Are Ranbaxy' woes over? - Views on News from Equitymaster

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Are Ranbaxy' woes over?

Mar 24, 2009

Light at the end of the tunnel for Ranbaxy
Ranbaxy must be breathing a sigh of relief. The UK and Australian regulatory authorities have given a clean chit to the company's Paonta Sahib facilities after the same was subject to investigation last year. This very facility had come under the scanner of the US FDA, which found manufacturing deficiencies in the plant. As a result, production at this site had been halted and an import ban on 30 drugs was imposed. This raised concerns among other countries to which Ranbaxy exports as well (UK and Australia being among them), thereby prompting them to conduct investigations on their own. Hence, the green signal from these countries is like a beacon in the sky for the beleaguered pharma company. That does not mean that it can export drugs from this plant in the US as yet. The issue with the US FDA is still to be resolved. And while the actions of one country does not necessarily influence that of the other, it certainly raises some hope that the standoff between Ranbaxy and the US FDA translates into some kind of a favourable resolution for the former.

Indian banks to receive a shot in the arm
Indian banks can pat themselves on their backs for not facing the kind of trouble that their Western counterparts are now facing. While the US and the European banking industry has burnt its fingers badly in the subprime crisis, RBI's prudent norms coupled with the under development of securitization in India, spared India's banks the ills that are afflicting the banks of the developed world. Despite that, India has not been completely immune from the crisis that has engulfed the global economy and the credit crunch that has hindered lending in the US and Europe is having some impact on the lending activities of Indian banks too.

Thus, as reported in the International Herald Tribune (IHT), the country's lenders are expected to raise several billion dollars in fresh equity over the next few quarters as bad debts rise and the Indian government pressures them to increase lending. Especially banks that have a capital adequacy ratio of less than 9% are coming under the government scanner. At least 17 state-run banks have a Tier 1 ratio of less than 7.5%, making them prime candidates for an equity infusion.

IHT further states from a report obtained by Reuters that Indian state-run banks will most likely raise US$ 4 bn to US$ 6 bn in the coming months. What also makes the case for additional capital all the more compelling is the estimation that Indian banks' gross bad loans will rise to 6.1% by 2011. Thus, while India on the whole is still better off than its global peers, its banks, nevertheless, will have to receive a shot in the arm if lending has to be spurred.

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