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Farm loans, economic slowdown and more...

May 30, 2008

Politics of imprudence
Oil bonds, camouflaged fiscal deficits and off balance sheet items are words that often appear these days in most business dailies. However, this does not seem to be deterring the UPA government's massive pre-election gift to farmers - the ambitious farm loan waiver package - that just got even bigger. Not only has the cost of the waiver swollen from the Rs 600 bn envisaged at the time of Budget announcement to Rs 717 bn, but also, the ambit of the scheme has been widened. While the small and marginal farmers will get the full debt waiver, nearly 65% of large farmers will also enjoy this benefit. The scheme now covers all direct agricultural loans disbursed to farmers between March 31, 1997 and March 31, 2007 that were overdue on December 31, 2007 and unpaid until February 29, 2008.

Provisional figures from the Reserve Bank of India (RBI) and National Bank for Agricultural and Rural Development (NABARD) indicate that the number of small and marginal farmers' accounts to benefit from the scheme is 37 m while the number for large farmer accounts is estimated at 6 m. While small farmers' loans of around Rs 604 bn would be fully waived, large farmers will see a quarter of their loan dues waived, subject to the condition that the farmer pays the balance 75%.

While the government may argue that such welfare measures are necessary to protect the interest of nearly 60% of the population and bankers may argue that the government will reimburse the waiver and thus make good their losses, taxpayers need to be worried about the strength of the government's balance sheet and its imprudence in 'dressing it up'.

  • The grim consequences of fiscal deficit

    No time for retirement
    Americans have a good reason to think so because this is the opinion of one of the most famous investors not just in America, but across the globe - Mr. Warren Buffet. The economic downturn is hitting middle-aged and older American workers hard, forcing more than one in four to postpone retirement, according to a survey. 27% of workers in America aged 45 years and older have put their retirement plans on hold because of the slowing economy. While a large part of this could be attributed to the elongated tenure of mortgage liabilities, the low savings rates, poor return on investment and high inflation rate are not letting them breathe easy either.

  • An economy on thin ice

    Aluminium prices heat up
    According to Crisil, in 2008, international aluminium prices are likely to scale higher and average US$ 2,650 to US$ 2,750 per tonne. On the other hand, due to a surplus in the market, prices of alumina are forecast to average US$ 360 to US$ 380 per tonne. Given the rising demand for the metal and its variants in the retailing and packaged food industry, the same may bore well for the domestic producers. Although domestic prices are expected to rise on the back of higher international prices, the appreciating rupee and rising costs will, nevertheless, exert pressure on the manufacturers' margins.

  • Performance of stocks in aluminium sector

    ICICI Bank - Overseas opportunity beckons
    If BHEL was to complain of overflowing backlogs and of not meeting the requirements of Indian power generating companies, the latter should be able to seamlessly acquire them from global capital goods companies. This is primarily what is driving large Indian banks to foreign shores, to offer banking services to Indian corporates abroad. Our meeting with ICICI Bank this week thus explained the logic and scope of international business for Indian banks. Currently, ICICI Bank, SBI and Bank of Baroda are amongst the few Indian banks having a sizeable presence in the overseas markets.

    ICICI Bank itself has used this opportunity to change the mix of its loan book. It is this skill at turning around the ship in response to changed circumstances that has helped the country's largest private sector bank steer clear of some of the travails that two of its peers of the erstwhile DFI structure, IDBI and IFCI, are suffering from. The former has stagnated, while the latter is in its death throes. Shelving its aggressive focus on consumer lending, ICICI Bank is now betting big on international businesses that not only keep its corporate loan book growing but also garner an attractive share of fee income.

  • In banking, is big beautiful?

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