'India will remain second-fastest growing economy'

India faces a difficult situation because of the global financial crisis and may even witness a slowdown, but its economy was nowhere near a recession, Finance Minister P. Chidambaram said .

'A recession is defined as two successive quarters of contraction of GDP (gross domestic product). I wish to emphasise that India is nowhere near a recession,' Chidambaram told the annual Economic Editor's Conference.

He said the financial crisis that has enveloped the world since 2007 had become worse with many rich nations like Germany, Japan, Britain and the Netherlands officially in recession, and many more, including the US and France, expected to join them soon.

'In our view, we may expect a moderation in growth rate in the current year to a level between 7 and 8 percent. But India would still be the second fastest growing, large economy in the world,' Chidambaram added.

India still faces a difficult situation, he said but promised every possible fiscal and monetary measure to contain the impact of the global crisis on the domestic economy.

According to the finance minister, sectors like manufacturing, communications, trade, agriculture and construction that have been the major drivers of the Indian economy in the past, were likely to see a moderation of growth.

As a result, India needed more investment and quicker implementation of projects covering roads, ports, airports, power, education, health and skill development to spur growth, he said.
'Increasing expenditure in the infrastructure sector is an important part of the counter cyclical measures that are being contemplated to address the impact of the global slowdown,' he said.
'On the whole, the general outlook continues to be one of cautious optimism.'

Chidambaram also said that while the previous National Democratic Alliance (NDA) government was claiming high economic growth rate during its regime, the reality was far removed.
'At best, the growth rate during that period was modest. In particular, 2002-03 recorded the lowest growth rate after the beginning of the reforms in 1991-92,' he said, while listing the growth rates since 1997-98.

'As a consequence, the growth rate in 2003-04 appears impressive. But what is important is the average for that period. The average was only 5.7 percent.'

The finance minister said India's external sector, too, continued to be robust and reflected the strengths of the economy in 2007-08. 'In the current fiscal, merchandise trade data is available for April-September 2008. Exports and imports have registered an impressive growth of 30.9 percent and 38.6 percent, respectively,' he said.

He said there was a deceleration, but that was being addressed by diversifying exports to other markets. 'For example, during the first quarter of this financial year there has been an increase in the share of India's exports to China, Singapore, the Netherlands and Saudi Arabia.'
Source: Agencies

US govt bails out Citigroup, but will it survive?

“Amazing how much damage the lame ducks can do in the time remaining.” — Paul Krugman, Noble Prize Winner in Economics, on the bailout of Citigroup by the incumbent US government
America’s cup of woes is spilling over, rather messily, with its long-venerated financial institutions suddenly faced with obliteration and forced to seek a bailout.

Citigroup, the latest in a list getting longer, has just been promised a $20 billion cash injection, besides a whopping government guarantee for its troubled assets and mortgages.
As its stock price fell 60% over last week, the world’s largest financial services firm with revenues of around $159 billion last year, kept repeating over and over that it had “very strong capital.”

US govt agrees to $306-b rescue plan for Citigroup
It took just one weekend for it to go from very strong to very weak, necessitating a bailout of this order.

On Friday, the stock tumbled by over 60% to $3.77, down from a peak of $56 in 2006.
Predictably, the bailout news did it some good on Monday. At the time of writing this piece, the stock had gained around 61% to $6.08 on the New York Stock Exchange.

Barclays gets $10 b as Citi rescue resounds
DNA Money attempts an overview of the situation, the intervention and its implications near and far.

What’s the rescue all about?
The US government has decided to guarantee $306 billion of troubled mortgages and other assets of Citigroup. The Treasury department will also inject $20 billion of cash into the firm.
This will be over and above the $25 billion Citigroup got under the Troubled Asset Relief Programme (TARP, as the $700 billion bailout package is officially named).

On its part, the firm will issue preferred shares worth $27 billion to the government and pay a dividend of 8% a year.

Analysts following the firm have been expecting this move. “While the conventional wisdom says Citi is too big to fail, the reality is it’s too big to manage,” wrote Vernon Hill, founder and former chairman, president, and chief executive officer of Commerce Bancorp on www. seekingalpha.com a couple of days back.

“As a result, the company has become a publicly traded incarnation of Murphy’s Law: anything that can go wrong almost certainly will — and probably sooner rather than later. And $25 billion in TARP money isn’t going to do much to turn things around.”

What will be the cost of the bailout?
Citibank will have to pay a dividend of $2.16 billion per year to the government on the preferred shares. It will also have to pay $1.25 billion @5% on the $25 billion it received through TARP. This means the bank will have to make a profit of more than $3.41 billion before the shareholders can take home anything.

Citigroup shareholders will be diluted in the “near term by the cost of the incremental preferred stock,” Morgan Stanley analysts Betsy Graseck and Cheryl Pate wrote in a report on Monday.

Who will absorb the losses?
Citigroup will have to absorb the losses to the extent of $29 billion, including the reserves. Beyond that, any losses will be shared between the government and Citi. The government, through its three agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp — will take on 90% of the losses, leaving 10% for Citi to bear.

What are the conditions associated with the bailout?
Under the terms of the deal, the institution has been prohibited from paying common stock dividends of more than $.01 per share per quarter, for the next three years, without the approval of the US government. Further, any executive compensation plan including bonuses to employees must get the approval of the US government.

But experts aren’t happy with this move. Robert Reich, a former labour secretary of the US government under Bill Clinton wrote on his blog : “This is not a particularly good deal for American taxpayers, but it is a marvellous deal for Citi… The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well.”

Ironically, the same executives who got Citi into the mess in the first place, continue.

Who was responsible for the mess?
Like other banks and financial institutions in the US, Citigroup also got carried away while investing in sub-prime mortgages. Also, its risk management system had stopped working.
New York Times said in a report said that Charles O Prince III, Citigroup’s chief executive before Vikram Pandit took over, learnt for the first time in September 2007 that the bank owed $43 billion in mortgage related assets. At that point, Prince asked Thomas G Maheras who oversaw trading at the bank if things were okay.

Maheras replied in the positive, then and every time the question cropped up. By the time the risk management team of the bank got around to assessing the risk related to these mortgages, it was too late. The bank had to announce billions of dollars in losses.

Analysts are even questioning the business model of Citigroup. They feel the company had spread itself too thin. “The whole idea behind Citigroup was flawed from the start. Unbeatable scale in financial services? Forget it. We now see the good Citi’s size has done for investors: the company has an incoherent, unworkable business model. It is run by a senior management team that’s largely unproven, with scant experience, operating a large financial institution,” wrote Hill.
Will the bailout and the guarantee be enough?
This is a tricky question. Citigroup has assets worth nearly $2 trillion on its books. It also has nearly $1.23 trillion in off-balance sheet assets.
“The roughly $300 billion pool of assets that are included in the rescue plan represent only a sliver of the company’s more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such “hidden” assets helped trigger the nose-dive in Citigroup’s stock last week. Among the off-balance-sheet assets are $667 billion in mortgage-related securities,” the Wall Street Journal reported.

Also, the troubled assets are not being taken off Citigroup’s balance sheet, and this has not gone down well with analysts.

What next?
Analysts are sceptical of the bailout.
“No one knows who’s going to lead it, over the medium term; hell, nobody knows who’s going to own it, over the medium term. The US government might have guaranteed a chunk of Citi’s assets, but it’s done nothing about Citi’s liabilities, including hundreds of billions of dollars in unguaranteed deposits,” Felix Salmon, a widely followed analyst in the US wrote on www.seekingalpha.com.

“Nothing in today’s announcement makes Citi immune to a bank run, which means there’s a very good chance the stock will remain under significant pressure. Given that it was the tumbling stock price which was responsible for this deal in the first place, one wonders if there was any point to this exercise at all,” Salmon wrote.

Analysts also feel that after the Citi bailout, it will be very difficult for the US government not to bail out the likes of General Motors, where so much more is at stake.

Source: DNA Money

Sustainable development index for India

BT announced that the launch of its “Sustainable Development Index – an assessment of business performance in India”. The SD index has been developed in partnership with GlobeScan, an independent public opinion and stakeholder research company. Through a survey of senior opinion leaders across India the index is a means to measure the performance of business in India in the progression towards sustainable development over time.

The initiative was officially launched by Dr. R. K. Pachauri, Director General, TERI and Allen Ma, President, BT Asia Pacific at a news conference in New Delhi, India.

The SD index report reveals that although Indian companies are taking positive steps towards sustainable development, the overall performance of the corporate sector is disappointing. 46 per cent of India's opinion leaders surveyed blame a lack of awareness around sustainable development issues as the main cause of inaction. Some 40 per cent of opinion leaders also cited a lack of political will as a major obstacle to making significant progress in this area.

According to the report, this lack of action means India lags behind China, Japan and the European Union when it comes to addressing key issues, such as tackling climate change, corporate governance practices and water resource management.

Interestingly, the country's largest cities were seen as making the strongest moves to improve sustainable development practices. Whilst there are negative views around India's progress, a majority of opinion leaders (57 per cent) feel that companies in India are now more active with regard to sustainable development compared to one year ago.

In fact, the corporate sector is considered to have made significantly stronger progress than either government or the general public. Allen Ma, President, BT Asia Pacific said: “At BT, we absolutely view sustainability as an international issue and businesses cannot succeed in societies that fail. India is rapidly becoming a global centre for information and communications technology development, and boasts a high economic growth rate. It is vital that this commercial success is matched by a commitment to, and leadership in, corporate responsibility. We are constantly looking at the impact of our core business activities across the spectrum of social, environmental and economic issues. Through the launch of the BT Sustainable Development Index we hope that other organisations in India will do the same.”

The most frequently mentioned corporate leaders in sustainable development in India are: TATA Group (named by 31 per cent of respondents), Reliance (13 per cent) and Infosys (10 per cent).

Nitin Desai, Former United Nations Under-Secretary-General for Economic and Social Affairs and Advisor to BT’s SD Index, said: “There are significant social, environmental and economic challenges facing the world’s second most populous country and India’s transition to sustainable development is in the world’s interest. Given the importance of the issues at stake, there is a clear need for initiatives such as BT’s to help channel corporate sustainability efforts to where they can have the most beneficial impact. We need to be able to carefully monitor where corporate successes are occurring and to learn from them. We also need to reliably know which aspects of sustainable development most urgently require corporate action"

80% of APAC Internet users go online to shop

The internet is proving as appealing a shopping destination as the likes of shopping centres in Tsim Sha Tsui in Hong Kong or Orchard Road in Singapore. According to a Visa e-Commerce Tracking Survey, nearly 80 percent of internet users surveyed in Asia Pacific say they made an online transaction and spent an average of over US$3,000 each in the past 12 months.

The top three draws for shopping online were being able to shop at any time (88 percent), at the best prices (83 percent), and being able to shop easily (82 percent). According to the respondents, their most commonly made online purchases were digital entertainment (59 percent), travel (51 percent) and fashion (49 percent).

Among the wide range of products and services available on the internet, Asia Pacific online shoppers surveyed reported that they spent the most on travel services with an average spending of $812 in the last 12 months. Travel items included airline and rail tickets, hotel accommodation and travel packages.

Mohamad Hafidz, regional head, e-Commerce, Asia Pacific, Visa, said: “Nearly a quarter of the world's population – roughly 1.4 billion people – used the internet on a regular basis in 2008 and in Asia Pacific, on average, a person spent about 20.2 hours a month online. Our own survey has revealed online consumers in Asia Pacific recognize the convenience of online shopping as reflected in the high percentage of internet users who buy a wide range of products, from that for everyday use to the occasional high-value item online.”

In the region, Japanese and Koreans surveyed emerged as the most frequent shoppers, with 99 percent and 93 percent respectively having made an online purchase over the last 12 months. However, Australians were the biggest online spenders with an average 12-month tab of $4,160 – $680 more than Singaporeans, who are the next biggest online spenders.

In India, purchasing digital downloads was the most popular form of consumer e-commerce. Seventy-six percent of respondents from India, the highest among Asia Pacific, have bought a form of digital entertainment over the internet in the last 12 months. Music downloads (63 percent) emerged as the most popular digital entertainment purchase.

The internet has also brought about an increase in the number of cross-border transactions with 75 percent of internet users surveyed in Hong Kong having bought an item from an overseas website in the preceding 12 months. Visa (both credit and debit cards) was their most popular payment method with nearly 60 percent of online shoppers surveyed choosing to pay with Visa. Mohamad added: “With almost four in five internet users buying online, people in Asia Pacific are taking full advantage of the global shopping experience that the internet provides.”

Past 12 months online shopping spending by website category – Top 10 in Asia Pacific

1 Airlines / airline tickets
2 Online travel agents
3 Travel accommodation
4 Clothes / shoes
5 Car / motorcycle
6 Computer hardware (PC)
7 Food and groceries
8 Electrical appliances (TV, stereo, etc)
9 White goods (refrigerator, dishwasher, etc)
10 Other types of transportation for traveling

Average online spending in the past 12 months
1 Australia - US$4,160
2 Singapore - US$3,480
3 Japan - US$3,175
4 South Korea -US$3,027
5 India - US$2,147
6 Hong Kong -US$1,698

Source: Visa e-Commerce Tracking Survey

Will HDFC Bank sail through the financial crisis?

HDFC Bank's ability to grow at over 30 per cent annually in the last nine years, along with superior credit risk management practices, which have helped it maintain asset quality, would ensure that it will be among the least affected in a slowdown.

The bank's focus on technology and superior margins with support from low-cost deposits will ensure profitable growth in the future. The merger of retail focused-Centurion Bank of Punjab (CBOP) with HDFC Bank effective May 23, 2008, will shore up revenues in the medium-term.

However, the synergies from the merger with start reflecting over 12-24 months, and boost profitability. Put together, the gains from organic and inorganic initiatives will help the bank sustain growth rates in excess of its historical average of 29-30 per cent, and in a profitable manner.

To read more...click on the link below:
http://www.rediff.com/money/2008/nov/24bcrisis-why-hdfc-bank-will-not-be-hit.htm

US-listed Indian cos on a losing spree

Indian companies listed on the American bourses lost nearly six billion dollars in just one week, with the market value of HDFC Bank eroding as much as 1.38 billion dollars, amid worsening financial turmoil and scour corporate news battering world markets.

The 16 Indian firms in the New York Stock Exchange and Nasdaq collectively lost 5.74 billion dollar in their market capitalisation for the week ended November 21, even as two companies gained valuation.

In recent weeks, the American markets went into a tailspin primarily due to heightened concerns of a protracted economic slowdown and declining consumer spending in the world's largest economy.

Among the 16 Indian stocks listed as American Depository Receipts, apart from HDFC Bank, another private sector lender ICICI Bank too lost more than one billion dollars of valuation.
While the market value of HDFC Bank tumbled 1.37 billion dollars, that of ICICI Bank dropped 1.12 billion dollars.

However, pharma major Dr Reddy's Laboratories and outsourcing firm Genpact added to their market capitalisation. Dr Reddy's Laboratories witnessed a rise of 37 million dollar in valuation, whereas Genpact's value increased by 4.3 million dollars.

IT bellwether Infosys' market valuation eroded by one billion dollars, while that of IT major Wipro decreased by 863 million dollars. In addition, Satyam Computer Services saw a value erosion of 457 million dollars.

Further, leading auto maker Tata Motors lost 77 million dollars and telecom entity Tata Communications saw a decline in value to the tune of 677.17 million dollars.

Other entities whose market capitalisation declined are internet firms -- Sify Technologies and Rediff.com, outsourcing entities -- WNS and EXLService Holdings, leading copper producer Sterlite Industries, telecom company Mahanagar Telephone Nigam Ltd and IT firm Patni Computer Systems.

On Friday, the major American indices -- Dow Jones Industrial Average, S&P 500 and Nasdaq Composite -- snapped its four-day losing streak to close in the positive territory.

Dow jumped 494 points to end the day at 8,046.42 points, while S&P 500 rose over six per cent to 800 points. Nasdaq Composite jumped more than five per cent to close at 1,384.35 points.
The surge in stocks was mainly due to media reports that President-elect Barack Obama would appoint Timothy Geithner as the new Treasury Secretary. Geithner is presently the President of the Federal Reserve Bank of New York.

Source: PTI

Troubled banking giant Citigroup gets bail out

The US government will inject $20 billion into troubled banking giant Citigroup and will provide a guarantee of $306 billion to the financial firm.

"The US government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital," the Federal Reserve said in a statement.

As per the rescue plan, the treasury would invest $ 20 billion in Citigroup from the Troubled Asset Relief Programme in exchange for preferred stock.

Besides, the Treasury and the Federal Deposit Insurance Corporation (FDIC) would provide protection against $ 306 billion of toxic loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet, the statement added.

"As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan," the release said.

The move comes close on the heels of the sliding 60 per cent fall in the share price of Citigroup last week.

"Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program," the Federal Reserve added.

The Federal Reserve asserted that "we will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks."

Once the world's most valued bank Citigroup, headed by NRI banker Vikram Pandit whose own job is reportedly under attack, had over 3,75,000 employees at the end of last year and it aims to trim it down to below three lakh, as part of efforts to cut costs and help the crisis-ridden bank return to normalcy.

Close to 25,000 jobs have already been axed so far this year.

The financial crisis, that began 15 months ago, is now taking toll and recent months have seen government taking over quasi-public mortgage firms Fannie Mae and Freddie Mae, bankruptcy of Lehman Brothers, sale of Merrill Lynch, rescue of American International Group among others.