hike in agriculture credit from Rs 5,75,000 crore to Rs 7,00,000 crore and extension of interest rate subvention scheme for crop loans & extension of the scheme to private sector banks.
IMPACT: Improved rural liquidity,thereby push demand for tractors and two-wheelers northwards.
Budget proposals: Increased allocation for MGNREGS at Rs 33,000 crore from Rs 31,000 crore.
IMPACT: Improve employment levels in rural areas,thereby push demand for two-wheelers.
