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Indian Banks’ Loss-Absorbing Ability To Recover By Excess Credit Growth: Fitch

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Bank credit jumped by 11.5 per cent during FY22. Full-year loan growth for FY23 will witness a modest slowdown from the 17 per cent YoY pace in H1FY23. State-owned banks have lower loss-absorption capacity, with their CET1 ratios significantly lower than those of private banks

Fitch Ratings being global rating agency said that bank credit growth in excess of 13 per cent year-on-year (YoY) in FY23 may put pressure on core equity tier ratios (CET1) of banks, specifically the public sector lenders on 28 November.

In order to absorb potential future losses, it may limit the buffers of Indian banks.

Bank credit jumped by 11.5 per cent during FY22. Full-year loan growth for FY23 will witness a modest slowdown from the 17 per cent YoY pace in H1FY23. The normalisation of economic activity will drive credit offtake. This will be followed by the Covid-19 pandemic and high nominal GDP growth.

The banking system’s CET1 ratio in H1FY23 nearly drop by 50-bps led by rapid loan growth, from 13.4 per cent at end-FY22. Most banks, however, do not factor in quarterly profits as part of their capital calculation, said Fitch in a statement.

CET1 ratios after falling modestly, will sustain around 13 per cent levels until FY24, as banks step up efforts to introduce external capital.

State-owned banks have lower loss-absorption capacity, with their CET1 ratios significantly lower than those of private banks. Their capacity may get destroyed later, if rapid loan growth did not match with fund-raising.

Generally, Indian banks remain open to raising additional capital for the purpose of fund growth, in spite of the rates hike. Private banks are normally better than state-owned banks at capital planning, despite steps to raise fresh equity may sound opportunistic and incremental. This may reduce the risk that they create capital market stress.

According to Fitch, the near-term asset quality risks of Indian banks appear to be contained. The system non-performing loan ratio witnessed a fall to 5.1 per cent in H1FY23 due to low fresh bad loans and loan growth. Credit costs are about 1.0 per cent as against 1.3 per cent in FY22 and provision coverage ratio of 76 per cent in 1HFY23.

Adding to this, th agency said “We expect credit costs to remain around these levels in FY23 as a whole before rising to 1.5% in FY24 with the gradual unwinding of regulatory forbearance on loans affected during the pandemic.”

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CII Asks RBI To Moderate Pace Of Monetary Tightening

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The domestic demand has shown a better recovery following the performance of a host of high-frequency indicators. RBI should consider moderating the pace of its monetary tightening from the earlier 50 basis points, said the Confederation of Indian Industry

The Reserve Bank of India (RBI) has been asked by the Confederation of Indian Industry (CII) to consider moderation in the pace of its monetary tightening ahead of the forthcoming monetary policy review. It cited challenges coming from global headwinds, on 27 November.

The industry body in a statement, said “Given the headwinds to domestic growth mainly emanating from the global uncertainties, the RBI should consider moderating the pace of its monetary tightening from the earlier 50 basis points.”

The Monetary Policy Committee (MPC) will hold meet from 5 to 7 December.

The domestic demand has shown a better recovery following the performance of a host of high-frequency indicators. However, the prevailing global ‘polycrisis’ is may leave an impact on growth prospects of India too, according to CII.

While CII is aware of interest rate hikes by RBI of 190 basis points so far in the current fiscal, that have been warranted to soften inflationary pressures. The corporates to have now started feeling its adverse impact, it said.

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Economists Foresee GDP Growth In Q2 At Median 6.45%

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The waning base effect being 8.4 per cent growth in the second quarter of FY22 would have pushed down the July-September number this year. The central bank in its latest monthly economic review released during last week said, “If this is realised, India is on course for a growth rate of about 7 per cent in 2022-23”

The India economy witnessed a probable growth of 6.2 to 7.2 per cent in the September quarter from the previous year. It is lifted by a pick-up in services and government capital spending along with high pre-festive season production, according to economists’ survey.

The median of the ten economists’ forecasts for the quarter was reported at 6.45 per cent. The Gross domestic product (GDP) surged 13.5 per cent in the first quarter of FY23, boosted by the low base from last year.

The waning base effect being 8.4 per cent growth in the second quarter of FY22 would have pushed down the July-September number this year. The official national income data for the second quarter will be out on 30 November.

Hotels, Transport led Rebound

According to DBS the has estimated growth during the September quarter is 6.5 per cent. The Reserve Bank of India (RBI) has recorded it between 6.1 to 6.3 per cent.

The central bank in its latest monthly economic review released during last week said, “If this is realised, India is on course for a growth rate of about 7 per cent in 2022-23.”

The most high-frequency indicators which includes retail credit growth, vehicle sales, freight traffic and goods and services tax (GST) collections, indicated better demand dynamics in the quarter. Also. it benefited from pre-festive inventory stocking.

The India Ratings sees 7.2 per cent growth in the quarter, the highest according to a media house survey.

As per analysts, the resilient domestic backdrop and pent-up demand continued to prop up India’s growth. The external headwinds surges through the quarter, especially in the tertiary sector.

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Companies’ Revenues Rise, Profits Go Down: Report

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As compared to the revenue growth, a low profit growth states that companies are not completely able to pass on higher input costs to consumers. A at around 355 companies declared their July-September numbers which reported a rise in revenue by 20.5 per cent. This made it the seventh consecutive quarter of double-digit growth. The commodity prices moderation may ease input cost pressures and the margin performance too may show corrections. This may occur as more companies from the manufacturing sector release their results

According to a report by a media house, the initial trends in Q2 corporate results witnessed sustained revenue growth in double-digit and a slow surge in net profit in single-digit year-on-year. The revenue growth was backed by Inflation and pent-up demand however, input cost pressures have pulled down the operating profit margins.

As compared to the revenue growth, a low profit growth states that companies are not completely able to pass on higher input costs to consumers. A at around 355 companies declared their July-September numbers which reported a rise in revenue by 20.5 per cent. This made it the seventh consecutive quarter of double-digit growth.

However, comparatively a modest net profit growth was witnessed at 5.6 per cent, being the slowest in the nine quarters. During previous in the same quarter, revenue and profit surged by 23.3 per cent and 22.8 per cent, respectively. A slow growth in profitability may impact tax revenues.

Last year in the September 2022 quarter, the total sample’s operating margin decreased by 500 basis points (bps) to 19.5 per cent. On the other hand, the raw material cost as a percentage of revenue hiked by 250 bps to 23.8 per cent year-on-year.

The commodity prices moderation may ease input cost pressures and the margin performance too may show corrections. This may occur as more companies from the manufacturing sector release their results.

However, majorly banking and finance companies and Reliance Industries, have been driving the second-quarter performance so far. Amid lower provisioning requirements and higher interest rates Banks have shown good profit growth. The scenario will be clearer in mid-November after few more companies from diverse sectors announce their earnings.

The corporate sector currently is deleveraged, however companies with huge liquidity will invest subject to demand being durable. Less responsive global demand and the shrinking of financial conditions will hamper the exports. This concludes that domestic demand is required to be robust.

The small and medium industries with utmost need of working capital will be hurt the most due to higher interest rates.  Hence, a cautious approach needs to be considered in order to prevent investment slowdown. Government of India’s consistent push to capex and improving pace of project execution will surge demand which will help India Inc’s revenue to grow.

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India Will Achieve Export Target Of USD 2 Trillion By 2030: Piyush Goyal

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The minister was confident enough to say that sustaining the export momentum will enable Indian exports to deal with the global headwinds and will surpass growth in exports by a “big” margin

Commerce and Industry Minister Piyush Goyal said that India will hit a target of two trillion dollar for goods and services export by 2030. The minister delivered his address at the Exporters Conclave held at Chennai, on 16 October.

The minister was confident enough to say that sustaining the export momentum will enable Indian exports to deal with the global headwinds and will surpass growth in exports by a “big” margin. He also said that, with 25 per cent share in exports, the country will become a 30 trillion dollar economy, by 2047.

The industry participants were assured that the government is committed to addressing the issues raised by them. 

President of the Federation of Indian Export Organisations (FIEO) A Sakthivel, said that even though recessionary trends visible in Russia and Europe, there exists good opportunities of exports for Indian exporters.

Sakthivel said that in the next 12 months there would be additional exports to Russia and Europe at around 8 to 10 billion dollar and 15 to 20 billion dollar, respectively. He urged the minister to introduce the Exports Refinance Facility for banks in order to refinance them at the repo rate to the extent of credit extended to the export sector. 

Exporters’ liquidity woes have increased after the levy of GST on exports freight said Sakthivel. During the meeting, exporters raised several issues such as hike in cost of raw materials and decreased demand in certain key export markets and support required to the exporters during difficult time. 

Various other issues were raised too during the session including the need for higher interest subsidy for exporters, benefits under export to Russia in Rupee payment, higher freight costs, fifty per cent duty withdrawal of export from low-grade Iron Ore and non-tariff barriers experienced by domestic exporters in European, Japanese and Chinese markets.

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India May Become Third Biggest Economy After US And China By FY28: Reports

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It may overtake Germany and Japan, two years earlier than initially expected. Other nations may grow marginally or even go into recession. Even India’s growth too witnessed a few knocks however economy is expected to expand at decent pace. In comparison with other currencies, rupee depreciated a bit less against the dollar

As per the International Monetary Fund (IMF) World Economic Outlook database, India may become the world’s third-biggest economy after the US and China by FY28. It may overtake Germany and Japan, two years earlier than initially expected.

It also projects, India surpassing UK became the fifth biggest economy in the world during January-March quarter this year. If a quick sneak-peak is taken at the India’s progress, is one of the most developed economies even being hit hard by pandemic and war-triggered inflation.

Other nations may grow marginally or even go into recession. Even India’s growth too witnessed a few knocks however economy is expected to expand at decent pace. In comparison with other currencies, rupee depreciated a bit less against the dollar.

Also, if we consider India absolute performance, it has sound macro fundamentals. Its Inflation rate high, although not skyrocketing. And the current account deficit is also high however expected to moderate.

The foreign exchange reserves of India down however still touching 550 billion dollar. Fiscal situation in India is also comfortable. The banks have grown strong and the credit cycle is pacing up. Financial Year 2023 will be the first complete year when India will go past the UK.

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Global Recession May Not Hit India As Hard As It May Hit Other Countries: SBI chairman

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With an estimated growth rate of 6.8 per cent and inflation “much under control,” India is performing considerably well. Majorly in terms of demand, India is an inward-looking economy. This happened because a significant component of the GDP is essentially addressed to the domestic economy

State Bank of India Chairman Dinesh Khara said that the global recession impact, is unlikely to be as pronounced in India as compared to other countries. The continuously increasing recession has left the International Monetary Fund and the World Bank in fear.

With an estimated growth rate of 6.8 per cent and inflation “much under control,” India is performing considerably well. He said this on the side-lines of the annual meeting of the International Monetary Fund and the World Bank on 14 October.

He believes that, majorly in terms of demand, India is an inward-looking economy. This happened because a significant component of the GDP is essentially addressed to the domestic economy.

Khara said that if considering the present situation of the global economy, India is performing reasonably well given its estimated growth rate of 6.8 per cent and inflation “much under control” despite the global headwinds.  The primary reason inflation is not demand-led however, it is essentially supply-side inflation. 

If talking about all economies across the globe, all are going through a rough patch Khara added. Also, he stated that the government is focused on dealing with all such factors and expectedly India’s growth prospects are on the lines on improvement.

nirmala sitharaman- CFO- Getty Images

India Performs Well In A World Of Uncertainties: FM Sitharaman

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The GDP growth of 13.5 per cent in Q1 lead India cross the pre-pandemic level by 3.8 per cent. Since April 2022, India completely withdrew from lockdowns. The central government is working on a consolidation path and has budgeted to bring down the GFD-GDP ratio to 6.4 per cent from 6.7 per cent in 2021-22 and 9.2 per cent in 2020-21

Union Finance Minister Nirmala Sitharaman said that in a world of uncertainties, India is among the few standout performers, on 14 October. She said this a day after the International Monetary Fund (IMF) quoted India as a bright spot, despite facing an imminent recession in a global economy. 

“In a world of uncertainties, India is one of the very few standout performers,” the minister said, while addressing the International Monetary Finance Committee during the ongoing annual meeting of the World Bank and the IMF. 

Sitharaman quoted that according to India’s National Statistical Organisation (NSO), the GDP growth of India for Q1FY22-23 stands at 13.5 per cent on a year-on-year basis. This came out as the highest among the large economies. 

She said that even though India started the monetary normalisation process quite early, we could achieve this. The interest rate hiked from May and the surplus liquidity currently is being absorbed with the Standing Deposit Facility which was instituted in April 2022.

The central government is working to consolidate and has budgeted to bring down the GFD-GDP ratio to 6.4 per cent from 6.7 per cent in 2021-22 and 9.2 per cent in 2020-21, the minister noted.

Further, to empower the foundations for medium-term growth, the government expenditure is now moving towards capital instead of revenue, she added. 

According to Sitharaman, the GDP growth of 13.5 per cent in Q1 lead India cross the pre-pandemic level by 3.8 per cent. Since April 2022, India completely withdrew from lockdowns. 

Talking on investment, the minister said, gross fixed capital formation (GFCF) growth went up to 20 per cent in Q1. This was driven majorly by governments and public sector undertakings (PSUs) in the transport sector. Housing, construction, steel, pharma and IT in the private sector also contributed in the same

Proximate indicators such as cement, steel, IIP capital goods, non-gold and non-oil imports, and capacity utilisation, have also reflected certain growth.

“Double digits are growth can be witnessed both in exports and imports however, as compared to exports, import growth is more robust. It reflects the comeback of the domestic economy and the divergent slowdown in the global economy,” Sitharaman said.

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Indian Economy May Witness Growth At 6-7% In FY23: PHDCCI

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Industry chamber PHDCCI said following the current trend, expectedly the Indian economy may grow at 6-7 per cent in the current fiscal year. The chamber has identified 75 potential products which will help India achieve the trade target of USD 750 billion by 2027

Industry chamber PHDCCI said following the current trend, expectedly the Indian economy may grow at 6-7 per cent in the current fiscal year, on 12 October. Newly appointed president Saket Dalmia said a bounce in the production is noticed and there exist a “big” demand across the nation. 

This statement came a day after the International Monetary Fund (IMF) reduced its economic growth forecast for India to 6.8 per cent in 2022. 

Also, recently the Reserve Bank of India reduced the economic growth projection for FY23 to 7 per cent from 7.2 per cent as estimated earlier. The estimation changed due to extended geopolitical tensions and aggressive monetary policy tightening globally. 

The chamber has identified 75 potential products which will help India achieve the trade target of USD 750 billion by 2027. Exports of the products such as agriculture and chemicals will be promoted across 75 countries like the US and Europe, said Dalmia.

He said that market in countries like the US, Canada, Germany, France, the UK, Japan, the UAE, and China, among others would majorly be focused markets in order to boost exports of such goods. The other category of products includes textiles, auto, and pharmaceutical items. 

“Right now, we have focused on exporting 75 products to 75 potential countries in 75 months which enable India achieve a trade target of USD 750 billion by 2027,” Dalmia informed the media persons. 

The MSME sector has key challenge to meet which is cost of capital and the RBI and the government has been requested by the chamber to look into such issues, said Dalmia.

Biggest challenge is access to capital and the cost which the banks have “not done anything or not enough” at this front, he added. 

The new president informed that

a centre for innovation in green hydrogen will be set up by the chamber, informed the newly appointed president.

“A new initiative to facilitate women start-ups is being planned by us. This is to increase contribution of women-owned business within the economy,” he added.

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Industrial Growth Shrinks 0.8% In August

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At negative 0.8 per cent during August industrial growth figure went below the consensus estimate keeping it 18-month low. IIP has shown slow growth ever since it hit a one-year high of 19 per cent back in May backed by favourable base effect

According to Index of Industrial Production (IIP), India’s industrial growth has witnessed downward trend further to 0.8 per cent in August from 2.4 per cent in July. The said data was released by the Ministry of Statistics and Programme Implementation.

At negative 0.8 per cent during August industrial growth figure went below the consensus estimate keeping it 18-month low. The mining and manufacturing output shrunk 3.9 per cent and 0.7 per cent respectively, whereas the power generation surged 1.4 per cent during August.

The release concerning the matter said, “For the month of August 2022, the Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 stands at 131.3 The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of August 2022 stand at 996, 131.0 and 191.3 respectively.”

As per the revision policy of IIP, these Quick Estimates will undergo revision in upcoming releases. IIP has shown slow growth ever since it hit a one-year high of 19 per cent back in May backed by favourable base effect.

The second wave of the coronavirus engulfed the country during year-ago period which resulted the base effect to turn sharply favourable in May. The IIP for September month will be released on 11 November 2022.

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