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Current Economic Statistics and Review For the
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Theme
of the week:
All-India
Debt and Investment Survey Section
14 Cost of Debt – Purpose-wise Debt *
“It is a sign of flourishing economic activity in the society if large numbers of households have taken loans and the loan taken is utilised for productive purpose”. AIDIS I Introduction
The
National Sample Survey Organization (NSSO) has collected in their
59th round conducted during calendar year 2003
(January-December) through All-India
Debt and Investment survey (AIDIS) hr information on the purpose for which
a lon was taken by households besides various other characteristics of
households nd their loan particular. Different theme notes have been
submitted earlier covering various characteristics of households
indebtedness t all The
purpose for which a loans are taken by household can be more than one. In
such cases, the purpose for which the maximum amount of loan were
originally intended to spent, has been considered as the main purpose of
loan by the NSSO. Secondly, even if a loan was utilized for a purpose
other than the one specified in the contractual document, the original
purpose of borrowing was only considered by the NSSO. The
purposes for which a loan has been borrowed are broadly grouped under a)
productive and non-productive. While the former covers both capital and
current expenditures in farm and non-farm business, the latter covers the
purposes like daily household expenditures, purchase of consumer goods,
litigation, repayment of debt, etc. The analytical details of these
results are presented in the following sections. II Debt According to PurposeTable
1 presents households expenditure of cash loans outstanding classified
into productive and non-productive expenditures, as revealed by the result
of NSSO’s 59th
round survey ( Report N0 501).
It
may be seen from the Table that
out of 203.4 million households in Out
of 39.2 million indebted rural households, 19.3 million households
reported an amount of Rs. 59,078 crore or 53.0 per cent of their total
debt for productive purposes. A sum of Rs. 52,390 crore or 47.0 per cent
of the total debt outstanding had been spent on non-productive purposes,
by 22.9 million indebted households. In
contrast, in urban areas, 8.2 million indebted households reported
an amount of Rs. 49,060 or 75.1 per cent of their total debt for
non-productive purposes. A small portion of
urban households numbering 2.1 million debt for productive purposes
with a sum of Rs. 16,267 crore or about 25 per cent of their total debt. IIIProductive PurposesAs stated, the expenditure incurred for productive purposes can be incurred in farm or non-farm business and for capital/ current expenditures. Productive utilization of debt incurred by households will help augment their economic activities and thereby promote economic welfare. On the other hand, if debt is incurred for purposes, which do not produce any increase in production of goods and services, then such expenditure gets classified as unproductive. Hence, understanding of the purposes of loan taken becomes crucial. Thus, purposes of loan taken have been broadly classified, as stated, as productive purposes and non-productive purposes, i.e. for household expenditure. Farm
business
includes household economic activities like cultivation, including
cultivation of plantation and orchard crops and processing of produce on
the farm, e.g., paddy hulling and gur making if it is carried out in the
firm by indigenous method. It also includes ancillary agriculture
activities such as livestock raising, poultry, fishing, dairy, bee keeping
and other allied activities coming under tabulation category A and B of
the National Industrial Classification 1998. Expenditure incurred in farm
business on account of purchase, own construction, major repairs, building
and other land improvements including reclamation of land, alterations and
improvement of buildings and other constructions constitute capital
expenditure. The current expenditure includes expenditure for purchase of
seeds, manure, fodder, payment of wages, rent, land revenue, etc. and also
expenditure on normal repairs and maintenance of building, machinery and
transport equipment, furniture and fixtures and household durables meant
for farm business.
Out of the 21.3 million indebted households who reported of Rs.
75,345 crore debt for productive purposes, 15.1 million households or 71
per cent of the households, reported an amount (of Rs. 51,391 crore or
68.2 per cent of productive debt) for productive purposes on farm
business. Among these households 38.4 per cent reported debt for capital
expenditure and 35.4 per cent for current expenditure.Of the debt for
productive purposes, an amount of RS.16,833 crore has been for current
expenditure and Rs. 34,558 crore has been for capital expenditure purposes
( Table 2). In rural areas, 15.1 million households (78.2 per cent of the
households who reported debt for productive purpose as on 30-6-2002),
reported debt for expenditure on farm business to the tune of Rs. 45,702
crore with capital expenditure purpose amounting to Rs. 29,873 crore and
for current expenditure, Rs. 15,829 crore. In urban areas a tiny 1.1 per
cent household reported debt for incurred expenditure on farm business
aggregating Rs. 5,689 crore
with capital and current expenditure purpose amounting to Rs. 4,685 crore
and Rs. 1,004 crore, respectively. Non-Farm
Business
is defined as all activities of households other than those covered in the
farm business. This covers manufacturing, mining and quarrying, trade,
hotels and restaurant, transport, construction, repairing and other
services. Any activities carried out in non-household enterprises are
excluded from the above definition. Also, non-farm business enterprises,
which were registered under section 2m(i) or 2m(ii) and Section 85 of
Factories Act 1948 and bidi and cigar manufacturing establishments
registered under Bidi
and Cigar Workers (condition of employment) Act, 1966 were also not
included in the above definition. The expenditure is treated as capital,
if the households spend the cash dues for purchase, own construction,
additions, alterations, major repairs and improvement of buildings, other
constructions, machinery and transport equipment, furniture and fixture,
etc. Expenditure on bundings and other land improvement including
reclamation of land, pertaining to non-farm business also included in
capital expenditure. Current expenditure on non-farm business has also
been includes expenditure on account of purchase of raw materials, fuel
and lubricants, payment of rent, salary and wages, hire charges of
machinery and equipment, etc., and normal repairs and maintenance of
buildings, construction, machinery and equipment including transport
equipment, furniture and fixtures and household durables meant for the
non-farm business.
An
amount of Rs. 26,245 crore or about 35 per cent of the total debt for
productive purposes, has been reported for non-farm business by 5.7
million households as on 30-6-2002. Of these households, the incidence of
debt between capital and current expenditures on non-farm business is 19.1
per cent and 8.0 per cent respectively, and they had absorbed 27.9 per
cent and 6.9 per cent of the debt of Rs. 75,345
crore reported for
productive purposes. In
rural areas ,2 million households reported debt for productive purposes in
non-farm business aggregating to Rs. 13,376 crore with capital expenditure
being Rs. 10, 255 crore and current expenditure at Rs. 3,121 crore. Unlike rural households, urban households reported debt spent more for productive non-farm business. About 1.5 million indebted households, forming 75.4 per cent of urban households reporting debt for productive purposes reported debt for non-farm business an amount of Rs. 12,869 crore.. On this amount, debt for capital and current expenditure purposes amounted to Rs. 10,779 crore and 2,090 crore. IV Non-Productive PurposesAs defined earlier debt
for non-productive purposes
includes household expenditure, expenditure on litigation, repayment of
debt, financial investment and other expenditure. Household expenditure is
defined to include purchase of residential plot, construction, addition,
alteration of building for residential purposes, purchase of durable goods
and assets, clothes, etc. and expenditure of medical treatment, education,
marriages, ceremonies etc. Out of the 31.1 million
indebted households who reported debt of Rs. 1,01,450 crore for
non-productive purposes, 26.0 million households (or 83.6 per cent)
reported debt for expenditure on household goods amounting of
Rs. 76,577 crore or 75.5 per cent of total debt for
non-productive purposes. Similar trend is also
witnessed among both rural and urban households (Table 4).
V Purpose
of Households Debt by
Occupational Categories Rural
Households The
purpose of debt of rural household classified by their occupational
categories, i.e., by cultivators and non-cultivator categories are
presented in Table 5. All rural households
operating at least 0.002 hectare of land during the last 365 days
preceding the date of survey have been defined as cultivator households.
As per the survey they have borrowed more for productive purposes than by
non-cultivator households. While the share of the former was around 62 per
cent of their debt as on June 30, 2002, the latter held only a share of 28
per cent for productive purposes. Out of 88.2 million
cultivator households, 26,2 million (or 29.7 per cent) households
are indebted. Among them, 15.7 million households ( or 17.8 per
cent total cultivator households) invested about 62 per cent of their
total debt of Rs. 505,777 crore in productive purposes. The remaining debt
of Rs. 311,310 crore (or 38 per cent of their debt) was utilized for
non-productive purposes by 12.9 million indebted cultivator households.
Household expenditure is the major item of purpose among non-productive
purposes and the debt reported against this purpose is estimated to be
Rs.226,333 crore. Rural households
operating no land or holding land less than 0.002 hectare, are termed as
non-cultivator households and they are further classified into
agricultural labourers and artisans. As referred to above, about 28 per
cent of their cash debt was for productive purposes and the remaining
amount was for non-productive purposes with Rs. 163,675 crore meant for
household expenditure.
Urban
Households
Urban
households are broadly grouped under ‘self employed’ and ‘others’.
Self-employed households are those engaged in the farm or non-farm
enterprises of their households and in urban areas, a household was
considered as self-employed, if major source of income during 365 days
preceding the date of survey was derived from self-employment of its
members. Urban households reporting the major source of its income was
derived from regular wage/salaried employment of members were treated as
‘regular wage/salaried’ households. Casual labour household are those
household whose members derives their income mainly from casual wage
employment. All the remaining urban households were treated as ‘other’
households. Out of 20.1 million
self-employed households, 3.60 million or 17.9 per cent are indebted.
Among them, 1.50 million households forming 7.5 per cent of total self
employed households, invested about 55 per cent of their total debt, Rs.
134,604 crore in productive purposes. The remaining debt of Rs. 108,803
crore or about 45 per cent of their total debt has been utilised for
non-productive purpose by 2.25 million self-employed households. Household
expenditure is the major item of expenditure among non-productive purposes
and debt for this purpose is estimated to be 79,837 crore.
The urban households
which are termed as ‘Others’ utilized 93.1 per cent of their debt forn
non-productive purposes and in particular for household expenditure which
amounts to Rs. 295,441 crore
or 72.1 per cent of their total debt (Table 6). Their outlay on productive
purpose is less than 7 per cent of their total debt. VI Trend
in Productive Debt Over the Years The trends in the share of debt for productive purpose over the period from 1951 for rural households have been presented in Table 7. The percentage of cash debt spent on productive purposes was at 43 per cent in 1951, which after falling to 38 per cent in 1962, picked up in the next two decades to reach 66 per cent by 1981. However, in the next two decades, there has been a drastic fall in the share to 53.0 per cent in 2002 (Data for 1991 in this respect, appear an aberration). Overall, the portion of total household debt in rural areas utilized for consumption purpose has been on rise rather for productive purposes.
Cultivator
and Non-Cultivator Households A better insight in to the changing pattern in purpose of debt of rural households, is brought out by analyzing the behaviour of cultivator and non-cultivator households in rural areas (Tables 8 and 9). Cultivator households have a much higher proportion of debt earmarked for productive purposes than non-cultivator households. But, the fluctuating trend shown above are generally valid for both the categories of rural households. It is interesting to note for cultivator households, the declining share of farm business expenditure (from 63.8 per cent in 1981 to 52.5 per cent in 2002) in the total debt and within it, that of capital expenditure (from 45.3 per cent to 34.3 per cent) (Table 8). The increase in the share of non-farm business expenditure for capital or current expenditures purposes has not compensated the decline in share of farm business expenditure.
Interestingly, even the non-farm business expenditure of non-cultivator households has fallen from 23.3 per cent in 1981 to 19.0 per cent in 2002. Non-farm households have always utilised more than 50 per cent of their debt for household expenditures (Table 9). A similar analysis of urban households also reveals that the purpose of debt for household expenditure accounts for the largest share. Further in respect of self-employed, share of non-farm business expenditure has sharply declined from 57 per cent in 1981 to 44 per cent of their debt in 2002 (Table 10). In the case of self-employed household debt for productive purposes has witnessed a fall in its share from about 72 per cent in 1981 to 55 per cent in 2002. In the case of household category, ‘others’, the share of non-productive purposes i.e., household expenditure during the last three decades has always been high ranging between 85 to 95 per cent of the total debt.
VII Households
Debt by Purpose and Asset Holding Class The general presumption, that the poorer households i.e. households with less value of assets, borrow mostly for unproductive purposes like incurring household expenditure and other similar needs whereas the comparatively richer households, i.e., households with larger asset holdings, would borrow mainly for productive purposes is examined from the results of NSSO survey. Rural
Households Table 11 gives the number of households and the incidence of debt by different asset holding classes of rural households according to the purpose of debt. As on 30-6-2002, there are 147.9 million rural households and of which, 39.2 million indebted households. The smallest asset holding class ( less than Rs. 15,000 ) cover 1.7 million indebted households . Among them, it can be seen that only 0.38 million households had their debt for productive purposes with the incidence working out to be 3.4 per cent corresponds 1.34 million households, with an incidence of 11.9 per cent, reporting their debt for non-productive purposes, and in particular for 1.20 million households reporting debt for purpose with the incidence as high as 10.7 per cent (Table 11). As increasing asset holding classes are considered, it can be seen that more and more households have reported debt for productive purposes and at largest asset holding class ( Rs. 8 lack and above) , 2.5 million households or about 25 per cent of total rural households in that asset holding class have reported debt for productive purposes and only 1.13 million households reported for on non-productive purposes. It is interesting to note the incidence of indebtedness is as high as 32.9 per cent in the largest asset holding class.
Table
12, presents the distribution of cash debt classified by different asset
holding classes for different purposes. First, the proportion of debt
meant for farm business increased steadily with the increase in the size
of household assets. Second,
interestingly, the proportion of debt for non-farm business remains
generally uniform at around 12 per cent irrespective of the size of
household assets. Finally, the
proportions spent on household expenditure declined with the increase in
household assets, thus showing, as stated above, an increasing
relationship between utilization of household debt and asset size.
Urban HouseholdsTables 13 and 14 present
the distribution pattern of urban households according to their assets
size and purpose of cash debt as also the amount of debt for different
purposes. It can be seen from the
tables, that in 2002 more than 65 per cent of urban households debt is for
non-productive purposes and that too on household expenditure. But the
share declined with increasing size class. And the dictum that poorer the
households borrow more for household expenditure is prominent in urban
areas. Households with the
smallest asset holding class utilizing about 85 per cent of their total
borrowings on non-productive purposes and in particular on household
expenditure to the extent of 75
per cent of their outstanding debt.
VIII Utilization of Debt - Purpose –wise: A State-wise Analysis Rural
Households State-wise distribution
of households reporting debt according to the purpose of debt and the
estimated amount of debt are given in statements
1 and
2. Among
the states, 10 out of 20 states’ households invested their debt in
productive purpose by more than the all-India average of 52.9 per cent.
Among them, The households in Kerala
topped the list in reporting debt for non-productive purposes at 68.1 per
cent and that also 41.2 per cent on household expenditure. Households in However, in rural areas
of all states , some parts of their borrowing ranging from 30 per cent to
68 per cent has been meant for non productive purposes. Household
Expenditure is top most item
of non-productive purpose expenditure in almost all states. Urban
Households Household debt for
non-productive purposes and that too for household expenditure, is the
main purpose of utilizing the amount borrowed among urban households. More
than 65 per cent of the debt was reported for non-productive purposes
among all states except the households of Orissa
(59.9 per cent). This means productive purpose of debt
by urban households is very low (Statement
2). *This
note had been prepared by R.Krishnaswamy.
Highlights of Current Economic Scene AGRICULTURE The
central government has withdrawn the ban on exports of superior
non-basmati rice varieties (such as sharbati, swarna masuri, ponni and
redmatta) and has permitted shipments that are priced above US $ 425 per
tonne free on board (fob) on October 25, 2007. It is expected that with
this move competing nations would have an upper hand in rice exports
market. Food
Corporation of India (FCI) and State Agencies, have procured nearly 61.68
lakh tonnes of rice in the current marketing season till October 25, 2007
as against that of 67.71 lakh tonnes during the corresponding period of
the 2006-07 marketing season. It is expected that if present trend holds,
there would be possibility of fall in total purchases for the 2007-08
marketing season. Hence, central government is planning to pay additional
bonus for paddy over and above the already announced minimum support price
(MEP) of Rs 695 per quintal on common paddy and Rs 725 on grade A
varieties for the marketing season (October- September) 2007-08. The
Food Ministry has asked the Food Corporation of India (FCI) to conduct
random inspections at foodgrain godowns in those states where
decentralised procurement are taking place. This procedure is going to
undertake for ensuring the quality of food grain stored in them for the
use of public distribution system (PDS). The
Solvent Extractor Association (SEA) has urged government to discourage the
use of edible oil for the production of bio-fuel because prices of edible
oils are rising by twofold in the domestic market and increasing usage of
vegetable oil for non-food practice has made its supply falling short of
its demand. The
National Agricultural Cooperative Marketing Federation of India Ltd (Nafed)
has changed its buying system; it would henceforth explore opportunities
on daily basis to buy crude palm oil in the international market by
entering into import contracts on a commercial basis. The purchase
decisions would be undertaken on the basis of rates quoted and quantum of
imports and may not be predetermined. It is also expected that government
would not subsidise its commercial operations. Nafed
has planned to sell 20,000 tonnes of mustard seeds to local crushers to
ease the shortage of edible oils. In addition to this, nearly 4lakh tonnes
of oilseeds would be sold out from its stockpiles. The
National Bank for Agriculture and Rural Development (Nabard) has decided
that it would raise nearly Rs 4,000 crore by the end of the current
financial year to refinance its short-term and long-term rural development
projects. Until now it has sanctioned Rs 9,000 crore under long-term
lending and Rs 18,000 crore for short-term lending projects. So far, bank
has raised Rs 14,000 crore from the market at an average interest rate of
9.2 per cent, which is more than that of 8.9 per cent charged during last
year. The interest expenditure for the quarter ended on September 30,
2007, went up to Rs 938.1 crore as against that of Rs 700.85 crore for the
corresponding period last fiscal year, showing an increase of 33.85 per
cent. The bank’s income from operations (after accounting for provision
for loan assets) for the same period was Rs 1,364.53 crore as compared to
that of Rs 1,106.91 crore last year. The gross surplus, before making
provision for taxation, has stood at Rs 296.57 crore as on September 30,
2007, as compared with that of Rs 214.63 crore in the corresponding period
in 2006 -07. As
per Spices Board, spices exports from the country during the period April
–September 2007, has risen by 22 per cent in volume terms to 2,19,640
tonnes due to good demand for chilli and pepper in the international
market; while in value terms exports have reported an increase of 29 per
cent to Rs 2100 crore. India has exported nearly 1,00,000 tonnes of chilli
in the first six months of 2007-08, that 72 per cent higher from a year
ago, while in value terms they have increased to Rs 549 crore. Whereas
pepper exports have surged by 37 per cent to 17000 tonnes on expectations
of global shortage of the crop. ITC
has signed memorandum of understanding (MOU) with the government of
Nagaland and the Spices Board for development of the naga chillies through
the host of initiatives across the agricultural value chain. Under MOU ITC
would develop spices crop in northeastern states introducing modern
agricultural practices, crop development programme to improve quality and
farm productivity, farm extension services, deployment of customized
infrastructure and market development activities. This implementation
would be carried out through associates like NGOs, which in turn would
mobilise self-help groups (SHG) to collect the produce from the growers
and undertake grading and primary processing. ITC would procure the spices
produced under this programme and as the scale and scope of the project
widen, domestic and export markets and value addition facilities to would
be developed. As
per International Sugarcane Organisation, tight profit margins for the
Indian sugarcane industry have raised cane prices, which have caused drop
in the India’s sugar output. It is expected that sugarcane planting in
November 2007 would decline by 20 per cent resulting in a fall of 5
million tonnes of sugarcane production within next two years. In spite of
this, it is perceived that country’s sugar exports would rise to 5
million tonnes next season due to large inventories.
According
to the latest data by the Cane’s Commissioner Office at Lucknow (Uttar
Pradesh), sugar mills in Uttar Pradesh has owed farmers a huge amount of
Rs 1,460.21 crore as arrears towards cane payments during 2006-07 crushing
season (October-September). It is affirmed that sugar mills bought Rs
11,010.82 crore worth of canes in the crushing season, against which
payments are made of Rs 9,550.61 crore as on October 18, which leaves due
of Rs 1,460.21 crore or 13.26 per cent of the total amount payable. Out of
Rs 1,460.21 crore arrears, private mills owe Rs 1,122.11 crore (12.34 per
cent), with the corresponding figures being Rs 183.06 crore (14.01 per
cent) and Rs 155.04 crore (25.30 per cent) for cooperatives and state
government-owned factories, respectively.
Among individual companies/groups, the larger defaulter is Bajaj
Hindusthan. Its payable dues have amounted to sum of Rs 1,870.74 crore and
it has so far disbursed Rs 1,539.80 crore, which translates into arrears
of Rs 330.94 crore or 17.69 per cent. As
per Cashew Export Promotion Council of India, cashew exporters have been
upset due to cut down of Duty Entitlement Pass Book (DEPB) rate for cashew
exports from 3 per cent to 1.5 per cent by central government. This
decline in the DEPB rate is expected to affect cashew exports adversely,
which have already suffered due to appreciation of rupee against the US
dollar and stiff competition from Vietnam. According
to Rubber Board, synthetic rubber production in April- July 2007-08 has
fallen down by about 5.7 per cent i.e., to 32,748 tonnes as compared with
34,739 tonnes a year ago, while consumption has risen by 8.2 per cent to
93,715 tonnes from 86,000 tonnes in the same period due to higher demand
from auto tyre makers. According
to the projection by rubber traders, total natural rubber imports are
poised to touch an all time high level in the current financial year with
as much as 7,000-7,500 tonnes arriving on a monthly average. It is
described that total imports would cross 90,000 tonnes on all time high in
the 2007-08. Total imports have stood at 48,849 tonnes as on October 23,
2007 and may cross 50,000 tonnes by the end of this month. Currently the
international prices of benchmark grade RSS-3 is lower by Rs 6-7 per kg
forcing industries to go for imports. The
Coir Board has introduced Coir Board Workers Group Insurance Scheme in
Kerala, under which it would provide insurance at the event of death and
permanent disability. Where as unorganised workers would be covered under
welfare schemes such as ESI so that they can get the benefit of
hospitalisation and medicines. It is also suggested that all those who are
registered with the Kerala Workers Welfare Fund Act would be given the
protection of coverage under ESI on production of registration documents
with the Welfare Board. The US life science Monsanto has signed an agreement with the Tamil Nadu Agricultural University for a royalty free transfer of ring spot virus (RSV) resistance technology in papaya i.e. it would involve transfer of a virus coat protein gene to the papaya. This pact was signed because country produces nearly 25 lakh tonnes of papaya annually and RSV pest infects the crop at all stages of growth.
InflationThe annual point-to-point inflation rate based on wholesale price index (WPI) declined to 3.07 percent for the week ended September 22,2007. During the comparable week of the earlier year, it was 5.36 per cent.
During the week under review, the WPI declined by 0.2 per cent to 214.7 from 215.1 at the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), dipped by 0.8 percent to 224.7 from its previous week’s level of 226.4, mainly due to lower prices of fruits and vegetables, bajra, amize, moong, eggs and fish and raw cotton raw rubber some oil seeds. Marginal rise in the index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) was witnessed due to aviation fuel price increase.
The index of ‘manufactured products’ group (weight 63.75 per cent) dipped by 0.1 per cent to 187.2 from 187.4 for the previous week due to decline in the prices of gur, oilcakes cotton yarn etc. The
latest final index of WPI for the week ended August 11,2007 has undergone
upward revision; as a result, both the absolute index and the implied
inflation rate stood at 213.7 and 4.24 per cent as against the provisional
data of 213.4 and 4.10 per cent.
Banking IDBI
Bank has posted 12 per cent increase in net profit at Rs 156 crore in the
quarter ended September 2007 as against Rs 139 crore in the corresponding
period last year, owing to a robust growth in non-interest income. ICICI
Bank has reported 33 per cent increase in net profit in the quarter ended
September 30, 2007, driven by growth in net interest income. The bank’s
net profit, for the first time, was in four digits at Rs 1,003 crore.
Total income has risen by 41 per cent to Rs 9588 crore against Rs 6797
crore from a year ago. Backed
by robust growth in sale of investments and commissions, SBI has posted a
36 per cent growth in its net profit in the second quarter of the
financial year. Profit rose to Rs 1611 crore compared with Rs 1184 crore
in the same quarter last year. Despite
the law ministry clearance for investing forex reserves in the overseas
subsidiary of India Infrastructure Finance Company (IIFCL), which is meant
to provide easy funding access to domestic infrastructure companies, the
RBI has rejected the proposal, announced by the finance minister in his
Budget speech. Retreating its earlier review, the RBI, in a letter to the
finance ministry, has said while refinancing loans by the IIFCL’s
overseas subsidiary is feasible and can be implemented with ease, buying
its securities is against its current policy. The RBI has suggested that
the subsidiary should borrow from the market, which the bank will
refinance. The
RBI will be the regulatory authority for currency futures trading, the
draft guidelines for which will be issued soon by the central bank. Buoyed
by high growth in loans and a significant reduction in non-performing
assets (NPAs), LIC Housing Finance has registered an increase of 53 per
cent in its net profit to Rs 116.4 crore in the second quarter of 2007-08
from Rs 76 crore a year earlier. The
RBI has decided against the introduction of differentiated bank licensing
system, which would have allowed the banks to operate in niche areas
without having to follow priority sector and other regulatory
stipulations. To enable the banking system to operate at optimum levels
and in the interest of financial inclusion, it is essential that all banks
should offer certain minimum services to all customers, while they are
allowed sufficient freedom to function according to their own business
models. Financial SectorCapital
Market Primary MarketMundra Port SEZ Ltd, promoted by the Gujarat-based Adani group, is seeking to raise up to Rs 1,771 crore for development of its infrastructural facilities at Mundra and Dahej through IPO. The issue will open on November 1 and close on November 7. The price band has been fixed at Rs 400 and Rs 440 per equity share. The issue comprises a net issue of 40,100,000 equity shares to the public and a reservation of 1,50,000 shares for eligible employees.. MPSEZ is the largest port-based SEZ project in the country and the first such public issue to hit the capital market. Religare Enterprises Ltd, a financial services company, will be foraying into the capital markets with an IPO of 75,76,102 equity shares of Rs 10 each for cash, at a price to be decided through a 100 per cent book-building process. The price band is fixed between Rs 160 and Rs 185 per equity share. The issue will open on October 29 and close on November 1. Barak Valley Cements Ltd, a cement manufacturer in the north-east region, is to enter the capital market with an initial public offering of 56.60 lakh equity shares of face value Rs 10 each. The issue, which is being made through a 100 per cent book building process, opens on October 29, 2007 and closes on November 1, 2007. The price band has been fixed at Rs 37-Rs 42. Of the total issue, 1.13 lakh shares have been reserved for permanent employees on a competitive basis; therefore, the net issue to the public is 55.47 lakh shares. The net issue will constitute 25.03 per cent of the post issue paid-up capital of the company. The equity shares are proposed to be listed on BSE and NSE. Secondary
Market The market roared back into the black as it absorbed the impact of Sebi's clarifications on the participatory notes issue. The BSE sensex was up 9.59 at 19,243 points, hitting a new all-time high while the Nifty gained 9.34 per cent and shot up to 5702.3 points. The week witnessed a strong recovery and reacted positively to Sebi’s policy on Participatory Notes. Also, good quarterly results of some of the BSE sensex stocks such as L&T boosted sentiments. There was buying across sectors and companies with capital goods index gaining 20 per cent over the week. Among major gainers, L&T spurt by 28.2 per cent followed by Reliance Energy 25.3 per cent and SBI 25 per cent. All the BSE Sectoral indices rosed over the week except BSE-IT, which lost ground due to weak dollar outlook. Among other indices BSE- Capital goods gained the highest of 20.16 per cent followed by the BSE Bankex 16.25 per cent, BSE Metal 15.64 per cent, BSE-PSU 12.38 per cent and BSE-Reality 10.68 per cent The Securities and Exchange Board of India (Sebi) has cleared the proposal for a separate stock market for listing Small and Medium Companies (SMEs), which had been announced by the Sebi Chairman Mr M. Damodaran after the Sebi Board meeting on 25 October 2007. Sebi would select one entity, which would satisfy its eligibility criteria, and there is no proposal for revamp of the Over The Counter Exchange of India (OTCEI). On 22 October 2007 Ashco Industries Ltd, a company dealing with analytical instrumentation, made its debut on the NSE at a premium of 5 per cent against the issue price of Rs 40. It opened at Rs 40, closed at Rs 44.75, doing a total trading of 474931 shares and made a turnover of Rs 216.28 lakh. Construction and infrastructure development company, Maytas Infrastructure Ltd, made its debut on the BSE at a premium of 29.7 per cent at Rs 480 against the issue price of Rs 370, whereas on the NSE it has been listed at a premium of 39.39 per cent at Rs 515.75. The total shares traded on the BSE and the NSE are 72,90,850 shares and 1,35,08,756 shares respectively. The clarifications issued by Sebi after its board meeting on Thursday October 25,2007 has removed most of the doubts and concerns that arose after the issue of the draft discussion paper on offshore derivative instruments in the week under review. The Sebi board has approved the proposal to ban the FIIs and their sub-accounts from issuing or renewing participatory notes (PNs) with derivatives as underlying. There would be no immediate impact of this move on the markets since the regulator has allowed 18 months for the unwinding of the existing positions. The PN holders can unwind their positions at the appropriate time over the next year and a half. The Chairman, Mr Damodaran, has also clarified that FIIs who have issued PNs in excess of 40 per cent of the assets under custody need not bring down this limit to 40 per cent. They can issue fresh PNs against cancellation or redemption of the existing PNs. Derivatives
The spot Nifty closed at 5702 while the November contract was settled at 5712 with the December contract settled at 5699 and January at 5684. There is already five-digit open interest in December and January, and nearly three crore open interest is in November despite some 8.6 lakh contracts being extinguished. In the Nifty Junior, the November contract was settled at 10260 while the spot closed at 10268. In the Bank Nifty, the November contract was settled at 8763 while the spot closed at 8750. In the CNX IT, the spot contract closed at 4825 while the November contract was settled at 4816. Apart from the Nifty, all the other index futures lack liquidity except in the November contract. The CNX IT was the only market index to lose ground.
Government Securities Market Primary
Market On October 24, 2007, RBI auctioned 91-day and 364-day T-bills for the notified amounts of Rs.3,500 crore (out of which Rs.3,000 crore under MSS) and Rs.3,000 crore (out of which Rs.2,000 crore under MSS), respectively. The cut-off yields for 91-day and 364-day T-bills were 7.02 per cent and 7.36 per cent respectively. Through
a price based auction method, the RBI re-issued 7.27 per cent 2013 and
8.35 per cent 2022 for Rs.4,000 crore each on October 26, 2007. . The
cut-off yields were 7.74 per cent and 8.14 per cent respectively.
RBI
will re-issue 3 year maturing paper of 5.87
per cent 2010 and 11.30 per cent 2010 for Rs.5,000 each, through a price
based auction using multiple price method. RBI will conduct both the
auctions on 01 November 2007 under the Market Stabilisation Scheme (MSS).
Secondary
Market
Comfortable
liquidity prevailing in the economy kept the call rates stable through out
the week around 6.00-6.10 per cent. Gilts tracked the Bond
Market During the week under review, Infrastructure Leasing and Financial Services Ltd tapped the market by issuing 3-year bonds by offering 9.35 per for an amount of Rs 117 crore. Icra and Fitch have rated the issue AAA Foreign Exchange Market The rupee gained 44 paise in the week , rallying from 40-level to a close to 39.45.This was supported by weakening dollar and fading political concerns. Also, improved flows outlook following the Sebi clarification improved the market sentiments. However, the exchange rate remained impervious of the surge in international crude oil prices. Forward premia rose sharply and 6 month annualized levels ended at 1.16 per cent against 0.6 per cent. Commodities
Futures derivatives State-run firm MMTC and brokerage house Indiabulls, plan to set up a national-level commodity exchange may find it difficult to get regulatory nod in the absence of specific guidelines for this purpose. MMTC and Indiabulls Financial Services plan to set up a special purpose vehicle (SPV) for the exchange, with the public sector firm holding a minority stake of 26 per cent. According to MMTC Chairman and Managing director Sanjeev Batra they have already applied to the Forward Markets Commission for permission to set up a national level commodity bourse. According to a senior official from an existing commodity exchange only the regulator can say whether there is any need for a fourth exchange at the national level or not. This proposed exchange by Indiabulls and MMTC would be promoted by those who are already trading in futures market, while the other two leading exchanges like MCX and NCDEX do not have a conflict of interest. InsuranceSBI
Life Insurance company has registered a net profit of Rs 14 crore for the
first half financial year 2007-08. The company has infused additional
capital of Rs 100 crore, thereby taking the paid-up capital to Rs 600
crore. Corporate SectorHolcim,
the world’s second largest cement maker, has scaled up its shareholding
in Ambuja Cements by 3.15 per cent to nearly 40 per cent for Rs 741 crore
through open market operations. In a series block deals, the Swiss cement
major purchased 4.8 crore shares, representing 3.15 per cent stake in the
country’s third largest cement maker ACL, for an average cost of Rs
148.80 a piece. Indian
cements, the country’s 5th largest cement maker, has posted a
robust 89.8 per cent increase in net profit at Rs 223 crore for the
quarter ended September 30, 2007, against Rs 117 crore in the previous
corresponding quarter. Net sales in this period grew by 72 per cent to Rs
890 crore as compared with Rs 516 crore last year. A substantial rise in
sales volumes accompanied by strong domestic demand and improved
realizations contributed to the cement maker’s improved numbers. ONGC-Mittal
Energy (OMEL), a joint venture between ONGC Videsh and LN-Mittal promoted
Mittal Investment, has acquired a 30 per cent stake in an offshore
exploration block in the Caspian Sea, L&T,
the country’s largest engineering and construction company has decided
to build two new ports at a combined cost of Rs 3,000 crore and its third
shipyard in the country. The government has asked private companies to
indicate interest in building a shipyard on the west and east coasts. Infrastructure
firm Hindustan Construction Company has received three orders in the
transport and water sector worth Rs 983 crore. Bharat
Forge, the flagship company of the Kalyani Group, has reported increase of
9 per cent net profit to Rs 67.8 crore in the quarter ended September
2007, as compared to Rs 62 crore in the corresponding period last year. Information Technology The
rupee’s appreciation against the dollar has claimed its first victim in
the BPO space. US-based Spectrum Global Fund Administration (SGFA),
providing back-office operations to hedge funds in the TCS
is launching a new subsidiary TCS, Telecom The
total number of wireless subscribers in the country – including GSM,
CDMA and fixed mobile – has reached 209.08 million and the tele-density
stood at 21.85 per cent as on September 30 this year. The total telephone
subscriber base stood at 248.66 million, much ahead of the target month of
December. Keeping the growth projections on conservative scale, the
subscriber number has already crossed 250 million. As a result, the 500
million target for 2010 can be achieved. BSNL
has announced an investment of Rs 60,000 crore in next three years to
expand its GSM, broadband and WLL services, a move that would help the SPU
achieve top positions by 2010.
*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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