MARKET WAITS FOR TOMORROW - RAJAN HOLDS THE REINS
By Ruma Dubey
Once again, “Rajan’s Tuesday” is here. He is the man of the moment and the markets are waiting with bated breath, reading into the smallest of details, hoping to get an inkling of what he might do tomorrow.
In FY15, out of the four policies reviewed by Rajan till now, all were held on Tuesday. And the fifth one tomorrow is also on a Tuesday.
It might be a good day for Rajan but for the market, it will be a good day only if rates come down. And that at this juncture, thinking fiscally, seems difficult.
The Finance Minister, Arun Jaitley is meeting Rajan today to urge him to consider a rate cut. This is not a new happening – previously too we have seen the Govt trying to exert pressure on the RBI Governor’s to toe their line. And most of the times, RBI Governors have shown that they have a mind of their own and do not succumb to pressure.
Talking about the Government, things on the inflation are looking good as seasonally, this is a good period. Falling crude price is a boon and growth is limping but not crippled. There is really no liquidity crunch at the moment. So if Rajan wants to stick to his quote, “Lets fight the inflation once and for all,” he and the market surely needs to wait.
The Govt actually needs to get its act together without putting the onus on the RBI. All Govt’s have this habit – as though it is RBI responsibility to perk up growth. Can rate cuts alone perk up growth? Is high interest rate the only impediment?
Crony capitalism and the ease with which companies ‘close’ to the ruling govt get loans is not new to India but this very habit has put Indian banks on the brink of collapse, under the burgeoning weight of mounting NPAs. Rates can be lowered but what is the action taken against companies not repaying loans, where banks are forced to restructure loans due to these defaulting ‘connected’ companies? The recent furor over SBI granting US$1 billion loan to the Adani group for funding their coal project in Australia is a precisely a pointer to the very same fact. The group as at 30th Sept 2014 held a total debt of Rs.73,000 crore. Five foreign banks had refused to lend to Adani yet the largest PSU bank of India feels it is ok? Will me and you, leveraged already to the hilt, get more loan from these very same banks?
NPAs of bank have only risen over the past one year. Net NPAs of 12 banks in the Nifty is up 13.31% (YoY) as at 30th Sept 2014. So the logical thing to do is first try and put in measures to bring down NPA or makes loans cheaper? And why we talk of political coercion on banks – it works only on PSU banks – as per data, 12% loans from PSU banks are being restructured while it is only 4% in private sector banks. Sadly PSU banks continue to run as fiefdoms of the ruling Govt. And there is always this hope that RBI also becomes a part of their coercion.
Well, we can only wait and watch. Being Rajan today would be the most difficult task on earth; hopefully he will emerge victorious, doing what is right for the nation and not the Government.