Photo: Bloomberg
Photo: Bloomberg

Bad loan woes, Hero on a roll and Michael Phelps’s gold rush

State-run Indian banks continue to bleed; rural demand propels Hero MotoCorp profit; and Phelps gets another three gold medals

1. Status quo in Rajan’s last policy meeting

Raghuram Rajan’s last monetary policy review threw no surprises, as the Reserve Bank of India (RBI) kept policy rates unchanged in keeping with the expectations of most economists. The central bank noted that the risks to the 5% inflation target for March 2017 were tilted to the upside amid uncertainty regarding the possible impact of GST and the Seventh Pay Commission recommendations. The RBI reiterated that banks needed to cut lending rates more, pointing out that despite easy liquidity, banks have not fully passed on the benefits of policy rate cuts to the borrowers. Going ahead, the RBI hinted that it might tweak MCLR (marginal cost-based lending rates) guidelines.

2. Spectrum auction to take place in September

The government announced on Monday that it will auction mobile airwaves, worth Rs5.63 trillion at the base price value, beginning 29 September. The sale of spectrum is expected to expand bandwidth and improve the ability of telecom companies to service consumers and address problems such as call drops. Mint reported last week that for the first time, spectrum will be assigned within 30 days of an upfront payment by successful bidders. The auction receipts, which would accrue over the years, could fetch more than five times the Rs1.1 trillion raised in the last auction in February 2015.

3. HDFC Life and Max Life agree to merge

HDFC Life Insurance and Max Life Insurance signed off on their merger last week, which will create the largest private-sector insurer. The combined entity’s total assets under management (AUM) will likely amount to Rs1.1 trillion, compared to ICICI Prudential’s Rs1.03 trillion. However, the merged HDFC Life entity will still be dwarfed by state-owned LIC, which had Rs21.70 trillion of assets at the end of March. Meanwhile, the payment of a Rs850-crore non-compete fee to the promoters of Max Financial Services, which might be paid by the merged entity, could be a sticking point.

4. Hero MotoCorp posts record profit

Hero MotoCorp Ltd, India’s largest two-wheeler company, last week announced its June quarter results which showed that net profit rose to a record high of Rs883.10 crore, up 18.3% from the year-ago period. Two-wheeler sales increased 6.7% year-on-year to 1.75 million units in the latest quarter and net revenue rose by 7.7% to Rs8,010.66 crore from Rs7,435.47 crore. Reportedly, an uptick in rural demand for two-wheelers helped the company’s robust growth. Going ahead, plentiful monsoon rainfall and agricultural growth could further aid motorcycle demand in rural areas.

5. Phelps extends record gold lead at Rio

US swimmer Michael Phelps won gold in the 200m butterfly event and grabbed two more gold medals as part of the US relay team at the Rio Olympics. Phelps has now cemented his position as the leading gold medallist in Olympics history, extending his comfortable lead. Before the Rio Olympics, Phelps had won a total of 22 medals, including 18 golds. For perspective, India has won a total of 26 medals, from the 1900 Olympics to the 2012 edition, of which nine were gold medals.

6. Lupin posts record net profit in June quarter

India’s third largest pharma company, Lupin Ltd, posted a 55% year-on-year (y-o-y) rise in consolidated net profit for the June quarter, beating analysts’ estimates. Lupin’s total revenue rose 40% y-o-y in the June quarter, with US sales rising by 82% y-o-y largely on the back of generic versions of two diabetic drugs Glumetza and Fortamet. However, there are some concerns over the sequential drop in Lupin’s operating profit margin, which fell by 1.8 percentage points sequentially in the June quarter despite rising 3.3 percentage points over a year ago.

7. Tata Chemicals to sell urea business to Yara

Tata Chemicals agreed to sell its urea business for Rs2,670 crore to the Indian unit of Norway-based Yara International. The agreement, however, will be subject to regulatory approvals. The Tata Chemicals share price reacted positively to the news as the fertilizer business has become a drag on finances. The divestment of the urea business could help unlock value for the company, strengthen its balance sheet and help it pursue growth in line with its strategy. Reportedly, Tata Chemicals seeks to position itself as a maker of consumer products rather than fertilizers.

8. Bad loan woes continue for state-run banks

State-run banks continued to report a rise in non-performing assets (NPAs), with Chennai-based Indian Overseas Bank reporting that a fifth of its gross loans as bad. Gross NPAs as a ratio of gross advances were 20.48% at the end of June, higher than the 17.4% reported three months earlier. In December, the RBI conducted an asset quality review across the sector, following which the banks were asked to recognize visibly stressed assets as NPAs. The RBI also asked banks to make adequate provisions for the stressed assets. This has hit the profitability of some banks.

9. Two Indians in Forbes’ richest 100 in technology

Only two Indians—Wipro chairman Azim Premji and HCL co-founder Shiv Nadar—feature in the Forbes list of the world’s 100 richest people in technology. However, both are ranked in the top 20 ahead of Google’s Eric Schmidt and Uber’s Travis Kalanick. Bill Gates remains the world’s richest tech billionaire. Forbes said that the combined worth of the top 100 tech billionaires amounted to $892 billion in the 2016 list, up 6% from last year. Meanwhile, more than half of the tech billionaires hailed from the US, while around one-fifth of them are from China.

10. US approves $1.15 billion arms sale to Saudi Arabia

The US state department last week approved the potential sale of battle tanks and other military equipment worth $1.15 billion to Saudi Arabia. The announcement comes in the wake of increasing arms inflows into West Asia over the past couple of years, coinciding with conflicts in Syria, Libya and Yemen. The Stockholm International Peace Research Institute in a February report showed that two West Asian countries—Saudi Arabia and the UAE—were among the top four arms importers in 2011-15, with the US being the largest arms supplier to both of them.

Graphics by Ajay Negi.

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