Deterioration in credit discipline more detrimental to MFIs than rural focussed NBFCs

Deterioration in credit discipline more detrimental to MFIs than rural focussed NBFCs

Rising instances of farm loan waivers in many states which are facing elections in the next couple years may affect credit discipline of rural borrowers, a development that weighed on the stocks of NBFCs such as Mahindra and Mahindra Financial ServicesBSE 0.50 % (MMFS), Shriram Transport FinanceBSE 1.28 % (STFC) and micro finance players such as Bharat Financial Inclusion (BFIL) in the last two trading sessions.However, unlike NBFCs for which the loan is secured in nature backed by assets like tractors, and commercial vehicles and the quantum of loans are bigger, the deteriorating credit culture may be a bigger worry for MFIs that have already seen 20% to 35% correction in the consensus earnings expectations for FY18 in this calendar year.The management of rural-focused NBFCs appear confident that farm loan waivers are less likely to impact the credit discipline amongst their borrowers even as some may try to take advantage of the prevailing sentiments.According to Umesh Revankar, MD & CEO of Shriram Transport Finance, even as loan waivers affect rural credit discipline, payment from assets is not a challenge that cannot be handled. He said that while some elements may try to take advantage of the situation, such instances are unlikely to impact the company’s outlook on loan growth (12% to 15% for FY18) and asset quality) for the fiscal.“Borrowers’ expectations of waivers are from the government and not banks and institutions like us. For our business, cyclical factor like a drought that affected Karnataka and Tamil Nadu last year is far bigger a challenge than change in credit discipline due to such waivers,” said Revankar.

Low CPI inflation makes analysts confident of a cut in rates

Low CPI inflation makes analysts confident of a cut in rates

Analysts today grew more confident of a rate cut by Reserve Bank of India at the August review, after the headline inflation dipped to a decade low of 2.18 per cent for May.SBI’s economic research department said the RBI cannot “avert a rate cut” at the August policy review.”The expectation of a prominent rate cut would become more pronounced if inflation continues to remain benign for a longer time,” it said in a note.Domestic brokerage Kotak Securities said the retail inflation will come below the 2 per cent mark for June itself and will be at 4 per cent level — the RBI’s medium term target — in March 2018.”Lower inflation and unexciting growth print raises the risk of a rate cut in the RBI’s August monetary policy review,” HSBC said in a note.It said the downward trajectory in price rise was due to a slump in food and fuel and added that the last time inflation had fallen so low was in May 2001.Private sector lender IDFC Bank said even though pressures are building on the monetary policy committee, “an August cut is not a 100 per cent given” due to risks like a reversal of base effect and implementation of 7th pay commission allowances, which can push up the number above 4 per cent by March 2018.The RBI, which is mandated to ensure that inflation is at 4 per cent in the medium-term, chose to go for a status quo in the rates at its review last week, but also lowered its expectations on inflation by up to 1.40 per cent, after the headline number came down to 3 per cent in April.”April inflation print and revised growth estimates have certainly raised difficult policy questions. We will watch carefully over next few months the incoming data on inflation as well as the indicators of real economic activity. I expect that we will remain adequately state contingent and if data so warrant, act for a broader accommodation through the interest rate policy,” deputy governor Viral Acharya had told reporters.

India, South Korea sign $10 billion funding agreement for infra projects

India, South Korea sign $10 billion funding agreement for infra projects

India and South Korea on Wednesday signed agreement for $10 billion assistance for infrastructure development projects in India, including smart cities.The two countries signed agreements to establish $9 billion in concessional credit and $1 billion in Official development assistance (ODA) funding for infrastructure development projects in India,” said an Indian Finance Ministry statement.This implemented a decision taken during the visit of Prime Minister Narendra Modi to South Korea in May 2015. With this, South Korea became one of the first non-G-7 countries to become an ODA contributor in India.The agreements were signed during the visit of Finance Minister Arun Jaitley to South Korea on a four-day official visit to attend the India-Korea Financial Dialogue and the second annual meeting of the Board of Governors of Asian Infrastructure Investment Bank (AIIB).