Despite negative cues from their peers across Asia, the key indices in Indian equity markets ended the session above the dotted line today. In what was otherwise a muted session, buying interest in commodity, finance and auto sectors help the indices close near the day's highs. While the BSE-Sensex today closed higher by 51 points, the NSE-Nifty today closed higher by 27 points. Both the BSE Mid Cap and the BSE Small Cap indices closed marginally higher.
As regards global markets, Asian indices closed mixed today while European indices have opened lower. The rupee was trading at Rs 55.63 to the dollar at the time of writing.
In the wake of two successive power grid failures, which had affected over 600 m people in the country, the government has proposed to give more autonomy to the state regulators. This will be done through an amendment in the Electricity Act. Meanwhile, feeling the need to provide more teeth to the State Electricity Regulatory Commissions (SERCs), the Power Minister, Veerappa Moily, has urged the state regulators to put in place some tough governance and reforms for the greater functioning of the state electricity board.
Meanwhile the staggering losses with the SEBs and their outstanding loans with banks and power financers need to be looked into on an urgent basis by the state governments. The outstanding loans given by banks to state power utilities has grown to a staggering Rs 6 trillion or 6% of India's GDP! The total borrowed funds from banks alone have grown by 56% in the past two years. What is even more appalling is that roughly a third of these are loans were taken to fund past losses. The losses are so massive that they cannot even be serviced through tariff hikes. Despite such gross misuse of funds, states continue to follow a cautious and staggered approach on tariff hikes. For states like Rajasthan, Madhya Pradesh and Tamil Nadu tariff hikes in the range of 65% to 80% will be needed to bridge the revenue gap for the SEBs.
In an interesting turn of events, the country's two top bankers have chosen to disagree on the impact of the Cash Reserve Ratio (CRR) on the banking system. As per a business daily, ICICI Bank Chairman K V Kamath today disagreed with the suggestion of State Bank of India (SBI) chief Pratip Chaudhuri that RBI should scrap CRR. He said that the CRR is part of the monetary policy and no issue can be made of it. CRR is the portion of deposits kept by banks with the RBI on which no interest is paid. Chaudhuri had made a strong pitch for the abolition of CRR. The SBI chief said that keeping required funds with the RBI without any interest was costing the banking system about Rs 210 bn per year. He called for phasing out of CRR, which would allow banks to lower lending rates. Else it called for some interest on CRR to be paid by the RBI.