Indian banks may have to provide another $5.6 bn for NPA

According to estimates put out by India Ratings, Indian banks may have to provide another $5.6 bn for NPAs not yet provided for. This additional provision of $5.6 billion is estimated by India Ratings to be made by Indian banks for the period October 2018 to September 2020. Reuters estimates that nearly Rs.3.50 trillion of debt is yet to be recognized and this estimate is based on the assumption that a part of these loans could turn into NPAS entailing higher provisions, including telecom and power loans. The latest worry is that defaults by NBFCs could actually have a spiralling effect on banks.

With power dues piling up, the government may not have much of a choice other than resorting to prepaid power model. As power dues pile up to unsustainable levels, the government may ask power retailers to pay in advance to the power generators. Currently, there are accumulated unpaid power bills of $5.7 billion. Over the last one year the outstanding dues to power generators have gone up by nearly 30% making them financially unviable. The real tragedy is that nearly 20% of the power is lost in the process of transmission and distribution to theft and illegal pilferage.

Steel makers are back to seeking protection from the government of India in the form of higher duties imposed on steel imports. Government had started this trend by imposing quotas and then following it up with duties. In the last few months, a lot of surplus steel from Asia has found its way into India as the trade war compressed global demand for steel. Local steel producers were hit hard by weak steel prices in India as well as cheap imports, putting  pressure on their profits. China, Japan, South Korea and Vietnam are some of the nations dumping steel at a low cost into India.

Retail money continues to flow into mutual funds which explains why these mutual funds have been able to pump in over Rs.7,150 crore into equities in January 2019. This has more than compensated for the Rs.5,264 crore pulled out by the Foreign Portfolio Investors (FPIs) in the month. According to a report, this sharp inflow by mutual funds could be attributed to retail SIPs (systematic investment plans). Even as FPIs are wary of macros, retail investors have been pumping in liquidity into mutual funds and close to 2 crore SIP accounts are pumping in nearly $1.2 billion each month into SIPs.

It looks like the pressure on the fiscal deficit has begun with the government planning to raise Rs.36,000 crore through the issue of government securities. This is to fund expenses for the rest of the current fiscal, over and above the original calendar of borrowings by the RBI. The fiscal deficit has only exceeded the target by 10 bps in the current fiscal but the spillage in 2019-20 is projected at 30 bps. Crunched for resources, the government has now asked the RBI to transfer excess surplus of last 2 years. With fairly large commitments made in the budget, the government wants RBI to transfer its entire surplus of the last two years to the government. Normally, RBI sets aside part of the surplus as a contingency fund. The government is expecting to double of interim dividend to Rs.28,000 crore for fiscal 2018-19.

The regulator has begun of putting a greater onus on the independent and public interest directors. The new framework for Public Interest Directors (PIDs) will apply to stock exchanges, depositories, and clearing corporations. Under the proposed framework, PIDs will be nominated for a period of 3 years which will be extendable for another 3 years. Nomination of PIDs to another board will entail a cooling period of 1 year. The mandatory retirement age will be 75 years. In the case of the NSE also issue and previous in the case of MCX and NSEL, the role of PIDs came under scrutiny.