Central Bank
April 24, 2013
Bitcoin Bitcoin also known as BTC is a kind of digital currency which was first described in 2008 by Satoshi Nakamoto. It was known as an […]
February 12, 2013
Growth vs. Inflation The controversial inflation-growth trade-off has been widely researched upon, both theoretically and empirically since the conception of the Phillips Curve which elucidates the […]
January 29, 2013
Liquidity Standards for Banks The International banks rejoiced when the regulator announced the first ever global liquidity standards, after New Year. The regulator announced that the […]
December 21, 2012
Why RBI refrained from Rate Cuts The Central bank of India, the RBI refrained from reducing rates since April 2012. The apex bank cited the high […]
December 10, 2012
In the crucial financial time, where the cash flow in the economy seems to decrease and poor performance of the stock market and the Indian economy […]
November 27, 2012
Cash Reserve Ratio Of late we have been hearing about the ongoing debate in the Indian economy pertaining to CRR. One of the best suggestions recently […]
November 26, 2012
Corporate Lending in India KKR &Co. needs no introduction of its own. Its known to all as the leading private-equity (PE) giant and is famous worldwide […]
September 10, 2012
Stock Market One of the most fascinating things about the stock markets is that there are as many views and opinions about the markets as the […]
February 29, 2012
China's solar panel companies can used their government banks backing as a major competitive advantage. Just like their telecom equipment companies ZTE and Huawei they can use the debt to win contracts over suppliers from India and elsewhere. Note there is a already a major controversy in the USA over the subsidies and support given to Chinese solar companies and has led to a so called solar trade war between the two . Even USA has used its EXIM Bank to provides millions of dollars in financing of solar farms which are supplied by US Solar Panel producers First Solar. Chinese companies Goldpoly are using the strong billion dollar lines to build solar projects in the Europe as well
January 6, 2012
While the larger stock brokers have seen reduced profits,the smaller ones have had to shut down or sell.This trend has been exacerbated last year with the rise of computer controlled algorithmic trading.Most of these small brokers which used arbitraging strategy to generate profits have seen their main business evaporate.Retail investors in India have also avoided the stock market which has become a corruption landmine.With even top institutions like GMO,Goldman becoming victims of frauds,individual investors have no chance.Also market operators have made the Indian stock market a pump and dump heaven even as SEBI takes a long time to crack down on the abuses.
July 5, 2011
India's Supreme Court took over the investigation of vast amoutnof black money stashed in foreign money accounts from the compromised government.The ruling Congress party has proven to be remarkably reluctant to take action against corruption and black money despite huge pressure from the civil society and the judiciary.The government itself has ministers who are highly corrupt with a telecom minister in jail and the textile minister who may be on the way as well.Other ministers like the Agricultural Minister Pawar has repeatedly surfaced in numerous scams rocking the country.The Supreme Court has also taken the government to task for granting a retail banking license to the Swiss giant bank UBS.Note UBS had not been given a license as it was under suspicion for facilitating the movement of ill gotten money into Swiss bank accounts
July 4, 2011
Green Banking in India has started increasing at a rapid pace as concerns over Global Warming increase.Most of India's Banks are pushing for Clean Technology in their separate ways.Though there is lack of regulation on funding of environment friendly projects,Banks are pushing ahead on their own anyway.India's Financial Sector has seen the writing on the wall as the largest bank SBI is using Wind Energy for captive consumption to reduce its carbon footprint.The Bank is also reducing the interest rates for Green Projects beside helping in carbon consulting of customers.SBI is also implementing thousands of Green Kiosks to reduce the need for paper.ICICI Bank is helping funding research in clean technology using TFD while Canara Bank has funded almost 50,000 units of Solar Lighting .
July 4, 2011
The Indian Financial Companies were subject to strict regulations till 1991 when interest rates were administered and asset allocation was governed through various formal mechanisms and strict controls limited the entry of financial companies. In 1991, the government of India initiated a reform programme for India, which encompassed the financial sector.There were numerous reforms that were intitiated which has led to the emergence of a robust financial sector which easily managed to sidestep the post Lehman global financial crisis in 2008.The post 1991 reforms allowed the deregulation of interest rates,entry of new private sector banks permitted long-term lending institutions like ICICI,IDBI,HDFC to carry out banking activities.The banking sector in India has become increasingly more competitive in recent years. Public sector banks have lost their market share to the more dynamic private sector banks .It is not possible to list out all the Finance Companies in India in one post as there are almost 13000 non-bank finance companies (NBFCs) besides Banks,Insurance Companies,Foreign Financial Institutions etc.This post lists out the Financial Companies in the Gold Finance,Travel,Housing,Infra sectors as well as the Top 10 Banks.
July 4, 2011
At the time of independence in 1947, India's capital market was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent. And commercial banks were not equipped to provide long-term industrial finance in any significant manner. By the early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. There was a need for these financial institutions to directly access the capital markets for their funds needs.So a number of infrastructure finance companies were set up.Some of them have become fully private like ICICI while others have been partly privatized. like REC and PFC.Besides a number of private companies have recently become big players in the infrastructure financing space like SREI,L&T Finance etc.Note with almost $1 trillion expected to be spent on infrastructure in India over the next 5 years,the scope for these companies is immense if they manage their assets-liabilities in a decent manner
July 4, 2011
The formal housing finance market of India comprises various segments viz. Housing Finance Companies, Scheduled Commercial Banks, Co-operative Sector etc. These institutions offer a variety of products relating to
direct finance, refinance, micro-finance etc, to the borrowers.The share of outstanding housing loan as a percentage of GDP has risen from 3.4 per cent in 2001 to 7.25 per cent in 2007 (estimated). The share of outstanding housing loan as a percentage of GDP has risen from 3.4 per cent in 2001 to 7.25 per cent in 2007 (estimated).
Housing Finance Companies in India
At present, the need for housing finance in India is largely being fulfilled by the more than 40 Housing
Finance Companies and 27 Public Sector Commercial Banks.The housing finance companies' market is dominated by large players such as HDFC, LIC Housing Finance Limited, Can Fin Homes, Dewan Housing Finance Limited, Sundram Home Finance and GRUH Finance Limited (now bought by HDFC)
July 1, 2011
Green Self Service Kiosks are set to become ubiquitous in branches run by India's largest bank State Bank of India.Finance has been greatly been benefited by the Information Technology solution reducing transactions costs and time greatly.Banks in India have been slow to roll out Technology Platforms .India due to the lack of penetration of technology has been far behind with large swathes of its population bereft of access to technology.SBI however has come up with an innovative idea Green Channel Counters (GCCs) which is a low cost solution to reduce costs and improve efficiency.These self service kiosks have a screen,keypad,passbook printers etc through which a customer of the bank can perform most of the functions.This would reduce the need for staffing and also lead to saving of paper.Normally it require a ton of forms to perform various functions like depositing,withdrawing money.However with these kiosks most of it can be done online which would greatly reduce paper usage saving trees as a result.
June 28, 2011
Proprietary Trading by Foreign Banks and Brokerages has been allowed by the Finance Ministry overruling India's Central Bank RBI.There seems to be no logical reason given by the Ministry despite RBI objecting saying that it will affect the financial stability and lead to increased speculation in the Indian stock markets.Note Properietary Trading refers to trading in financial assets by investment banks using their money and has come under the regulatory glare in the US.Huge conflicts of interest arise due to this practise as brokerages can indulge in front running and other unethical and illegal acts.Already major investment banks like Goldman have been fined hundreds of millions of dollars over improper trading acts.Proprietary Trading encourages brokerages to mislead and defraud customers as they are generally on the other side of the trades and advising them as well.
June 1, 2011
India's policymaker keep making dumb policies to promote agriculture in the country which leads to huge losses for taxpayers and leads to no gains for poor farmers.One such policy is to give a interest rate subsidy of 3% to farmers who have repaid their loans.This means that if you are getting a loan from the banks at 7.5% normally,you will now get it at 4% if you are a farmer who has repaid his loans.Note the condition "repaid his loan" is meant to sound as it he has great thing like saving someone from a burning building.Last time I though all loans were meant to be repaid.But evidently different rules apply to farmers who were in the election year in 2009 were given a loan waiver.The government effectively allowed the farmers to convert their loans to a grant.It was an indirect gifting of billions of dollars to farmers to get votes and it worked splendidly for the ruling Congress party.A winning idea is seldom abandoned even it leads to perverse economic outcomes.
May 3, 2011
Grantham has made a famous call that the rise in commodities is not a cyclical phenomenon but a secular long term one.He says that the rise in commodity prices is different from the past.Note Grantham has done an extensive study of bubbles and is one of the leading minds in the investment community.While every time in the past,the statement "this time is different" has led to a crash,Grantham's call cannot be taken lightly.He says that the rise in population,shortage of resources,the growing consumption power of massive chunks of prosperous citizens in India and China will lead to a continued surge.Note commodity prices have declined secularly in the last century and since 2000 have managed to erase all their losses to form new peaks.Grantham also says there is a possibility of a massive short term decline which will give a historic opportunity to load on commodities.Jim Rogers is the most famous commodity bull and now Grantham has joined him.Note famous hedge fund managers have already made huge bets on gold and are winning currently.Note CIA and German Military are already on the record for calling Peak Oil which would lead to a drastic fall in living conditions worldwide as the global growth fueled by cheap fossil fuels sees an end
May 3, 2011
India's Central Bank has been steadily raising interest rates in 25 bps increments as inflation has raged at more the double digits for more than a year.However it has not stopped the inflation from coming down as high commodity prices keep the inflation at 9% which is much more than the target of 3-5% inflation rates.With Bernake money printing fueling oil and food prices globally,it looked unlikely that RBI's timid measure would bring the inflation down anytime soon.So this time the Central Bank has thrown the kitchen sink at the problem raising the interest rates by 50 bps to 7.25% which is much more than what the market was expecting.The Central Bank also raised the interest rate on savings rate from 3.25% to 4% which was not expected by anyone.Note the low interest rate on savings bank had been a huge money spinner to top Indian banks which have large deposits of this low interest rate savings deposits.
May 2, 2011
SBI and HDFC Bank which are the 2 of the largest banks in the country have protested against the RBI proposal to free up the interest rate given on savings account in India.Note RBI fixes the rate at which money deposited in saings account earns interest currently for all banks in India.The current rate is 3.5% which is way below the near double digit inflation rate being experienced in India.Most Indians deposit their savings in bank saving and fixed deposit accounts as there is no widespread equity or debt investment culture in the country.This allows banks with a large retail depositer base to earn supernormal profits by paying pathetic interest rates on savings account and lending that money at 12-13%.While the public sector banks have to serve a lot of priority sectors private banks have no such concerns.This leads to high NIM for private banks leading to huge profit growth each year.This has made investing in top banks in India such an attractive proposition.
May 1, 2011
Private Banking in India has become one of the fastest growing businesses in the country with a rising wave of millionaires forming an attractive target segment for MNC banks looking for growth.Top Indian Banks have given spectacular returns driven by India's 8% GDP growth and increasing financial penetration.Note Private Banking or Wealth Management business involves providing taxation,wealth managment,investment,insurance and other financial products under one umbrella to wealthy customers.The private banking customers recieve privileged services from the banks who provide a one stop contact person in the shape of a "relationship manager".Compare this to normal banking customers who face namelss contact centre operators with little knowledge.Most of the foreign banks in India like Barclays,Standard Chartered,Citibank which have a big presence in India have been hiring aggressively and targeting wealthy customers through a big marketing spend.However the services being given leave a lot to be desired."Trust" is the biggest quality in a banking relationship as a customer trusts his life savings and in this quality these banks have failed miserably.
April 10, 2011
India's Income Disparity is not growing among the rich and the very poor but also widening between its super rich and middle classes.Note India's Middle Class is not as big as a percentage of the population in the developed countries and its per capita income is also much lower.However India's Middle Class is growing as the economy grows by 8-9% and despite the lopsided economic growth some of the massive wealth that is being generated does trickle to the middle class.However those gains are being eroded by a Persistent Double Digit inflation which has entrenched itself.Despite periodic interest rate increases,India's Central Bank has miserably failed on the Inflation Front in the last couple of years.First it was having too loose a policy to overcome the effects of the global eco crisis in the aftermath of the Lehman collapse.Now it was too slow to raise rates as commodity price increased dramatically.
April 2, 2011
India has become the latest country to join in the bashing of Renminbi undervaluation saying it leads to a massive advantage for Chinese exporters.A research paper from India's Central Bank says that its artificially boosts China giving it a competitive advantage over Indian exports.Note Brazil another one of the famed BRIC quartet has too been complaining about Chinese imports swamping its industry.Note Brazil has seen massive currency appreciation in recent years due to a combination of high interest rates and strong economic fundamentals.
April 1, 2011
One of the major reasons for the Chinese success in the export markets in Asia and Africa have been the massive vendor financing done by state owned Chinese banks.Large orders have been won by Chinese companies like Dongfang Electric and Huawei as Chinese Banks financed the multi billion Indian orders by cheap loans.Note in large project finance cases cheap loans can make a huge difference in project returns and can be the clincher in choosing the equipment supplier.The US Exim Bank too seems to be pulling up its socks in helping American companies win large equipment orders through vendor financing.Note the US Exim Bank had got involved in a huge controversy when it agreed to finance a utlra mega power plant based on coal energy by Reliance Power in India.Despite protests by environmentalists,Exim Bank had gone ahead in financing as it would lead to jobs in America.Note USA is one of the biggest laggards in climate change and the government does not really care much out there.
March 8, 2011
India's GDP has been growing at a rapid clip over the past decade and is set to grow at even a faster pace in the coming decade.Financial services penetration of the Indian economy is quite low compared to even other developing economies.With majority of the Indian population mired in poverty,access to banks and financial companies is quite hard as people lack knowledge and education.India's banks have grown at a rapid pace over the past 2 decades after the financial liberalization.However this growth has still lacked in meeting the massive demand in the need of financial intermediation.This has led to the growth on non-banking financing companies (NBFCs) and microfinance companies.With the opening of the insurance sector,financial companies in India are set to enter a new growth phase.Major banks in India are either state owned or previous government owned institutions which have been fully privatized like ICICI and HDFC Bank.Both the state owned banks and the private banks have managed to grow without throwing the whole system in a crisis like what has happened in the recent past in Europe and USA and in China in the 1990s.Here is a list of the 10 Major Banks in India
February 28, 2011
The Reserve Bank of India has clarified that Indian individuals cannot trade in the forex markets under FEMA rules.Note a number of Indian brokers and forex companies were advertising heavily promising big returns to retail investors.Note forex markets are extremely tough to trade even for professional traders for institutions.For retail investors they are a sure shot way to lose money in large amounts.Note forex markets offer much higher leverage than normal Futures Equity markets.Being an effectively zero sum game and requiring high amounts of knowledge ,forex markets are just too sophisticated for retail investors in my view.But they are quite lucrative for forex trading portals and companies whose main target semgent are retail investors.
February 7, 2011
Indian Stocks Market are a very difficult place to invest despite claims to the contrary which will be made by institutional investors.The all pervasive corruption present amongst most of the company managements makes bottom up stock picking a tough call.Even institutional "smart" investors like Goldman,GMO frequently get tripped by fly by night operators.Market operators blatantly manipulate stocks while the primary market is a "pump and dump" heaven.However the Indian growth story has fooled fund managers from outside to keep investing into the story.I have written in the blog numerous pitfalls present in investing in India.Some of these are coming home to roost as the Indian stock markets have fallen by more than 10% in 2011 despite other markets making new highs.Here are the top 5 Headwinds facing the Indian markets in 2011.
January 25, 2011
Inflation in India is raging at double digit levels as it is in most of the other countries in Asia.While Food Inflation has been hogging the headlines as Onion Prices become costlier than the daily earnings of the majority of Indians,other commodities are becoming expensive as well.Tyre Companies in India have seen their margins and profits collapse on the back of higher natural rubber prices.This is despite the explosive growth being seen in the automobile sector in India.JK Tyres and Ceat reported their quarter results and both were equally bad with stock prices taking a major hit.Consumer giant HLL which is a subsidiary of the Unilever Group and the largest consumer company in India also saw its stock price tumble.HLL too has been hurt by higher input commodity costs.While volume growth was excellent,the margins got compressed as input prices increased faster than output prices.Note the Indian stock market has fallen more than 10% of its peak even as developed markets are seeing higher peaks.Other Asian markets like Indonesia,Thailand and others too have fallen as high inflation hurts the prospects of companies here.The Central Bank in India RBI raised the intrest rates by 25 bps which some consider as too low.Like other central banks in Asia,India too seems helpless to fight the inflationary pressures brought upon by the higher commodity prices fueled by Bernake money printing.
December 21, 2010
Dongfang Electric Corporation,China's largest power equipment producer has bagged major contracts in India.Dongfang Electric is the 3rd biggest Wind Turbine Producer in China as well and has managed to bag a 276 MW $203 billion WTG supply contract with Abhijeet Group .This is the first major contract wind in the Wind Equipment Sector for a Chinese company and could be start of a major trend.Dongfang has also won a small a massive $2.5 billion contract to supply 6. GW of super critical coal equipment to KSK Energy. Note Chinese companies have become the low cost leaders in the Wind Equipment Industry and sell much below Western competitors.At almost $700,000/MW,the Turbine order is a steal for the Abhijeet Group and cannot be matched by Indian or Western players.Leading WTG companies from the West like Vestas and Gamesa are reeling from Chinese competition and slowdown in Western markets.Suzlon too has been affected as Korean shipbuilders and Chinese wind producers have become major players.Using domestic content requirements and technology transfer,Chinese companies have become top global producers from zero presence just 5 years ago.