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Moodys announces rating assignment of (P)B1 to State Bank of Indias Additional Tier 1 capital securities component of MTN programme
Mar 02,2017

Moodys Investors Service announced today that on September 6, 2016, it assigned a (P)B1 rating to the perpetual capital securities component of the existing USD10 billion Medium Term Note (MTN) program of State Bank of India (SBI, deposits Baa3 positive, BCA ba1).

Prior to September 2016, Moodys had assigned a (P)Baa3 rating to the senior unsecured component, a (P)Ba1 rating to the subordinated component, a (P)Ba2 rating to the junior subordinated component, and a (P)Prime-3 rating to the short-term component of the MTN programme.

The terms and conditions of the capital securities incorporate Basel III-compliant non-viability language in accordance with Reserve Bank of India (RBI) guidelines, and will qualify as regulatory Additional Tier 1 (AT1) capital securities.

The securities can be issued by SBI directly, or by any of its branches outside India.


The rating is positioned three notches below the banks adjusted baseline credit assessment (BCA) of ba1, in accordance with Moodys standard notching guidance for contractual non-viability preferred securities with an optional, non-cumulative distribution-skip mechanism.

The three-notch difference from the adjusted BCA reflects the probability of impairment associated with non-cumulative coupon suspension, as well as the likelihood of high loss severity when the bank reaches the point of non-viability.

Under the terms and conditions, the principal and any accrued but unpaid distributions on these capital securities would be written down, partially or in full, when SBIs group or solo common equity tier 1 (CET1) ratio is at or below the 5.5% prior to March 31, 2019, and 6.125% from and including March 31, 2019. In such a scenario, the write-off may be temporary and the amount written-off could be reinstated subject to RBIs conditions.

While the CET1 trigger event threshold is higher than the global standard, Moodys does not consider these securities to be high trigger contingent capital securities, as the broad principle of loss absorption is at the point of non-viability and not in advance of a bank failure. In this regard, the ratings of the AT1 securities are notched from SBIs adjusted BCA.

Loss absorption will also be triggered in the event that the RBI notifies the bank that without such write-off, the bank would become non-viable, or if the RBI decides to make a public sector capital injection without which the bank would become nonviable. Additionally, such loss absorption will be triggered if RBI or any other relevant authority decides to reconstitute or amalgamate the bank with another bank. In such scenarios, the write-down will be permanent.

Furthermore, SBI, as a going concern, may choose not to pay interest on these securities on a non-cumulative basis. As such, the distributions on these capital securities are fully discretionary. However, a common share dividend stopper applies if a distribution is missed.

These securities are senior to common shareholders and perpetual non-cumulative preference shareholders, but junior to all depositors, general creditors, and holders of subordinated debt of SBI, other than any subordinated debt that qualifies as Additional Tier 1 capital. These securities rank pari passu with any other debt instruments classified as Additional Tier 1 Capital under the RBI Guidelines and with any subordinated obligation that was eligible for inclusion in hybrid Tier 1 capital under the then prevailing Basel II guidelines.

While SBI is majority-owned by the Indian government (Baa3 Positive), we do not assume that AT1 securities will receive extraordinary government support, as these are designed to absorb losses at the point of non-viability.

What Could Change The Ratings Up/Down

The ratings of the AT1 securities are notched from SBIs adjusted BCA. As such, the ratings of the securities will be upgraded or downgraded if SBIs BCA is revised upwards or downwards.

SBIs BCA is unlikely to be revised upwards in the next 12-18 months, because asset quality deterioration in recent years has put pressure on its credit profile.

SBIs BCA could face downward pressure if: (1) its NPL ratio increases substantially from current levels; and/or (2) if its core earnings fall, impacting its ability to support an increase in credit costs.

SBIs deposit ratings and ratings of senior unsecured debt could be upgraded if Indias sovereign rating of Baa3 is upgraded.

Additionally, any indications that support from the Government of India (Baa3 positive) has diminished or that additional capital requirements may arise beyond the governments budgeted amount could put the banks ratings under pressure.

Any downward changes in the sovereigns ceilings could also affect the banks ratings.

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A Government Panel recommends legal framework for protection of interests of migrants in the country
Mar 02,2017

A Government appointed Panel has recommended necessary legal and policy framework to protect the interests of the migrants in the country, stating that the migrant populationmakes substantial contribution to economic growth and their Constitutional rights need to be secured.

The Working Group on Migration set by the Ministry of Housing & Urban Poverty Alleviationin 2015 who submitted their Report to the Government today held extensive discussions with Minister of HUPA Shri M.Venkaiah Naidu.

The Working Group has recommended that the Protocols of the Registrar General of India needs to be amended to enable caste based enumeration of migrants so that they can avail the attendant benefits in the States to which migration takes place. It also recommended that migrants should be enabled to avail benefits of Public Distribution System (PDS) in the destination State by providing for inter-State operability of PDS.

Referring to Constitutional Right of Freedom of Movement and residence in any part of the territory of the country, the Group suggested that States should be encouraged to proactively eliminate the requirement of domicile status to prevent any discrimination in work and employment. States are also to be asked to include migrant children in the Annual Work Plans under Sarva Siksha Abhiyan (SSA) to uphold their Right to Education.

Noting that money remittances of migrants was of the order of Rs.50,000 cr during 2007-08, the Working Group suggested that the vast network of post offices need to be made effective use of by reducing the cost of transfer of money to avoid informal remittences. It also suggested that migrants should be enabled to open bank accounts by asking banks to adhere to RBI guidelines regarding Know Your Customer (KYC) norms and not insist on documents that were not required.

The Group suggested that the hugely underutilized Construction Workers Welfare Cess Fund should be used to promote rental housing, working Women Hostels etc., for the benefit of migrants.

Quoting data of Census 2011 and National Sample Survey Organisation (NSSO), the Group stated that migrants constitute about 30% of the countrys population and also of the total working force.

The recent Economic Survey noted that annual migration in the country increased from 3.30 million in 2011 to 9.00 million in 2016.

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Rs. 16,097 Crore Foreign Exchange Earned Through Tourism in January 2017
Mar 01,2017

Foreign Exchange Earnings (FEEs) during the month of January 2017 were Rs.16,097 crore as compared to Rs.13,669 crore in January 2016 and Rs.12,100 crore in January 2015. The growth rate in FEEs in rupee terms during January 2017 over January 2016 was 17.8% as compared to the growth of 13.0% in January 2016 over January 2015.

Based on the credit data of Travel head as available from Balance of Payments of RBI for the previous year, Ministry of Tourism estimates and releases the data of Foreign Exchange Earnings (FEEs) through tourism in India, both in rupee and dollar terms, for the current month applying suitable inflation factor and current month Foreign Tourist Arrivals data.

The highlights of the estimates of FEEs from tourism in India for January 2017 are as below:-

Foreign Exchange Earnings (FEEs) through tourism (in Rs. terms)

n++ FEEs during the month of January 2017 were Rs.16,097 crore as compared to Rs.13,669 crore in January 2016 and Rs.12,100 crore in January 2015.

n++ The growth rate in FEEs in rupee terms during January 2017 over January 2016 was 17.8% as compared to the growth of 13.0% in January 2016 over January 2015.

Foreign Exchange Earnings (FEEs) through tourism (in US $ terms)

n++ FEEs in US$ terms during the month of January 2017 were US$ 2.364 billion as compared to FEEs of US$ 2.032 billion during the month of January 2016 and US$ 1.945 billion in January 2015.

n++ The growth rate in FEEs in US$ terms in January 2017 over January 2016 was 16.3% compared to a positive growth of 4.5% in January 2016 over January 2015.

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DMRL AND JSHL Sign Licensing Agreement for Transfer of Technology of High Nitrogen Steel
Mar 01,2017

Defence Metallurgical Research Laboratory (DMRL), Hyderabad, a premier research laboratory of Defence Research and Development Organization (DRDO) and Jindal Stainless (Hisar) (JSHL) signed the Licensing Agreement for Transfer of Technology of High Nitrogen Steel (HNS) for armour applications. Speaking on the occasion the Minister of State for Defence, Dr. Subhash Bhamre congratulated DMRL and DRDO for their outstanding achievement in developing a breakthrough technology for armour applications and complimented JSHL for partnering with DRDO. The Minister noted that HNS technology is a step forward towards Armys quest for lighter and high performance armouring material compared to the currently used materials. He said, it has also the potential for a number of civilian applications and for exports as well. Dr. Bhamre asserted that this is a major step towards achieving the Prime Minister Shri Narendra Modis vision of Make in India and wished the team a great success in future endeavours. The Minister called upon both public as well as private Industries and Ordnance Factories to use this material extensively in their products.

Chairman DRDO and Secretary DD (R&D) Dr. S Christopher complimented the scientists of DMRL for this achievement which comes as a giant leap forward, towards DRDOs quest for stronger and high performance defence material. He further said that the Transfer of Technology from defence R&D to industry is aligned with the Make in India policy to foster conducive environment for industrys potential growth in the strategic sectors.

Dr. Satish Chandra Sati, Director General (Naval Systems & Materials), while addressing the gathering applauded the DMRL scientists for developing many varieties of steel including HNS which would be of great importance to the industry. Dr. S. Guruprasad, CC R&D (PC &SI) in his welcome address stated that the HNS being a dream material for any researcher should find wide applications for the industry. DMRL has developed and established a number of frontline and path breaking technologies in the areas of metallurgy and material science. HNS is not only tough but also has good strength. In addition to being non magnetic as well as corrosion resistant, the HNS cost is about 40 percent less compared to Rolled Homogenous Armour Steel (RHA). Very few countries in the world have developed this technology of HNS. This material has potential for a number of defence and civil applications like armouring, mine trawls, oil industries etc.

JSHL is a stainless steel manufacturer, with state-of-the-art facility at Hisar (Haryana), backed with strong production facilities including the triplex refining route, which is used for production of HNS.

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Projects worth Rs 1050 Crore Awarded to arrest sewage pollution in Ganga from Patna
Mar 01,2017

In a major step taken to develop adequate sewage treatment infrastructure in Patna to keep Ganga clean, projects worth Rs 1,050 crore have been awarded under Namami Gange programme. The amount will be spent for setting up two two Sewage Treatment Plants (STPs), renovation of one existing STP , construction of two pumping stations and laying of new underground sewage network of about 400 kilometers.

Contracts to build STP of 60 MLD capacity and laying of new underground sewage network of 227 kilometers in Saidpur zone of the city have been awarded to UEM India and Jyoti Build Tech at a total cost of Rs 600 crore. Three other firms - Larsen & Turbo, Voltas and GAA Germany JV have been awarded separate projects in Beur zone of the city worth over Rs 450 crore to build one STP of 23 MLD, renovate existing STP of 20 MLD and lay down new underground sewage network of about 180 kilometers. The scope of work also includes creation of main pumping stations of 83 MLD and 50 MLD capacity in Saidpur and Beur zones respectively. The contracts also include the cost of operation and maintenance of STPs and sewage networks for a period of 10 years.

These projects not only aim to treat the current sewage generation in respective zones of Patna but also take into account the sewage estimates of next one decade, considering the expected rise of population in the city. As per a survey by the World Bank, Patna is also one of the fastest growing city in the world in terms of infrastructural development. After time-bound commissioning of these projects, no untreated water will go into the Ganga from these zones saving the holy waters of the river from contamination and deterioration. The progress of the construction will be monitored by National Mission for Clean Ganga (NMCG) to ensure that deadlines are met.

Patna city spread in an area of more than 100 square kilometer is sub-divided into six sewerage zones - Digha, Beur, Saidpur, Kankarbagh, Pahari and Karmali Chak. Contract for sewage related projects in Karmali Chak zone are expected to be awarded shortly.

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Cabinet Note On Cards To Facilitate India Becomes Signatory To TIR Agreement: JS, FT(CIS)
Mar 01,2017

A cabinet note is likely to be finalized within two months to enable India become a signatory for TIR Agreement (Convention on International Transport of Goods Under Cover of TIR Carnets) to further enhance and facilitate Indias trade and economic basket with CIS region including that of Russia, according to Joint Secretary, FT(CIS), Ministry of Commerce and Industry, Mr. Sunil Kumar.

Mr. Kumar explained that nearly 70 countries are signatory to TIR Agreement which makes transshipment of their goods through waters routes easier and unhindered as it leads to harmonization of system and such transshipment are not subjected to any scrutiny from their shipment until their destination.

n++India if succeeded signing in the TIR Agreement and becomes signatory to it, its containers carrying goods from its sea shores until CIS countries could not be halted for any inspection on their sea routes and move without any obstructions as it would save time and decrease the logistics cost of Indias exports to CISn++, said Mr. Kumar. The finalized cabinet note aims at on these directions, he indicated.

He also hinted that a comprehensive economic partnership agreement is also being worked out with CIS regions which according to it could be a free trade agreement so that the exports and imports between India and CIS regions travel with little difficulties.

The trade prospects of Indian businessmen in the CIS regions could be more flourishing in areas of agriculture, horticulture, textile, tea, tobacco, research, biotechnology, mining and hydro electric including renewable and oil and gas, pointed out Mr. Kumar.

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Classify Biscuits In Its Lowest GST Slabs Among Food Industries: FBMI
Mar 01,2017

Federation of Biscuit Manufacturers of India (FBMI) has urged the GST Council to keep biscuits in its lowest slab since biscuits are an item of mass consumption and higher taxation on it would adversely hit biscuit production as well as its consumption and hence employment in the industry

FBMI which is an affiliate association of PHD Chamber of Commerce and Industry is of the view that lower GST rates on biscuits will enable their availability and access within the reach of aam aadmi and that too at affordable prices.

In a representation sent on to GST Council by FBMI , it has been emphasized biscuits be taxed within the lowest slab of GST for Foods .

It has been pointed out that almost 93% of the food basket comprises basic food. The government proposes to tax basic food at a lower rate under GST. Taxing the remaining 7% food items at higher rates under GST will lead to increase in complexity, without substantial addition to the revenues. It will also not meet the goals of efficiency and equity.

Tax rates should apply uniformly across the entire supply chain, from one end, to another so as to encourage value added activities in the farm produce and food sector. GST provides the right opportunity to correct the current anomalies. Under GST, there should be no discrimination while taxing food products on the basis of their being branded or un-branded, or premium or non-premium products, as this will encourage value addition across the chain from farm to plate .

FBMI also emphasized that multiple rates within a sector will lead to classification disputes and complex record-keeping and compliance system. There is a predominance of the SMEs at the retail level and they will be ill-equipped to handle multiple rates. Thus, in the interest of simplicity, all food items including biscuits should be taxed at a uniform, low rate.

A higher rate of tax would impact demand in the entire value chain. It will cut down on procurement of raw materials by biscuit manufacturers that would adversely impact farmers across India. Lower demand will also negatively impact investments, exports and employment in the food industry.

Lower and uniform GST rate on Biscuits will also help India to be in line with international best practices, wherein countries such as New Zealand, Singapore, Denmark and Japan, have a single lower VAT rate for all goods including biscuits, though Biscuits are treated as non-taxable basic grocery in countries such as Canada and UK.

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Indian manufacturing production and new orders expand in February: Nikkei India Manufacturing PMI
Mar 01,2017

February data indicated that Indian manufacturing production continued to increase, as a rebound in export demand contributed to a stronger expansion of total new orders. There was evidence of an intensification of inflationary pressures, with input costs rising at the quickest pace since August 2014 and output charge inflation climbing to a 40-month peak. Greater output needs encouraged some firms to step up buying levels, but production requirements were insufficient to generate job creation.

At 50.7 in February, up from 50.4, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers IndexTM (PMITM) - a composite indicator designed to provide a single-figure snapshot of the performance of the manufacturing economy - was above the neutral 50.0 value for the second month running and indicated that the health of the sector improved to a greater extent than in January. That said, the latest reading was much weaker than the long-run series average (54.2), largely reflecting below-trend rates of growth for output and new business.

Higher levels of manufacturing production have now been recorded for two successive months, with the sector continuing to recover from Decembers downturn. The upturn in output reflected improved demand from both the domestic and external markets. The total volume of incoming new work increased for the second month in a row, whereas new export orders expanded for the first time since November 2016. Rates of growth for both production and order books picked up since January, but remained marginal.

Increased new order intakes contributed to a further rise in outstanding business. Furthermore, the rate of backlog accumulation was the fastest since last October.

Simultaneously, manufacturing employment declined, though the rate of job losses was marginal overall. Indeed, the vast majority of survey participants signalled unchanged payroll numbers. Evidence provided by panellists indicated that current staffing levels were sufficient to cope with existing production requirements.

Input price inflation quickened in February, with the rate of increase accelerating to the fastest in two-and-a-half years. Indian goods producers reported higher purchasing costs for metals, chemicals, energy and plastics.

Output price inflation also accelerated in February as businesses looked to protect margins in the face of rising cost burdens. The rate of charge inflation was solid and the strongest since October 2013.

Destocking continued in February, with holdings of inputs and post-production inventories both decreasing. The latter dipped for the twentieth successive month, and at the second-sharpest pace in this sequence. The contraction in stocks or purchases was only mild in comparison.

Confidence among Indian manufacturers was relatively subdued in February. Although sentiment towards the year-ahead outlook for output remained positive, the degree of optimism fell since January and was well below its near five-year historical average.

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at IHS Markit and author of the report, said: n++Indian manufacturers benefited from recovering demand and raised production volumes in response to another expansion in inflows of new work. February is the second month in succession in which the health of the sector improved after the demonetisation-related contraction recorded at the end of 2016.

However, with growth rates well below-par, the sector still has many areas to develop before it can fire on all cylinders. Businesses dont yet seem convinced as to the sustainability of the rebound as highlighted by cuts to payroll numbers and destocking initiatives. In fact, confidence towards the year-ahead outlook for production dipped since January to the second-lowest since the end of 2015.

Of concern, higher commodity prices resulted in increased cost burdens facing manufacturers. The sharp rate of inflation seen in February was the most pronounced in two-and-a-half years and led factory charges to be raised at the quickest pace in 40 months. This is likely to cause demand from price-sensitive consumers to fall and could potentially jeopardise the economic recovery.

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Non-subsidized price of LPG cylinder has increased by Rs 86
Mar 01,2017

With effect from 1st March, 2017, non-subsidized price of LPG cylinder has increased by Rs 86. This is in line with the rise in global LPG product prices. However, there will be no impact on the LPG consumers receiving subsidized refills. To illustrate with an example, the consumer will pay Rs.737 for a new refill in Delhi w.e.f. 1st March, 2017 and will receive subsidy amount of Rs.303 in his/ her account and the net price for the consumer will be Rs.434, which remains unchanged. Thus, there will be no net impact of the increase in price of non-subsidized cylinder on the LPG consumers receiving subsidized refills.

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Moodys rated J&Js notes Aaa; stable outlook
Mar 01,2017

Moodys Investors Service (Moodys) assigned a rating of Aaa to the new senior unsecured note offering of Johnson & Johnson (J&J). There are no changes to J&Js existing ratings including the Aaa senior unsecured rating and the Prime-1 short-term rating. The rating outlook is stable.

Proceeds of the note offering are for general corporate purposes including debt repayment.

Ratings assigned:

Senior unsecured shelf registration at P(Aaa)

Senior unsecured notes in multiple tranches at Aaa


J&Js Aaa rating reflects the companys large scale and market presence, its excellent product and geographic diversity, and its strong profit margins. New approvals and drugs launched in the past few years in the pharmaceutical segment now represent the foundation and driver of near-term growth for J&J as a whole. Over time, Moodys anticipates a greater balance of growth between pharmaceuticals and J&Js Medical Devices and Consumer Products segments. Based on J&Js long-held conservative financial policies, Moodys expects continuation of robust credit metrics including debt/EBITDA at or around 1.25 times, while also maintaining high levels of cash. Offsetting these strengths, J&J faces slow growth in economically-sensitive product areas, challenging macroeconomic and regulatory conditions and litigation risks. Growth in the pharmaceutical business will decelerate with several patent expirations and the recent launch of a Remicade biosimilar, but the Actelion deal will help J&J maintain solid momentum in pharmaceuticals.

The rating outlook is stable, reflecting Moodys expectations for solid operating performance and the benefits of excellent diversity. The stable outlook also reflects Moodys expectation that J&J will manage conservative financial policies including high cash levels.

Factors that could lead to a downgrade include material debt-financed acquisitions or share repurchases, divestitures of major business divisions, significant product quality issues, recalls, or litigation. In addition, Moodys could downgrade the ratings if J&J alters its financial policies such that debt/EBITDA is sustained materially above 1.25 times or CFO/debt below 60% in the absence of a significant increase in cash holdings.

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Fitch: Proportion of Higher Ratings Well Below Pre-Crisis Level
Mar 01,2017

The proportion of A- and higher ratings in Fitchs global portfolio of sovereigns, corporates and banks remains well below the pre financial-crisis level and could fall further over the next couple of years as the balance of ratings outlooks has deteriorated, Fitch Ratings says.

Our sovereign portfolio has recorded some of the biggest moves, with the proportion of AAA sovereigns dropping to 10% at the end of 2016, its lowest-ever level. Around 36% of the portfolio is rated in the A to AAA categories, down from 48% at the end of 2006 while 27% is rated B+ or below, compared to 20% in 2006.

The fall in the number of high investment grade ratings largely reflects the lingering effects of the global financial crisis, when government debt in several advanced economies increased significantly. We believe high government debt levels will persist for some time based on growth, interest rate and primary balance projections.

Our sovereign ratings also have the greatest share of negative outlooks on a net basis, at 21%. This suggests downgrades could outnumber upgrades by a wide margin. Pressures include a stronger US dollar, which is challenging for many emerging-market borrowers. Rising trade protectionism and economic nationalism could also hurt growth and boost inflation.

The proportion of corporate ratings in the A to AAA categories has dropped to 20% from 30% over the last decade, but unlike sovereigns the proportion rated B+ and below has only ticked up by 1 percentage point. Instead ratings have become increasingly compressed in the BB and BBB categories.

The downward shift reflects a mix of longer term and cyclical trends, as well as a willingness by companies to run at higher debt levels in an era of historically low borrowing costs. Longer term, utilities and telecoms have been affected by changes in the energy mix and technology landscape. While these trends have stabilised, they show no evidence of reversing.

For other sectors such as autos and natural resources there is more potential for ratings to rise. Autos are well on the path to recovery after severe weakness around the time of the global financial crisis. Oil, iron ore and steel companies are beginning to see slow improvement as rising demand and rationalisation reduces commodity overcapacity.

Financial institutions, which have historically had a bigger share of high investment grade ratings, have seen the proportion of A to AAA category ratings slip to 39% from 53%. While ratings overall remain below pre-crisis levels, many financial institutions credit profiles have strengthened since the end of 2013 as banks increase capital and liquidity buffers to meet tougher standards. However, low interest rates and reduced sovereign support have also had a negative impact.

The trend seems set to worsen, as a net 11% of financial institution ratings outlooks were negative at end-2016, driven largely by outlooks on emerging-market banks, which themselves often reflect the outlooks of their sovereign.

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Fitch: Bad Bank May Push India Loan Clean-up; Leaves Capital Gap
Mar 01,2017

The creation of a bad bank could accelerate the resolution of stressed assets in Indias banking sector, but it may face significant logistical difficulties and would simultaneously require a credible bank recapitalisation programme to address the capital shortfalls at state-owned banks, says Fitch Ratings.

Indias banks have significant asset-quality problems that are putting pressure on profitability and capital, as well as constraining their ability to lend. Fitch expects the stressed-asset ratio to rise over the coming year from the 12.3% recorded at end-September 2016. The ratio is significantly higher among state-owned banks. Asset-quality indicators may be close to their weakest levels, but the pace of recovery is likely to be held back by slow resolution of bad loans.

A bad bank that purchases stressed assets and takes them to resolution was featured in the governments latest Economic Survey, and in a speech by a senior Reserve Bank of India official. Its most likely form would be that of a centralised asset-restructuring company (ARC). Its proponents believe it could take charge of the largest, most complex cases, make politically tough decisions to reduce debt, and allow banks to refocus on their normal lending activities. Similar mechanisms have previously been used to help clean up banking systems in the US, Sweden, and countries affected by the Asian financial crisis in the late 1990s. Senior European policymakers have recently discussed the prospect of a bad bank to deal with NPLs in the EU.

Fitch believes that a bad bank might provide a way around some of the problems that have led Indian banks to favour refinancing over resolving stressed loans. For example, large corporates often have debt spread across a number of banks, making resolution difficult to coordinate. The process would be simplified if the debt of a single entity were transferred to one bad bank. This could be particularly important in Indias current situation, with just 50 corporates accounting for around 30% of banks stressed assets.

Several small private ARCs already operate in India but they have bought up only a very small proportion of bad loans in the last two years, as banks have been reluctant to offer haircuts on bad loans even where they are clearly worth much less than their book value. This is, in part, because haircuts invite the attention of anti-corruption agencies, making bank officials reluctant to sign off on them. Reduced valuations also increase pressure on capital.

A larger-scale bad bank with government backing might have more success. However, it is unlikely to function effectively without a well-designed mechanism for pricing bad loans, particularly if the intention is for the bad bank to be run along commercial lines and involve private investors. One estimate from the Economic Survey suggests that 57% of the top 100 stressed debtors would need debt reductions of 75% to make them viable. Banks would need capital to cover haircuts taken during the sale of stressed assets, and the bad bank would most likely require capital to cover any losses incurred during the resolution process.

Fitch estimates that the banking sector will require around US$90bn in new total capital by FY19 to meet Basel III standards and ongoing business needs. This estimate is unlikely to be significantly reduced by the adoption of a bad-bank approach, and could even rise if banks are forced to crystallise more losses from stressed assets than we currently expect. We believe that the government will eventually be required to provide more than the USD10.4bn that it has earmarked for capital injections by FYE19 - be it directly to state-owned banks or indirectly through a bad bank.

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Central Board of Direct Taxes (CBDT) signs ten (10) more Advance Pricing Agreements (APAs) pertaining to various sectors of the economy
Feb 28,2017

The Central Board of Direct Taxes (CBDT) has entered into 10 more Advance Pricing Agreements (APAs) over the last one week, including 7 Unilateral APAs signed today. Two of these ten agreements are Bilateral APAs with the United Kingdom and Japan. Seven of these Agreements have Rollback provisions in them.

With this, the total number of APAs entered into by the CBDT has reached 140. This includes 10 Bilateral APAs and 130 Unilateral APAs. In the current financial year, a total of 76 APAs (7 Bilateral APAs and 61 Unilateral APAs) have already been entered into. The CBDT expects more APAs to be concluded and signed before the end of the current fiscal.

The APAs entered into over the last week pertain to various sectors of the economy like Telecom, Pharmaceutical, Banking & Finance, Steel, Retail, Information Technology, etc. The international transactions covered in these agreements include Payment of Royalty Fee, Trading in Goods, IT Enabled Services, Software Development Services, Marketing Support Services, Clinical Research Services, Non-binding Investment Advisory Services, Payment of Interest on ECB, etc.

The APA Scheme was introduced in the Income-tax Act in 2012 and the n++Rollbackn++ provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance. Since its inception, the APA scheme has evinced a lot of interest from taxpayers and that has resulted in more than 700 applications (both unilateral and bilateral) being filed so far in about five years.

The progress of the APA Scheme strengthens the Governments resolve of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

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GDP grows 7.0% in October-December 2016 quarter
Feb 28,2017

As per the Second Advance estimates of national income from Central Statistics Office (CSO) under Ministry of Statistics and Programme Implementation, the GDP growth is estimated to be 7.0% for Q3FY2017. The growth in GDP during 2016-17 is estimated at 7.1% as compared to the growth rate of 7.9% in 2015-16.

Growth rates in various sectors for Q3FY2017 are as agriculture, forestry and fishing(6.0%), mining and quarrying (7.5%), manufacturing (8.3%), electricity, gas and water supply and other utility services (6.8%) construction (2.7%), Trade, hotels, transport, communication and services related to broadcasting (7.2%), financial, real estate and professional services (3.1%), and Public administration, defence and Other Services (11.9%).

Anticipated growth of real GVA at basic prices in 2016-17 is 6.7% against 7.8% in 2015-16. The sectors which are likely to register growth rate of over 7.0% are public administration, defence and other services, manufacturing and trade, hotels, transport, communication and services related to broadcasting. The growth in the agriculture, forestry and fishing, mining and quarrying, electricity, gas, water supply and other utility services, construction and financial, real estate and professional services is estimated to be 4.4%, 1.3%, 6.6%, 3.1% and 6.5% respectively.

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India Ratings Maintains Stable Outlook on Cement Sector for FY18 on Stable Demand Growth
Feb 28,2017

India Ratings and Research (Ind-Ra) has maintained a Stable Outlook on Indian cement manufacturers for FY18. Ind-Ra expects the operating profitability of cement manufacturers in FY18 to be around the FY16 and estimated FY17 levels, due to stable demand growth, despite an increase in input cost. Demand will be backed by an increase in government expenditure. Ind-Ra also expects the credit profile of cement manufacturers to remain stable on stable operating profitability and in the absence of debt-led capex.

Ind-Ra has revised down its FY17 growth estimates to 3%-3.5% from 4%-6% earlier. This revision is largely attributed to a blip in demand due to demonetisation. Ind-Ra however expects the cement industry to grow 4%-5% yoy in FY18, driven largely by the demand stemming from infrastructure activities and a revival in housing demand in rural areas, both led by government spending.

The price of pet coke and coal has almost doubled since September 2016. The current increase in crude oil prices is also likely to lead to an increase in diesel prices. Ind-Ra expects stable cement demand to enable cement manufacturers to pass on increases in cost during FY18.

Ind-Ra believes that a 38% and 23% increase in the allocation of funds towards the housing sector under Pradhan Mantri Awas Yojna and spending of the ministry of road transport and highways to INR290 billion and INR649, respectively, would increase cement demand in FY18.

Ind-Ra expects cement producers to add additional 50mtpa capacity over FY16-FY18 at a CAGR of 6% compared to the CAGR of 4.9% during FY13-FY16 (additional 40mtpa). The countrys eastern region will continue to lead supply growth and is likely to add 17mtpa through FY16-FY18, followed by north (14mtpa). The CAGR capacity additions in the eastern (10%) and northern regions (7%) may outpace cement demand in these regions.

Pan-India capacity utilisation remained stable in FY16 at around 70%. However, Ind-Ra has revised pan-India capacity utilisation for FY17 to 65% from 69%-70%, due to the weak demand outlook in 2HFY17 on account of demonetisation. Ind-Ra does not expect capacity utilisation to improve significantly in FY18. It is likely to remain around 70% during FY18.

The credit profile of cement manufacturers for FY17 is likely to remain stable. The negative impact of a possible decline in operating profitability during 2HFY17 due to an increase in fuel cost and lower volumes will be compensated by the higher operating profitability reported by the companies during 1HFY17 due to lower fuel prices and higher demand. Median EBITDA margins for a sample of 17 cement companies improved to 15.37% in 1HFY17 (FY16: 14.38%, FY15: 15.07%).

Ind-Ra expects the credit profile of cement manufacturers to remain stable during FY18 in the absence of major debt-led capex plans and on an improvement in cement demand despite a possible increase in input costs.


Housing Demand

Ind-Ra does not expect any significant turnaround in housing demand in the near term; however, a higher-than-expected housing demand or significant progress by the government on schemes such as Housing for All or Smart Cities could result in a better cement demand and thus in a positive sector outlook.

Construction/Infrastructure Sector

A lower-than-expected pick-up in construction/infrastructure projects could affect the credit profile of cement players and result in the sector outlook being revised to negative.

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