Economy News Notes

‘Paperless banking': Vizag to be SBI's model district

• The State Bank of India has identified Visakhapatnam for making it the first model district in the country to introduce ‘paperless banking.'
• He was here on Monday to open three more braches of the bank and to launch a series of new initiatives of the bank's Super Circle of Excellence (SCE) Region.
• A customer of any bank in the district could perform all their transactions, including, fund transfers electronically.

• The concept of Super Circle of Excellence (SCE) has been conceived to impart focus on a subset of branches to deliver high growth, improve efficiency, ensure high quality of customer service and also act as a forum for sharing best practices.
• The branches have been selected on a twin track approach i.e. one subset comprising cluster of branches in Metro and large urban centres to meet the burgeoning competition and other subset consisting of branches selected on the basis of one per Region aiming to transplant best practices from high performing branches to other branches across the country.
• The SCE branches are primarily focusing on -

  • Growth in Retail business i.e. Personal (Per) Domestic deposits and Per + SBF advances, CASA deposits and Income from Cross Selling.

  • Overall performance of SCE branches is being measured on a multi dimensional efficiency matrix covering all aspects of business.

  • Benchmarking with the best performing bank in retail operations.

  • Setting high standards of customer service; objective is reaching a zero complaint status.

  • Piloting new products of PBBU and other technology initiatives of New Business Department.

India deserves better rating, Finance Ministry tells Moody's

• India on Monday told global rating agency Moody's that it deserved higher rating, at least two notches above the present grade, on the back of improvement in basic economic parameters witnessed in the last few years.
• Moody's to upgrade India's rating to Baa1, two notches above its current rating. Moody's had last upgraded India's rating to ‘Baa3' (with stable outlook) in 2004. Baa3 means medium grade with moderate credit risk.
• Besides, Moody's had assigned a ‘Ba1' with a positive outlook rating to India's local debt.
• India's long-term growth prospects arise from a high savings and investment ratio, favourable demographics, rapid progress in infrastructure development and a stable democratic polity.
• India has low external debt to GDP ratio, high foreign exchange reserves, deep domestic capital markets and diversified domestic holdings of sovereign debt. It outperforms its ‘Baa' peers on these indicators
• Finance Ministry officials told Moody's that the policy measures by the government included fuel price hike, clearing 51 per cent FDI in multi-brand retail by the Committee of Secretaries and increasing of the FII investment limit in infra bonds to $25 billion, among others.

  They added that the government was on the path of fiscal consolidation for the last seven years, but it was interrupted by the global financial crisis in 2008.

• Investment grade
  • Aa (Aa1, Aa2, Aa3): Moody judges obligations rated Aa to be high quality, with "very low credit risk", but "their susceptibility to long-term risks appears somewhat greater". (AA+, AA and AA- in S&P)
  • A (A1, A2, A3): Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk", but that have elements "present that suggest a susceptibility to impairment over the long term". (A+, A and A- in S&P)
  • Baa1, Baa2, Baa3: Moody judges obligations rated BAA to be "moderate credit risk". They are considered medium-grade and as such "protective elements may be lacking or may be characteristically unreliable".
• Speculative grade (also known as "High Yield" or "Junk")
  • Ba1, Ba2, Ba3: Moody judges obligations rated Ba to have "questionable credit quality."
  • B1, B2, B3: Moody judges obligations rated B as speculative and "subject to high credit risk", and have "generally poor credit quality."
  • Caa1, Caa2, Caa3: Moody judges obligations rated CAA as of "poor standing and are subject to very high credit risk", and have "extremely poor credit quality. Such banks may be in default..."
  • Ca: Moody judges obligations rated Ca as "highly speculative" and are "usually in default on their deposit obligations".
  • C: Moody judges obligations rated C as "the lowest rated class of bonds and are typically in default," and "potential recovery values are low".
• Moody's also rates each bank's financial strength. These ratings differ from deposit ratings in that they measure how likely the bank is to need assistance from third parties.
  • A: "superior intrinsic financial strength"
  • B: "strong intrinsic financial strength"
  • C: "adequate intrinsic financial strength"
  • D: :"modest intrinsic financial strength, potentially requiring some outside support at times"
  • E: "very modest intrinsic financial strength, with a higher likelihood of periodic outside support"

RBI's concern over uneven credit growth

• The Reserve Bank of India (RBI) on Monday said there were emerging concerns about banking sector stability related to disproportionate growth in credit to sectors such as real estate, infrastructure, NBFCs and retail segment, persistent asset-liability mismatches, higher provisioning requirement and reliance on short-term borrowings to fund asset growth.
• However the report said during 2010-11, banks were able to improve their profitability and asset quality. Stress test showed that the banking sector remained reasonably resilient to liquidity and interest rate shocks.
• At the present juncture, the key issues related to the Indian banking sector include: prospective migration to Basel III while upgrading the existing risk management practices under Basel II; transition to International Financial Reporting Standards (IFRS) and required upgradation in information technology and human resource infrastructure; improvement in corporate governance practices in banks; and the overall need to become more competitive on the back of scale, scope, prudence and knowledge to be able to efficiently serve the needs of the economy and to exploit emerging opportunities, particularly with regard to financial inclusion.
• In the long-term, the RBI said, banks need to build on four principles, namely, efficiency, stability, transparency and inclusion. The banking sector needs to focus on growth through inclusion, innovation and diversification while complying with domestic regulations and internalising international best practices.

Forging industry bets on auto sector growth

• The forging industry is poised to reach a production of 4 million tonnes by 2014, growing at 20 per cent, according to the Association of Indian Forging Industry.
• Even the slowdown in the automobile industry due to high rate of inflation and rise in interest rates would mean the sector would still grow at 8 per cent this year compared to 25 per cent growth earlier. “The demographic profile of India would anyway ensure growth even if the rate slowed down,”