Liquidity crunch is mostly behind us, says Tata Sons' N Chandrasekran

Chandrasekran said the goods and services tax (GST) regime and the Insolvency and Bankruptcy Code (IBC) are historic decisions.

The liquidity crunch that had gripped various sectors after the IL&FS crisis is mostly behind us, said N Chandrasekran, chairman, Tata Sons at ExpressAdda, an Indian Express event on Tuesday.

“There are issues here and there, but this issue (liquidity) is behind us,” he said.

On the possibility of India becoming a $5-trillion economy, he said, “I think it is possible. To achieve anything, you need to have aspiration.”

He added: “The Indian market has huge potential. There are a number of trends like urbanisation, rising middle class, etc, which are irreversible.”

He said the goods and services tax (GST) regime and the Insolvency and Bankruptcy Code (IBC) are historic decisions.

“Whether it’s the IBC or the GST, to my mind these are historic decisions. I don’t think anybody will say these are wrong decisions, but the speed at which things have to happen has to be better.”

Sometimes, he explained, it is better to allow things to happen “in a fall forward manner” — one may not be perfect, but one has to keep getting up after a fall.

He however, added some decisions “that are large have to be executed right, close to expectation, otherwise they lose momentum.” Touching upon the banking sector’s non-performing assets (NPAs), he pointed out, “We are taking a lot of time to correct problems like NPAs. There is a slowdown in these corrections and they have to happen fast to bring confidence back in economy."

On Rahul Bajaj’s criticism of the Centre, he said, “This government works harder than anyone else. I have not found a situation where I cannot put my point across to them. However, I cannot say whether that input will be implemented.”

Article Source : BS

Stung by the cash crunch, India's top shadow banks find respite overseas

The industry has been reeling from a crisis triggered by the shock collapse of financier IL&FS Group last year, which has been followed by more failures.

As India’s shadow banks continue to feel the sting from a cash crunch, a handful of the safest ones are actually finding a bit of respite as their overseas borrowing costs decline.

The industry has been reeling from a crisis triggered by the shock collapse of financier IL&FS Group last year, which has been followed by more failures.

But yield-starved international investors are increasingly lending to the strongest financiers, betting government steps to shore up the industry will staunch broader contagion. The government needs a healthier shadow banking sector as it tries to boost the slowest economic growth in six years.

Average coupons on foreign-currency bonds of shadow banks fell to 4.66 per cent in 2019, from a record high of 5.32 per cent in 2018.

Accessing the offshore debt markets will help the lenders as they try to meet rupee and overseas bond redemptions that are set to jump to an all-time high of $60 billion next year.

A record $4.5 billion equivalent of offshore bonds was sold by six non-bank financial companies year-to-date, compared with $1.8 billion overall in 2018. Another lender, Manappuram Finance Ltd., started a roadshow last week for three-year dollar notes.

Business Standard

Irdai asks insurers to give details on exposure to DHFL, IL&FS, ADAG

All the four entities, for which data was sought by Irdai on October 9, have been downgraded by credit rating agencies recently.

The Insurance Regulatory and Development Authority of India (Irdai) has sought data from companies on their exposure to Infrastructure Leasing & Financial Services (IL&FS), Dewan Housing Finance Corporation (DHFL), Indiabulls, and Anil Dhirbubhai Ambani group companies, sources aware of the development said.

“The regulator perhaps wants to see the strength of the insurance companies," said the chief executive officer of a life insurance company. All the four entities, for which data was sought by Irdai on October 9, have been downgraded by credit rating agencies recently.

“Usually, it is left to the insurers on how they deal with downgraded entities. But this may have been done to find if there is any over exposure the insurers have against their asset base," said a former member of Irdai.

When an entity is downgraded, insures' investment in such entities is clubbed under the unapproved investment kitty and the insurers are allowed to have 10 per cent of their investment in the unapproved investment.

“If the 10 per cent is breached, there might be some problem, but so far the 10 per cent threshold has not been breached by any insurer," experts said.

There might be concern on the solvency of insurers having exposure to the four entities, the former member of Irdai quoted above said. If such a situation arises wherein the rating downgrade of an entity threatens the solvency margin of an insurer, the insurer has to infuse fresh capital to maintain a solvency margin of 1.5.

The Irdai had in the past asked insurers with exposure to IL&FS to provide for their exposure. A lot of insurers including the state-owned behemoth Life Insurance Corporation have exposure to IL&FS.

Business Standard

Funding crisis to worsen unless India pumps more cash into financial system

Muted government spending and high election-linked expenditure have created a cash deficit in India's banking system in the past few months.

Business Standard : India needs to pump more cash into its financial system to prevent a worsening of the funding crisis among shadow banks and the corporate sector, according to one of the nation’s biggest money managers.

Non-banking financial companies had served as a “surrogate womb” for banks, who face regulatory limits on how much they can lend, but that “surrogacy has stopped,’’ Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co., said in an interview at her office in Mumbai. “If the liquidity the system requires is not provided sooner or later, this could morph itself into something beyond NBFCs.’’

The non-bank lenders, which have been hit by high borrowing costs and largely shut out from the bond market after the crisis at shadow lender IL&FS Group broke out last year, are facing the risk that more borrowers will be unable to repay their debt as the cash crunch drags on. Oil industry firms, steel producers and mineral companies, all of which rely on NBFCs for funding, are finding it difficult to raise money, Iyer said.

Muted government spending and high election-linked expenditure have created a cash deficit in India’s banking system in the past few months. Authorities are already using open-market debt purchase operations and currency swaps as a “potent liquidity tool,” but more is needed to get enough cash into the system, Iyer said.

ALSO READ: Realtors in deep trouble due to crisis in NBFC segment, says Vikas Oberoi

India’s cash deficit, measured by how much lenders need to borrow from the central bank to carry out their operations, is the worst since 2016, according to data compiled by Bloomberg. The banking system has experienced a liquidity deficit for all but 10 days so far in 2019, the data show.

Policy makers appear to be aware of the potential risks. The nation’s top bureaucrat for corporate affairs, Injeti Srinivas, warned of an imminent crisis in NBFCs due to over-leveraging and a credit squeeze among other reasons, and those are “a perfect recipe for disaster,” the Press Trust of India reported.

The troubles have hit borrowers reliant on non-bank lenders for financing, such as property developers. In an industry group letter to India’s finance minister, real estate companies complained that some lenders are delaying loan disbursals and raising interest rates arbitrarily.

Realty debt could be next flash point in India's credit market: ICICI Pru

Indian shadow banks now face rising risks that weaker developers may struggle to repay those borrowings, as housing sales have failed to keep pace with debt expansion.

Business Standard : The next flash point in India’s credit markets could be real-estate debt.

That’s the view of ICICI Prudential Life Insurance Co., a major corporate bond buyer and one of India’s top life insurers. The firm avoided investing in debt of stressed companies before credit market strains spread last year.

That crisis was triggered by shock defaults by major infrastructure financier IL&FS Group, and its fallout pushed up financing costs for a range of borrowers including wealthy property tycoons struggling to roll over debt. The country hardly needs more stresses now just as credit markets regain some normalcy after policy makers took steps to inject more liquidity into the financial system.

“While most of the credit market is healthy, one needs to be cautious on NBFCs having large exposure to the real-estate sector,” said Chief Investment Officer Manish Kumar, who oversees Rs 1.1 trillion ($15.8 billion) at ICICI Prudential Life. Pressure may rise at non-bank firms, raising the need for lenders to liquidate assets or for stronger developers to buy up projects, he said.

Indian shadow banks lent heavily to the property industry in recent years, helping to fuel a construction boom.

They now face rising risks that weaker developers may struggle to repay those borrowings, as housing sales have failed to keep pace with debt expansion. Teetering economic activity also isn’t helping.

Earlier this year, troubles for mortgage lender Dewan Housing Finance Corp. were among factors that pushed up financing costs.

ALSO READ: Insurance companies have to make provisions for IL&FS defaults: Regulator

An analysis of about 11,000 home builders by research firm Liases Foras in February showed that developers on average have to repay twice as much in debt each year as the income they generate that can be used to service it. Property prices in India’s biggest cities have been flagging -- home values in Mumbai sank 11 percent last year.

That all means property debt investors need to be extra cautious, but there are still pockets of opportunity, according to ICICI Prudential. The firm has raised corporate bond holdings to 33 per cent from 31 per cent since the IL&FS crisis, mainly by increasing investments in notes issued by top-rated housing finance firms and bonds that will be serviced by the government.