The Tribune, Chandigarh, India

Inflation at 43-month low of 4.7%; may cut rates

New Delhi, June 14
Declining prices of manufactured goods helped inflation ease to a three-and-a-half year low of 4.7% in May, providing leeway to the Reserve Bank to cut interest rates in its policy review on Monday so as to spur growth.

Falling for the fourth straight month, inflation reached the lowest level since November 2009 when it was 4.5%. Inflation based on the Wholesale Price Index (WPI) stood at 4.89% in April. In May 2012, it was 7.55%.

Inflation in the food articles category, which has 14.34 % share in the WPI basket, however, rose to 8.25% in May. It was at 6.08% in April.

Manufacturing inflation declined to 3.11% in May from 3.41% in April.

Commenting on inflation figures, Planning Commission Deputy Chairman Montek Singh Ahluwalia said it indicates a distinct downturn on inflation which is welcome. “They (RBI) should certainly consider it because it is very clear that the underline inflationary pressure is softening,” he added.

Industry chamber Ficci demanded that the RBI should consider a rate cut and persuade banks to pass on rate cut benefits to borrowers. “With the downward trend in the prices holding on, the RBI can consider a cut in the policy rate in the forthcoming monetary policy review,” it said.

Commenting on inflation numbers, Finance Ministry officials said they want lower interest rates and monetary policy transmission.

Analysts, however, were of the view that it may be difficult for the Reserve Bank to cut rates in view of the sharp decline in the value of the rupee against the US dollar.

Inflation for March, meanwhile, has been revised downward to 5.65% from 5.96% as per provisional estimates, as per the official data release today.

Inflation in the non-food articles category, which include fibre, oil seeds and minerals, saw a sharp decline in the rate of price rise to 4.88%, from 7.59% in April. ICRA senior economist Aditi Nayar said: "With mounting concerns related to the size and financing of the current account deficit in April-June quarter we expect the RBI to desist from monetary easing in the upcoming policy review, in spite of the persistent weakness in industrial growth." The industrial output grew at a meagre 2.3% in April.

While the Reserve Bank has lowered interest rates by 1.3% since January 2012, the banks have cut lending rates by only 0.3%. "If the rupee stabilises, growth concern could come to force again and the RBI may cut rates by about 0.5-0.75% during the full fiscal," HDFC Bank economist Jyotinder Kaur said.

As per the WPI data, rise in food inflation was on account of increase in prices of onions, vegetables, cereals and protein- based items. Inflation in vegetables was 4.85% in May, against (-)9.05% in the previous month. The rate of price rise in onion was high at 97.4%for the month, as against inflation rate of 91.69% in April.

For the fuel and power category, it was lower at 7.32%in May as compared to 8.84% in April, 2013. Data released earlier this week showed retail inflation falling to a 15-month low of 9.31% in May. — PTI

Sensex bounces back after 3-day decline

Mumbai: Rebounding from two-month lows, the S&P BSE Sensex today surged by nearly 351 points to end at 19,177.93, as slowing wholesale inflation and strengthening rupee rekindled hopes of rate cut by the RBI next Monday.Breaking three-day losing run, investors were richer by over Rs 90,000 crore as 13 sectoral indices finished higher with over 1,400 stocks logging gains. Sensex resumed higher at 18,959.83 tracking strength in Wall Street yesterday and moved up further to a high of 19,213.10 as rate cut hopes were revived after WPI inflation fell to over three-and-half-year low to 4.7 per cent in May. It ended at 19,177.93, a gain of 350.77 points or 1.86 per cent.

The rupee today bounced back by 47 paise to close at one-week high of 57.51 against the US dollar following strong recovery in local stocks and fresh dollar selling by exporters. The rupee commenced strong at 57.75 a dollar from last close of 57.98 at the Interbank Foreign Exchange (Forex) market, but fell back to the day's low of 57.93 on sustained dollar demand from importers. — PTI

They (RBI) should certainly consider it because it is clear that the underline inflationary pressure is softening.

— Montek Singh Ahluwalia, Planning Commission Deputy Chairman

NPAs not alarming, says SBI chief

Mumbai, June 14
The State Bank of India (SBI) is witnessing asset quality stress on account of economic slowdown but the level of bad loans is not alarming, its chairman Pratip Chaudhuri said.

“Right now our non performing assets (NPAs) are not alarming. We have got a good handle on the NPAs the accretion of which has somewhat halted,” Chaudhuri said.

The bank, which has been witnessing asset quality stress reflective of the gloom in the economy, has a restructuring pipeline of Rs 2,000 crore at present, he said.

The chairman, however, declined to give a projection of the NPAs for the ongoing first quarter, saying he cannot give a forward looking statement.

Hit by higher provisioning for bad and doubtful assets, the bank had posted an 18.55% dip in its fourth quarter net profit at Rs 3,299 crore. Its gross NPA ratio also jumped to 4.75% from 4.44% a year ago. The NPA figure was at Rs 51,189 crore, up from Rs 39,676 crore.

It had restructured Rs 8,090 crore in January-March, taking the restructured book to Rs 43,100 crore. Accounts in the mid-corporate vertical and farm sector have the highest instance of turning bad for the SBI. Over the past two years, courtesy the gloom on the economic front, the SBI has focused a lot on lending to the resilient retail sector in order to drive loan growth.

Chaudhuri also clarified that the bank cannot keep away from lending to the corporate sector, as retail loan books alone cannot drive credit growth.

In the past, Chaudhuri has been repeatedly expressing optimism on the NPA front but the bank’s reported numbers showed otherwise.

On the recent move by the Finance Ministry to have an oversight committee of experts to look into the veracity of accounts where restructuring is carried out, Chaudhuri sounded a bit worried, saying there is already diligent thinking by an expert committee which goes in before an account is restructured.

“The CDR is not an arbitrary process...if there has to be another group, I don’t have any comments on that. I don’t think layers and layers of oversight make it effective,” he said.

During his meeting with bankers recently, Financial Services Secretary Rajiv Takru had recommended having such an oversight committee as there have been instances of ‘malafide interests creeping in’ for restructuring of accounts. — PTI

Right now our non performing assets (NPAs) are not alarming. We have got a good handle on the NPAs the accretion of which has somewhat halted

— Pratip Chaudhuri, SBI chairman

FIPB puts Jet-Etihad deal on hold; Telenor gets go-ahead

New Delhi, June 14
The Foreign Investment Promotion Board (FIPB) today deferred a decision on Rs 2,000-crore Jet-Etihad deal, the largest foreign investment in the Indian aviation sector, and sought clarity on control and ownership.

The FIPB, headed by Economic Affairs Secretary Arvind Mayaram, however, cleared the FDI proposal of Norway's Telenor to hike stake in its domestic subsidiary to 74%. "It (Jet Airways-Etihad proposal) has been deferred. We need more details of effective control and ownership," Mayaram told reporters after a meeting of the FIPB.

As per the proposal, Jet Airways plans to sell 24% stake to Abu Dhabi-based Etihad for about Rs 2,058 crore.

Besides, Telenor is seeking government approval to hike stake by 25% in its domestic subsidiary Telewings to 74%.

“Telenor proposal has been approved,” Mayaram said. It could not be immediately ascertained the amount of FDI expected to come through the Telenor transaction.

In March, the FIPB had deferred decision on the proposal.

The Jet-Etihad deal assumes immense significance against the backdrop of the government looking to attract more foreign investment into the country.

Market regulator SEBI and competition watchdog CCI have already sought clarity from the domestic carrier on the transaction, to ensure that Etihad's ownership powers in Jet remains in line with its 24% stake in the company's equity capital.

Asked about the development, Civil Aviation Minister Ajit Singh said SEBI has raised some concerns and asked both airlines to 'rectify some parts of the pact.' “I don't see any major problem for the deal,” Singh said.

It could not be ascertained when the FIPB would take up the Jet-Etihad proposal next. Once the FIPB clears it, the matter would be sent to the Cabinet Committee on Economic Affairs (CCEA) for approval. All deals over Rs 1,200 crore have to be approved by the CCEA.

When contacted, Jet sources said they have already submitted the necessary clarifications to SEBI. — PTI

Cooper deal: Apollo tries to allay debt overloading fears

(Left) Apollo MD Neeraj Kanwar and chairman Onkar S Kanwar at a press conference in New Delhi on Friday. Tribune photograph: Manas Ranjan Bhui

Mumbai/New Delhi, June 14
Apollo Tyres lost a third of its market value over two days as investors fretted over the debt it will take on to fund its $2.5-billion acquisition of US-based Cooper Tire and Rubber Co.

Apollo shares ended down 5.5% to Rs 64.75 on Friday, after falling as much as 8.7% to Rs 62.6, their lowest since January 2012. The stock fell more than 25% on Thursday.

The company said only about $450 million of the total $2.5 billion debt will be serviced by its India business, with the rest shouldered by the cash flows of Cooper, the second biggest US tyre-maker, and its European subsidiary.

“There’s hardly any risk,” Apollo managing director Neeraj Kanwar told reporters in New Delhi. The deal will reduce the firm’s dependence on a slowing Indian market.

The fully debt-funded acquisition prodded at least two brokerages to downgrade the stock, while several more have put the company’s share rating on review.

“Given the inherent margin volatility in the tyre business and the leverage involved, the transaction clearly involves excessive risk,” brokerage Kotak Institutional Equities said in a research note, downgrading the stock to 'reduce' from 'buy'.

Kotak slashed Apollo's stock target price to Rs 64 from Rs 110, citing significant risk to future cash flows and earnings of the company due to the heavy debt burden.

The acquisition of Cooper, at nearly three times the Indian company's market value, will give Apollo access to the top two auto markets, the United States and China, and will create the world’s seventh-largest tire maker. — Reuters