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Briefly Business:
- Private sector banks will have to get their branch accounts audited by an RBI-approved panel
- Three more banks (YES,Dena,IndusInd Bank) have hiked their non-resident external (NRE) deposit offerings
- Reflecting economic slowdown in major economies, FDI dipped by over 50 per cent to $1.16 billion in October
- The government is contemplating setting up a Crisis Management Group headed by RBI Deputy Governor to deal with the impact of global financial turmoil.
Big problems for small units in 2011
- MSMEs contribute immensely to the industrial landscape of the country in terms of their 45 percent share of manufacturing output and 40 percent of exports.
- The sector provides jobs to 60 million people in different segments such as readymade garments, leather, gems and jewellery, light engineering and handicrafts.
- MSME entrepreneurs faced several challenges throughout the year:
- high interest rates,
- the rising cost of raw materials
- labour remained the key input challenges,
- demand compression and tough competition, both in domestic and foreign markets
- Aggressive China, with which India ran up an over USD 12.6 billion trade deficit
- Rising competition from Chinese imports was a cause of concern.
- The sector faced a lot of heat because of cheap imports from China.
- Besides, the slowdown in Europe and Western countries was the biggest challenge and threat
- We were unable to compete with other Asian economies.
- The high borrowing cost of 13-15 percent naturally affected our competitiveness, compared to other nations where it was 6-8 percent.
- As many as 91,400 micro and small units had shut down their operations as of March, 2011. Of these, about 13,000 were added in the fiscal 2010-11.
- The reasons for the closure were
- financial non-viability due to the changing business environment,
- lack of demand,
- obsolete technology,
- non-availability of raw material,
- infrastructural constraints,
- inadequate and delayed credit and
- managerial deficiencies.
- On the policy front, the Cabinet approved the Public Procurement Policy for MSMEs.
- Under the policy, a minimum share of 20 percent of total purchases of central ministries/departments/PSUs has been reserved for micro and small enterprises (MSEs).
China, Japan to Back Direct Trade of Currencies
- Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges
- Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions
- China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier.
- Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations
- China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asia Nations and establish free trade zones.
- Japan holds $1.3 trillion of foreign-currency reserves, the world’s second largest after China’s $3.2 trillion.
Govt wants common strategy from PSU banks on 4 troubled sectors
- Amid rising concerns over bad debt, the government has finally got all state-run banks on board to push a common strategy on lending and debt recast plans for four sectors - aviation, power, telecom and textiles - that are facing stress.
- The move comes at a time when several banks have restructured their loans to power companies and state utilities , or have stopped lending, and a debt recast package for the textiles sector is in the works. Similarly, in case of aviation, loans to Air India have been restructured
- For telecom, there are worries of loan repayment as several banks had provided funds to service providers to pay the spectrum fee of nearly Rs 67,000 crore.
- Another official pointed out that there have been instances in the past where a borrower has defaulted in loan repayment to one public sector bank but has managed to get a fresh loan from another state-owned lender.
- the finance ministry is planning to hold quarterly meetings with bankers for better coordination.
- Reserve Bank of India too stuck a note of caution on non-performing assets of banks, which are rising three times faster than the five-year average.
- It had made a special mention of the power sector and said: "With losses among state electricity boards and coal supply issues faced power projects, high concentration of bank credit in power generation is a matter of concern," the regulator had said in the Financial Stability Report.
- Considering that gross NPAs of banks were at 2.01% in March 2011, a 150% increase would translate to a gross NPA ratio of 5.02%.
