The people problems in the bank mergers are beginning to show. Bank Officers Association has called for all-India strike on September 26 and 27 over bank mergers. Bank unions have strongly objected to the merging of 10 banks into 4 as it would lead to unnecessary cuts in branches and in employees. Most unions are of the view that the merger would not achieve efficiency or reduction in NPAs. The bank strike could seriously impact clearing activities as it would result in a string of 5 bank holidays, including the half-yearly closing on 30th Sep. Businesses need to properly plan their activities.
Producer costs remained flat in August as the wholesale price index for August was almost flat at 1.08% despite the CPI retail inflation higher at 3.21%. Within the WPI basket food inflation actually soared higher to above the 6% mark. However, the manufacturing inflation trended lower to 0% for the month of August. Falling producer inflation is a problem and more so when it diverges from the CPI as it indicates that the producers are not getting remunerative prices. According to a report published in the Business Standard, this sustains hopes of another rate cut by the RBI in the October policy.
The sharp spike in oil prices may not be great news for the current account deficit, which has been a vulnerable area for the Indian economy. According to a report by Reuters, RBI has expressed concerns over the sharp rise in oil prices post the drone attack on Saudi Aramco. According to the report, the CAD had managed to remain under check due to weak oil prices, but a 10% rise in crude could hike the CAD by 0.6% of GDP. RBI is more worried about CAD levels in the light of the GDP growth falling to just 5% in the June quarter. Higher CAD combined with weak growth is normally negative for sovereign ratings.
The string of NBFC defaults are going on as Altico followed IL&FS and Dewan Housing in defaulting on loans. In fact, Reliance Mutual Fund could face default risk next month on Altico bond holdings. Altico has bonds worth Rs.1808 crore maturing in the next 2 years and it has already defaulted on an ECB borrowing from Mashreq Bank. This had led to the bonds being downgraded to Junk Status. Reliance MF and Sachin Bansal are among those whose bonds are coming up for redemption in the next one month. UTI and Reliance MF have already side pocketed the entire lot of Altico bonds.
The 11% rally in crude oil in a single day was the biggest rally since 1991 and that spooked the stock markets. Nifty ended below the psychological 11,000 mark. The correction was led by oil marketing companies and auto companies that are likely to be the worst hit by sharply higher crude prices. Banks and financials also took a beating on weakening macros triggered by oil prices. The entire oil price spurt was driven by the Drone attack on Saudi Aramco which took Brent sharply higher to $67/bbl. Early signals showed a panic reaction after Brent touched a high of $71.95/bbl. However, expectation of rising stockpiles of crude and a global economic slowdown due to weak Chinese numbers pulled oil lower. Drone attacks were launched by Houthi rebels on key Aramco facilities leading to 50% output cut.
The once bustling port of Hong Kong and, for long, the financial epicentre of Asia, has just got into trouble. Moody’s has downgraded Hong Kong outlook to “Negative” due to unrest. The rating downgrade means that the outlook has been shifted from “Stable” to “Negative”. Moody’s is of the view that this unrest could lead to an erosion of Hong Kong’s institutions. Moody’s had warned that the problems for the Hong Kong SAR could come from its economic proximity to China and its political distance. This is despite China agreeing to meet the protestors half-way on the Citizenship Bill.
