With Chanda Kochhar already proceeding on indefinite leave, there are fresh allegations that have emerged from the whistleblower about how loans given to the Ruia’s Essar also resulted in round tripping of funds into Deepak Kochhar’s company. According to the whistleblower, all these loans to the Essar group eventually became NPAs leading to huge losses to the bank. The ICICI Board has already appointed an independent enquiry commission into the incident under pressure from the independent directors of the bank. There is no word yet on whether the CEO will continue.
With a new government in place in Italy, the jury is still out on how it will deal with the common currency. For example, the popular vote was all for an exit from the common currency and returning its own currency, The Lira. The verdict could, however, be a lot more split than originally imagined. For example, the businesses are more in favour of continuing with the common currency in the interest of stability in financial markets. But the next few days could be critical. There are talks of a back-up plan by Italy, where it could even undertake the currency shift by shutting down banks to prevent a rush.
Rating agency, Fitch, has pointed out that the $13 billion that has been infused as capital into PSBs has more or less been wiped out by the losses in the last couple of quarters. According to Fitch, the situation is unlikely to improve in the coming year. One can argue that the poor results in the last quarter are due to tighter recognition. The situation could improve marginally once the recoveries under the NCLT start kicking in. Gross NPAs for the banking sector as a whole is now above 12% and that is becoming an unsustainable scenario. Of course legal delays in NCLT will have to be factored in.
The Allahabad High Court has granted temporary relief from RBI’s stricter loan provisioning norms for the benefit of power companies. This applies specifically to the RBI’s new stressed loan provisioning norms. As per the Feb 12 circular, companies will have to classify loans with even a 1 day delay in payment as doubtful assets and make a provision for them. The fear was that the new norms would push a lot of power projects with capacity of 60,000-70,000 MW towards bankruptcy. This should be a temporary relief for power companies already besieged by uncertainty policy and rising NPAs.
On a day when oil fell with US boosting oil, output, the gap between the Brent Crude and the WTI crude remained at an all-time high of over $10. It is also expected that two of the principal players in the OPEC alliance; Russia and Saudi Arabia may also push up output to bring prices to more reasonable levels. The US has already warned Russia and OPEC that if they continue to hold supplies then the US may be constrained to increase its global exports of oil. The US had an agreement to not export oil till 2015 and only use oil domestically. But, post 2015, the US is free to export and that could act as the alpha factor for determining oil prices in the global market. The good news for net importers of oil like India could be that this could be a temporary top for the price of crude oil and so less imported inflation.
In what could be bad news for aviation companies, the jet fuel prices have been hiked for the eleventh straight month in a row. Effectively, the prices of Jet Fuel have gone up by over 40% in the last 1 year from Rs.50,000/kl to Rs.71,245/kl. This price is directly linked to the price of Brent Crude which is up by over 60% since the beginning of this calendar year. This is not great news for aviation companies which are already under pressure due to competitive pricing. Aviation fuel accounts for more than 60% of the costs of an airline and that could put further pressure on the profits in coming quarters.
