Liberalization may have dethroned the public sector from the commanding heights of the economy, but its share in bank credit is now higher than it was in 1990. Reserve Bank data shows that the public sector accounted for 13.4% of outstanding loans with banks in March 2006, up from 12.8% in March 1990.
In contrast, the share of the private sector in loan outstandings, which was 69.3% in March 1990, fell to 57.9% 16 years later. What’s more, this share was lower than the 61.6% share it had in June 1978, during the heydays of “socialist” India.
The reasons are not difficult to find. The private corporate sector has been able to garner resources from the equity markets both at home and abroad and also by way of external commercial borrowings. But while medium and large corporates are able to take advantage of this process of disintermediation, the smaller firms cannot.?The share in bank loan outstandings of proprietary and partnership firms, accordingly, has shrunk from 30% in March 1990 to 15.6% in March 2006.
On the other hand, as the revolution in retail lending would lead us to expect, the share of individuals in bank credit outstandings increased from 15.8% in March 1990 to 22.6% in March 2006.
As a matter of fact, the percentage of the public sector in bank credit did decline in the 90s, falling to 11.8% by March 1996. Correspondingly, the share of the private sector went up to 71.4%. That was when private sector companies were setting up large capacities. Thereafter, however, the proportion of credit going to the public sector increased steadily till 2002, as the private sector put its house in order and cut back on debt.
From 2003, while the share of the private sector has been going down because of disintermediation, the share of retail lending has increased, reducing the share of the public sector. Interestingly, in spite of the much touted retail finance revolution, the share of loans to individuals more than doubled from 7.7% to 15.8% between 1978 and 1990 and went up by only around 7 percentage points more to 22.6% in the 16 years after liberalization.
Oil and Natural Gas Corp. Ltd (ONGC) reported a mere 4% increase in revenues in the March quarter and a 34% drop in operating profit. True, a 37% jump in ONGC’s subsidy share and a Rs1,287 crore extraordinary charge in its employee costs were to blame for the fall—without them, profit would have been flat.
But then, the company’s share of the subsidy burden is no longer considered an exceptional cost—it’s only a matter how high/low it will be in any given year. Last quarter, the subsidy share, which ONGC bears by giving a discount to refiners, rose to $24.8 (Rs1,116 then) per barrel, from under $20 in the year ago period.
Analysts aren’t worried about the drop in profit last quarter, because the larger picture hasn’t changed. What’s more, consolidated results were encouraging, with the share of subsidiaries, ONGC Videsh Ltd (OVL) and Mangalore Refinery & Petrochemicals Ltd, increasing in the past year. They accounted for 19% of the consolidated operating profit last fiscal, up from 11% in FY06. Their share in the consolidated EPS doubled to 12% last fiscal, thanks to the commencement of production at Sakhalin-I.
OVL added nine properties last fiscal and now has 26 projects spread in 15 countries. ONGC reported oil and gas reserve accretion of 169.52 million tonnes of oil equivalent last year, the highest in 11 years. The company’s core investment proposition—of vast oil reserves available at undemanding valuations—has thus gained further strength.
Besides, oil prices have risen sharply this year, which bodes well for ONGC’s realizations, although the rising rupee would shave off some of those gains. The stock trades at a reasonably low valuation of nine times estimated FY08 earnings.
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