• NOVEMBER 12, 2008

'Bail outs' are in...

A soft bail out for Indian PSU banks
The public sector entities chose to turn a deaf ear to the Finance Ministry directive early this year asking all the PSUs to park 60% of their funds with public sector banks. With liquidity drying up and PSU banks facing shortage of capital to comply with the Basel II norms, the Ministry has chosen to offer them a soft 'bail out'. It has once again directed the government companies to deposit 60% of their surplus funds with PSU banks, despite the fact that the rates offered by the latter for bulk deposits may be less competitive to those offered by private sector and foreign banks. The directive, however, comes as a huge relief to the smaller government banks that can neither raise funds at competitive rates nor dilute the government's stake beyond 51%.

Economic slump does not stop Indians from talking more...
Atleast that is what the data on new GSM users suggest and is the opinion of telecom majors like Bharti Airtel. India added a record 7.7 m mobile users in October to its GSM-based networks, despite signs of slowdown across most other sectors. As per Cellular Operators' Association of India (COAI), total GSM mobile users at the end of October numbered 241.4 m, up 3.3% from 233.7 m in September. The country's telecom market is the 4th largest in the world in terms of wireless subscribers and 5th largest in terms of total telecom subscribers. The total wireless (GSM and CDMA) subscriber base in the country is expected to cross 500 m by the end of March 2010. Despite high inflation levels and lower economic growth, the inelasticity of demand for telecom services, availability of cheaper handsets, focus on regulatory measures to take telephony to rural markets and lower tariffs have kept the fortunes of this sector buoyant.

Amex now a bank
15 years after American Express spun off its investment banking subsidiary Lehman Brothers Holdings, the largest credit-card company in the US has joined securities firms Goldman Sachs and Morgan Stanley in gaining 'liquidity support' from the US government as part of the US$ 700 billion bailout package for the country's beleaguered banking and financial system.

American Express, which has consolidated assets to the tune of US$ 127 bn has been severely hit by defaults on its credit card dues fueled by more than 700,000 US job losses this year. The problem has got multiplied with the fact that home loan borrowers who have run out of capacity to repay their mortgages have been using credit cards to do the same. To put things in perspective, the size of the US credit card industry is nearly 83% of the size of the Indian economy and recovering unsecured loans of this magnitude is set to be a formidable task for American banks and credit card companies. The Federal Reserve's approval to convert American Express into a bank holding company will give it the lifeline of access to government funds until it gets its books in order.

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