Category: Your Money

Does India have a bad-debt problem?

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The Reserve Bank of India (RBI), which regulates banks and sets interest rates, has a record of running a tight ship.
In 2008, for instance, banks were allowed to restructure weak loans without recognising them as bad debts; these now account for 3-4% of all loans.
The stock of all provisions held against all non-performing loans is lower than in other countries, particularly at the state-owned banks that dominate the industry.
Banks dominate lending, so the risk of problems hidden in the shadows of the financial system is small.
Infrastructure loans have risen quickly to account for about 15% of overall loans-not enough to bring the system to its knees, but enough to harm a handful of banks if any losses are unevenly distributed.
But as elsewhere, its banks are a reflection of its economy, warts and all.

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Running out of options

Sealing of the Bank of England Charter (1694)

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When markets wobbled, central banks slashed interest rates.
As a result governments are reluctant to cut the deficit too quickly for fear of sending their economies back into recession.
Turning to monetary policy, interest rates are 1.5% or below in most of the developed world and are negative in real terms (the Bank of England kept rates at 2% or more for the first 300 years of its existence).
But high debt ratios (particularly in the household sector) make central banks very uneasy about raising interest rates for fear of ushering in another round of the credit crunch.
Governments and central banks have thrown a lot of stimulus at the economy and the result has been a fairly sluggish recovery.

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Tata Steel to pump Rs8,000 crore in Jamshedpur in FY12

Sharing details of the Gopalpur SEZ project, Tata Steel said it would invest Rs800 crore as anchor investor in the 50,000-tonne ferrochrome and 0.5-MT rolling mill.
We are investing Rs8,000 crore in the current fiscal, which will be in the Jamshedpur plant, Tata Steel managing director H. M. Nerurkar said on Friday.
Tata Steel global debt equity is 1.5:1 but in all future projects the company would aim to keep it at 1:1.

Tata Steel to pump Rs8,000 crore in Jamshedpur in FY12 – livemint.com.

S&P cuts the US’s rating to AA-

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According to JP Morgan the biggest impact of a US downgrade will be on tri-party agreements in Europe and the US repo market.
Certain tri-party agreements have strict ratings requirements which would result in US Treasuries no longer being accepted as collateral.
“If the US sovereign were no longer rated Triple A, US Treasuries would not be eligible anymore.
According to the JP Morgan research note, “US money market funds would not be required to sell US Treasury Securities in the event of a US downgrade, it is investor redemptions that pose most risk.
“Many US investors will remain loyal and patriotic to Treasuries but for European and Asian investors they will be looking for alternatives,” he said.
Foreign central banks who hold around USD3.5trn of US Treasury securities are already seeking alternatives to US Treasuries.

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