Banks May Shut Door On Pun­jab Food Loans

Lenders led by State Bank of In­dia to meet to­day to as­sess sit­u­a­tion, plan to lobby reg­u­la­tor this week against pro­vi­sion­ing

The Economic Times - - Front Page -

MC Go­vard­hana Rangan & San­gita Me­hta

Mum­bai: A con­sor­tium of more than 30 banks led by State Bank of In­dia is poised to slam the doors on lend­ing to Pun­jab govern­ment’s food pur­chases this sea­son as they await a set­tle­ment on seem­ingly miss­ing stocks worth as much as .₹ 20,000 crore, said two peo­ple aware of the mat­ter. This fol­lows the cen­tral bank telling lenders to set aside money against loans to the tune of .₹ 12,000 or more, treat­ing th­ese as non-per­form­ing as­sets even though such credit is gen­er­ally held to be sov­er­eign debt and thus in no dan­ger of de­fault.

The de­ci­sion be­ing con­tem­plated by the banks could dis­rupt an agri­cul­tural econ­omy al­ready on its knees af­ter two con­sec­u­tive droughts as Pun­jab is ex­pected to need as much as .₹ 40,000 crore in loans as the big­gest buyer of food­grain among all In­dian states, said the ex­ec­u­tives, who didn’t want to be named.

Pun­jab ac­counts for 40% of food loans, about .₹ 1 lakh crore in the year to March.

“We will not lend this sea­son un­less the prob­lem is re­solved,” said one of the bankers.

“We be­lieve that prospects of bet­ter mon­soon this year hold sig­nif­i­cant po­ten­tial to perk up ru­ral In­dia,” said Ab­hay Lai­jawala, man­ag­ing di­rec­tor and head of re­search at Deutsche Bank. “We be­lieve that the on­go­ing equity rally in In­dia will con­tinue in medium term.”

Af­ter two con­sec­u­tive drought years, the In­dia Me­te­o­ro­log­i­cal De­part­ment fore­cast an above-av­er­age mon­soon last week, buoy­ing ex­pec­ta­tions of a re­vival in the ru­ral econ­omy that will pro­vide a boost to growth.

But fourth-quar­ter earn­ings could re­verse some of the re­cent gains. About 52% of poll par­tic­i­pants said the Sen­sex could sink by 3-5% in the event of weak re­sults, while 30% are pre­dict­ing a 5-10% de­cline.

“The Q4 earn­ings for In­dian cor­po­rate sec­tor could re­main mod­est, weighed down by the slug­gish do­mes­tic and global de­mand growth,” said Anand Rad­hakr­ish­nan, chief in­vest­ment of­fi­cer at Franklin Tem­ple­ton As­set Man­age­ment. The Sen­sex and the Nifty have gained about 12-13% in the last one-and-half months since Fe­bru­ary 29, re­vers­ing losses in the first two months of 2016.

A re­vival in for­eign fund flows into emerg­ing mar­kets lifted shares in the re­gion. Added to this, the govern­ment’s de­ci­sion to stick to its fis­cal deficit in the Fe­bru­ary bud­get en­cour­aged hopes of a rate cut, aid­ing sen­ti­ment in the In­dian mar­kets. Sure enough, the Re­serve Bank of In­dia low­ered in- ter­est rates and an­nounced a se­ries of mea­sures to ease liq­uid­ity on April 5.

RATE CUT HOPES

About 75% of those sur­veyed ex­pect the RBI to cut rates by 25 ba­sis points while the rest are bet­ting on a 50 ba­sis point cut this year. A ba­sis point is 0.01 per­cent­age point.

The ru­pee is likely to trade in the range of 6668 against the dol­lar, said 47% of poll par­tic­i­pants.

Among sec­toral picks, 21% of the par­tic­i­pants showed a pref­er­ence for au­to­mo­biles. Cap­i­tal goods and fast-mov­ing consumer goods (FMCG) were among the oth­ers favoured. They said they would avoid sec­tors such as me­tals and phar­ma­ceu­ti­cals. While the do­mes­tic econ­omy is show­ing signs of sta­bil­is­ing, in­vestors may need to keep a watch on ex­ter­nal fac­tors that could dent high ex­pec­ta­tions. Pos­si­ble ac­tion by the US Fed­eral Re­serve, a ref­er­en­dum on Bri­tain’s mem­ber­ship of the Euro­pean Union and China’s growth tra­jec­tory will keep in­vestors on edge, par­tic­i­pants said.

“The global wor­ries are still not be­hind us, they re­main very much on the hori­zon,” said Vikas Khe­mani, pres­i­dent and CEO, Edel­weiss Se­cu­ri­ties. “But the good news is that the do­mes­tic macros have started play­ing out.”

An­a­lysts are also ad­vis­ing cau­tion be­cause stock val­u­a­tions are no longer cheap. The Sen­sex is cur­rently trad­ing at 15.7 times its oneyear for­ward price to earn­ings (P/E) ra­tio. This is just slightly be­low its long-pe­riod av­er­age of 16.8 times.

FILE PHOTO

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.