India’s Bank Multiplier Divisions
Indian shares were still negative on the MSCI index despite decent 5 percent GDP growth for the latest quarter and Fitch sovereign ratings affirmation, as central bank chief Rajan revived previous recommendations for a “competitive multiplier” from banking sector private domestic and foreign opening. State lenders control three-quarters of assets and must target priority industries and hold large government securities portfolios with the real level of NPLs estimated in double-digits as SBI and other listings trade at low valuations assuming recapitalization needs. Family conglomerates have filed applications and international banks will gain expanded entry upon establishing subsidiaries. Mobile services may be emphasized for the huge unbanked population as micro-finance regulation was strengthened in recent years following scandals. CPI inflation is again at 10 percent despite monetary tightening, as the currency has recovered to 62 to the dollar on a better current account 3 percent of GDP hole with depreciation-aided exports and gold import curbs. Trade officials are promoting rupee use with key partners and may reconsider “food security” provisions to reach a WTO pact at December’s Bali gathering. The fiscal deficit will again come in around 5 percent of GDP as pre-election spending looms, but infrastructure project approval has also been accelerated in response to investor complaints as house prices continue to rise in major cities to sway middle-class voters. The opposition BJP has tapped former Gujarat governor Modi as its candidate, but despite his free-market policies praised by the business community he has been accused of fostering ethnic and religious intolerance. Six months out the ruling coalition has yet to coalesce around a potential successor although another Gandhi, Rahul is in the mix with limited political experience as his ailing mother prepares to exit.
Asia’s worst core performer Indonesia with a 25 percent loss is also approaching first-round elections as popular Jakarta mayor Jokowi may get the nod from Megawati’s PDI-P party to continue his anti-corruption and infrastructure-building campaign. GDP growth there too has dropped to 5 percent as FDI was off at $7 billion in Q3 for the first time in years. The central bank again hiked for a cumulative 2 percent rise since June on inflation over 8 percent and a rupiah plunge toward 12000/dollar on t structural balance of payments weakness. Chinese commodities appetite has waned amid a slump in coal and palm oil values. At home consumption is subdued on stricter auto and scooter loan norms for big banks with LTD ratios at 85 percent. While retail deposits provide stable funding, executives are monitoring currency and sector exposures as household debt at 85 percent of GDP has drawn bank downgrades in next-door Malaysia. Authorities have imposed personal and mortgage borrowing restraints as a watchdog estimates that half of younger takers are in “serious trouble.” Public obligations at over 50 percent of output likewise sparked a recent outlook revision and bond selloff, as re-elected Prime Minister Najib tried to reconcile pro-Malay and anti-subsidy affirmative action.
