Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Chinese inflation, Indian NPAs and more... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 22, 2008

    Chinese inflation, Indian NPAs and more...

    • China's inflation has accelerated to the quickest pace in more than 11 years after the worst snowstorms in half a century disrupted food supplies in that country. Food prices have soared 18% after blizzards paralyzed transport systems and destroyed crops. The Chinese government faces the challenge of curbing inflation without derailing the expansion of the world's fastest-growing economy. Raising interest rates when the US Federal Reserve has been cutting them may attract unwanted money from abroad into the Chinese economy. Higher borrowing costs would also be an extra drag on growth when China faces lost production from the snowstorms and the prospect of weakening export demand as a recession looms in the US.

      The Chinese government is expected to use more currency gains and curbs on bank lending to restrain price increases. It has also imposed food and energy price controls. Economists expect the government to keep raising banks' reserve requirements. The central bank has ordered lenders to set aside more deposits as reserves (alike to the Indian CRR, cash reserve ratio) on 11 occasions since the start of 2007, pushing the ratio to 15%, the highest ever.

      The IMF, which expects the Chinese economy to grow 10% this year, down from 11.4% in 2007, has urged Chinese leaders to ease exchange rate controls to address global financial imbalances and their own economic challenges. China revalued the Yuan by about 2% against the US dollar in July 2005 and has allowed it to rise by more than 13% since then.

    • Indian banks' asset quality ratios have improved significantly since FY02, but were put to test in the rising interest rate scenario as expensive consumer loans affected the borrower's repayment capacity. However, what is comforting is the fact that the vulnerable asset categories, including unsecured consumer loans, capital market exposures and real estate lending, comprise less than 10% of total loans. The median net NPA to total advances ratio (less than 10% in FY08) is therefore unlikely to rise sharply. Bankers' rights have also been strengthened and recovery from delinquent accounts is gradually improving, though an auction market for distressed assets will take a while to be established. Risk management systems are evolving in most banks although model based approaches for calculating probability of default and loss on default are likely to take three to five years to be validated. In the meantime, most large banks will implement the standardised approach for credit risk and basic indicator approach for operational risk under Basel II from March 2008.

      According to ARCIL (Asset Reconstruction Company of India Ltd.), even if Indian banks become very cautious, the best net NPA levels of 0.5% to 1% are not expected to reduce further in next 5 years. The market is likely to be swamped by US$ 1.5 bn to US$ 2 bn (about Rs 80 bn) worth of NPAs every year. Historically, there has been Rs 200 bn to 250 bn additions of gross NPAs every year for the last few years.

    • The forthcoming Union Budget is expected to strike a fine balance fiscal prudence, reform initiatives and relief measures. What and how much of this will be delivered is for all of us to see. While fiscal correction has gained a credible momentum in recent years, some of it has been achieved by reduction in public investment. Whereas a desirable shift has taken place from public to private investment in sectors essentially producing private goods and services, and there is a move toward public private partnerships in those which have both public and private goods, it is necessary to recognise that public investment is essential in sectors producing public services. Continued fiscal correction through the restructuring and reduction in subsidies, and continued attention to the mobilisation of tax revenues is necessary to enhance public sector savings that can then finance increase in all levels of public investment.

      Lags in the availability of necessary public infrastructure would also lead to inflationary pressures, and lack of competitiveness. Efficiency in the allocation and use of resources would be helped by better basic infrastructure in both rural and urban infrastructure.

      The tradeoff between relief and reform will also be a difficult one. On the one hand, trade liberalisation and tariff reforms have provided increased access to Indian companies to the best inputs available globally at competitive prices. On the other hand, the gradual opening up of the economy has led Indian companies to adjust themselves to fierce competition in world markets.



    Equitymaster requests your view! Post a comment on "Chinese inflation, Indian NPAs and more...". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)