Vijaya, Union Bank say no to rate cut

TIMES NEWS NETWORK 

Kolkata: Nationalised banks are not making a beeline to reduce lending rates and are only planning small sops for the home loans and SME segments. Vijaya Bank executive director S C Kalia made it clear that it is not possible to cut the basic prime lending rate everytime there is a cut in the repo rate. “We have to reduce our cost of deposits too. Otherwise, there will be pressure on margins,” he said. Vijaya Bank cut BPLR by 0.75% in November. 
    UBI chairman & MD S C Gupta also said there is no immediate possibility to reduce the lending rate following the RBI’s announcement. Gupta even said there may not be any cut in home loan rates. The bank is planning a few sops for the small and medium scale industries. 
    UBI will establish a special cell dedicated to micro, small and medium enterprises which will focus on structuring and re-structuring existing arrangements.

Source: TOI, Page 15- Dated: 15-Dec-08

Team Obama mulls $1 trillion stimulus plan

New York: 

US Presidentelect Barack Obama’s team is considering an economicstimulus programme of up to $1 trillion to revive the economy, a media report says. Quoting people familiar with the process a financial newspaper said, “Obama’s economic team is considering an economic-stimulus program that will be far larger than the two-year, half-trillion-dollar plan under consideration two weeks ago.” 
    The daily further said, “Obama aides and advisers have set $600 billion over two years as “a very lowend estimate,” and the final number is expected to be significantly higher, possibly between $700 billion and $1 trillion over two years. However, transition spokeswoman Stephanie Cutter denied that any decisions have been made on the scope of the plan and the newspaper quoted her as saying “any speculation on size or scope is premature at this time.” 
    “Christina Romer, who will lead Obama’s Council of Economic Advisers, is trying to build political consensus around a larger number before it is presented to Congress in January,” the report said. As economic conditions worsen, Obama’s economists now say the package will have to be larger than expected. 
    “The economic team would brief Obama next week, largely about the size of the package. Discussions are still under way about content,” the report said. Obama is scheduled to take office on January 20. The report said Lawrence Lindsey, President Bush’s first National Economic Council director, has counseled $800 billion to $1 trillion in stimulus over two years. AGENCIES

Source: TOI, Page 15 - Dated: 15-Dec-08

To SPEND or NOT to SPEND?

Neelam Raaj | TNN 

    Spending has become a dirty word. The planned trip to London has become the trip to Lonavala. Parsimonious Warren Buffet is now the ideal, not flashy Donald Trump. Thrift, which had a negative connotation, has become a virtue. 
    But is fiscal prudence good for your country and, ultimately for you? Definitely not, if you belong to the John Maynard Keynes’ school of free market theory. In the 1930s, Keynes introduced the concept of the “paradox of thrift”. Put simply, the concept means that if everyone decides to save, consumer spending will fall, causing total demand to slump, along with total income, which will ultimately mean that people will have less to save. 
    This means everyone is worse off and a recession can become self-reinforcing. 
    Industry understands the paradox of thrift. The key to ending a slowdown lies in the hands of the consumer, says Sunil Alagh, former MD of Britannia Industries. Alagh, who runs a consultancy, says this is particularly true in India, where domestic consumption makes up 60% of GDP. “When the consumer starts spending, companies starts investing.” 
    But how best to persuade the reluctant consumer to spend? Keynes believed only the government could make the right, believable arguments. This is why governments in the US, the UK and China are intervening in the markets. Back home, the Manmohan Singh government has already rolled out one stimulus package and another is on its way. 
    But not everyone believes the stimulus-bailout route can rescue the free market. Many economists are skeptical because budget deficits balloon from enhanced government spending programmes. 
    But it is true that governments are walking a fine line. Do too little to boost growth and the recession deepens. Do too much and the cycle of easy borrowing and spending that contributed to the credit crisis could start all over again. 
    It is easy to understand the comman man’s reluctance to spend. He can hardly be criticized for being too careful considering he reads bad economic news stories every day and finds his portfolio worth thousands of rupees less than six months ago. 
    The annual MasterCard Worldwide Index of Consumer Purchasing Priorities recently revealed that 92% of Indian consumers say that saving is important or very important to them. 
    But Mahesh Vyas, CEO of the Centre for Monitoring Indian Economy (CMIE), says it is important to look beyond the gloom. “There have been no large-scale lay-offs in India and, hence, no loss of income. This is a knee-jerk reaction to the anxiety that has gripped the world.”

Source: TOI, Page 11 - Dated 15-Dec-08

No quick end seen to spiralling US job cuts

More workers may face the axe as cos make cuts before closing year-end books

Reuters BOSTON 

THE USexperienced its sharpest monthly drop in employment in more than three decades during November, and there is no end in sight to the bloodletting as companies search for ways to cut costs. American employers shed far more workers than expected last month — cuts made even before this week’s confirmation that the country has been in a recession for a year. 
    “This clearly demonstrates that the decline is accelerating,” said Tig Gilliam, chief executive of North American operations for Adecco SA, the world’s biggest staffing firm. “It looked midyear like maybe things would get a little bit better, and now the numbers are just dropping dramatically.” The Labor Department said US nonfarm payrolls plunged by 533,000 in November, a steeper fall than the 340,000 decline that economists surveyed by Reuters had expected. It marked the biggest tumble since December 1974 and means the economy has lost some 1.9 million jobs this year. 
    The cutting continued on Friday, with US companies, including General Motors Corp, asset manager Legg Mason Inc, auto parts supplier Gentex Corp, BMC Software Inc and Sonoco Products Co announcing new layoffs. 
    Earlier this week, such blue-chip companies as AT&T Inc, DuPont Co, United Technologies Corp and General Electric Co said they planned to shed workers as they look for ways to cut costs. The range of companies cutting jobs shows the economic contagion that started with the collapse of the US subprime mortgage market, went on to knock the legs out from under the nation’s home prices and sparked a global credit crunch that is hammering the whole economy.
Bleak December: As Americans prepare for the December holidays, typically a season of spending as shoppers buy presents and entertain, more workers may face the prospect of holiday unemployment as corporations make cuts before closing their year-end books. 
    “It’s hard to gauge where the bottom is,” said Sheldon Schur, vice president at Manpower Inc, the world’s No. 2 staffing company. “It will be interesting to see what happens in the first quarter, because December will be another large job-loss month. We’re going to see a lot of employers continue to shed to position themselves for 2009. And the bigger question will be what happens in January and February.” 
    US retailers, bracing for a soft holiday selling season, added fewer seasonal workers in November than in the past two decades. 
    Woolworths cuts 450 jobs 
STRICKEN British retailer Woolworths is cutting 450 jobs from support operations, administrators Deloitte said on Friday, as they remained locked in talks aimed at finding a buyer for the sweets-to-DVDs chain. Separately, US computer games retailer GameStop denied a report by computer games publication MCV that it had made a bid for around half of Woolworths’ 815 stores. Last week, Woolworths’ retail and distribution businesses sank into administration, a form of creditor protection, the biggest British casualty so far of a sharp slowdown in consumer spending. 
Worthington to give pink slips 
METALSprocessor Worthington Industries Inc said it would cut about 300 jobs in its steel processing and metal framing business, citing steep declines in pricing and demand. The company said the job cuts represent about 4% of its total workforce. The metal framing segment will shut down one facility by the end of February and suspend operations at two others, the company added. Worthington expects to record about $5 million in restructuring charges and sees annual savings of about $17 million from these actions. The metal framing segment “continues to be heavily impacted by the steep drop off in construction that has resulted from the global financial crisis,” Worthington said. 

Source: ET, Page 5, 7-Dec-08

Slowdown forces M&M to shut down plants

PTI MUMBAI

REELING under pressure from a slowdown in the country's auto market, homegrown major Mahindra & Mahindra today said it will shut down its five manufacturing plants, which produces cars, utility and commercial vehicles, for 3-6 days this month. “The manufacturing plants of the automotive sector (Nasik, Kandivli, Igatpuri, Zaheerabad and Haridwar) will work partially during the month,” M&M said in a communique to the Bombay Stock Exchange.
Most of these plants would be shut down for around three to six days depending on the market demand of the products manufactured in the respective plants, it added. “Taking into account the slowdown in demand for the company's products, it has been decided to align the company's production plan with the expected demand for the month of December, 2008,” M&M said.
The company's announcement comes days after its President (Automotive Sector) Pawan Goenka stating that production would always be as per sales and it would not over-produce unnecessarily to build up inventories at its facilities as well as with the dealers.
Goenka had said along with domestic market, exports were facing slowdown in each country where M&M was present. M&M said the ongoing economic slowdown in the automotive industry was mainly on account of inadequate funding and high interest cost.

Source: ET, Page 3, Dated: 7-Dec-08

US treasuries seen at risk of bubble trouble

Reuters NEW YORK 

US GOVERNMENT debt, long considered the safest investment in the world, looks like it too has been hit by “bubble” fever. Prices of US Treasury bonds appear dangerously overstretched after a soaring rally, another sign of how financial markets have been turned on their head. “Treasuries are the riskiest securities on the planet,” said Tom Sowanick, chief investment officer for $22 billion in assets at Clearbrook Financial LLC in Princeton, New Jersey. 
    While few fear that the US government will fail to honor its debts, many see a risk that bond prices may plunge just as spectacularly as house, commodity and stock prices have in recent months. “It looks like the Treasury market is in bubble territory,” said William Larkin, fixed-income portfolio manager with Cabot Money Management, in Salem, Massachusetts. The rally in the nearly $5 trillion US government bond market picked up speed this week when the Federal Reserve hinted it may buy longer maturity government bonds. 
    Fears of a bubble in Treasuries underscore how far investors have fled from risk since ballooning house price valuations popped in 2007, causing huge losses in markets across the board and sparking a global economic crisis. Yields on long-maturing bonds are below 3 percent and only 1-2 basis points on three-month T-bills, the lowest in decades. After buying billions of dollars worth of government debt, US institutional investors and foreigners including Asian central banks could incur enormous capital losses. “Treasuries are pricing in depression and I just don't think we will dive into depression-like activity. I wouldn't buy them here,” said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas. That said, the relentless rise in Treasury prices may continue further amid little sign of an end to the panicked exodus from stocks which are down nearly 40 percent this year, and corporate bonds, hurt by fears of default. 
    Data on Friday showing November as the worst month for US job losses since 1974, which prompted some economists to predict the country's recession could be longer than previously thought. Some investors and economists also fear deflation, an environment of falling prices. That would push yields, or the return for investors on bonds, yet lower than their already five-decade troughs. 
    The stampede into Treasuries has left the benchmark 10-year Treasury note's yield, which moves inversely to its price, at 2.51 percent this week, the lowest since the 1950s. “I think it is safe to say that Treasuries have moved into a self-destructing yield environment,” Sowanick said. Treasuries got a hefty boost on Monday after Fed Chairman Ben Bernanke said the US central bank might buy long-dated Treasuries. Such a move would help lower mortgage rates and address one of the root causes of the global credit crisis. Despite the slump in yields and fears of a new bubble, investors are reluctant to move away from their favorite safe-haven. Many fund managers are staring at huge losses in riskier markets and would be unwilling to make big bets there. “You will have many hiding there, bidding up the market, because many investors can't stand to lose anymore money before closing the books this year,” Sowanick added. The latest gains bring the US government bond market closer to the brink of a potentially vicious sell-off. It is now highly vulnerable to a surge of between $1 trillion and $2 trillion of new government issuance to pay for massive bailouts of the financial sector, bond analysts warn. 
    If that issuance impacts the market just when investors start venturing back into corporate bonds, the fall in prices could be rapid. “Once confidence returns, which I expect over a six-month time horizon, safe-haven flows will go into some of these markets with more appealing returns such as corporate bonds,” said Ward Mc-Carthy, MD with Stone & McCarthy Research Associates, in Princeton, New Jersey.

Source: ET, Page 3, Dated: 7-Dec-08

Consultancies in makeover mode

Aman Dhall, Mansi Tiwari & Ishani Duttagupta NEW DELHI 

DESPERATEtimes, they say, call for desperate measures. And who would know that better than the Big 4 consultancy firms PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG. 
    The American economic downturn has opened up new windows of opportunity for business consultancies and the ripple effect is being felt in India too. With India Inc in a restructuring mode, the Big 4 as well as other consultancies across sectors are witnessing a rejuvenated demand for help in rationalising costs and enhancing employee productivity and efficiency in tough times. And to deal with the new reality, the consultancies are actually looking at changing their conventional business model and looking for new adaptive solutions. This involves measures such as a focus on sectors such as pharma and education, which are largely seen to be recession-proof, and a move away from the crisis-hit financial sector. 
    Business consultancies across the board have confirmed to SundayETthat they have re-aligned their strategy in line with the market expectations to tackle the current state of affairs. In fact, to meet the restructuring needs of their clients, KPMG India has even trained and re-positioned its mergers & acquisitions team to handle the new task. Pharma, healthcare, FMCG, food processing and education sectors are leading the charge. 
    Internally, the consultancies are beefing up teams which were earlier low-profile such as business risk services. Earlier risk management programmes were used only to keep companies out of trouble, but today they are broader and are being used to help improve business performance and to map risk at every level, namely, strategy operations, financial reporting and compliance. “Today our job, which is a part of the advisory activity of the organisation, has become very diverse and critical,”says Inge Boets, partner & global head business risk services, E&Y. Never out of fashion 
“FROM setting up an audit committee for a company to cost reduction, which could be a matter of life and death or helping to improve the efficiency of an organisation, we are everywhere,” says Inge Boets, partner and global head business risk services, Ernst & Young. 
    Business pundits, in fact, believe that consultancies can never go out of fashion — they will only fashion themselves according to the new ground realities. “The consulting model is all about finding solutions. As things have changed, we have re-aligned our solution areas in line with the market necessity. There’s a struggle but if you can put in that extra bit of effort, results are still forthcoming,” says KPMG India chief operating officer Richard Rekhy. The consultancy has seen a manifold increase in the number of companies approaching it for restructuring their businesses that includes cost-cutting and improving profitability. Agrees Arvind Singhal, chairman of consultancy firm Technopak: “It’s not that the companies don’t require consultancies but their priorities have definitely changed. It’s no longer growth but performance improvement that the companies are looking at consultancies to guide them through.” A case in point is the outsourcing business. Initially, when financial services firms were badly hit in the Wall Street meltdown, many were ready to ring the death knell of the outsourcing business altogether. But outsourcing has in fact become a strategic decision in the tough times rather than a tactical one. Moreover, there are new areas where outsourcing is becoming necessary to cut costs. 
    “For larger companies, outsourcing is not a tap that can be shut off at will, but an integral part of critical business processes. The more value-added the service provided by the outsourcing agency, the more difficult for the customer to reverse the outsourcing decision,” feels Kaushal Sampat, chief operating officer, Dun & Bradstreet India. According to Mr Sampat, no downturn is permanent — it’s just a tough part of the business cycle and is always followed by happier times! “That’s why we are constantly communicating the message to our associates that — this too shall pass,” he says. 
    Biz consultants don’t expect any significant reduction in the trend towards outsourcing. While a slowdown may free up some internal capacity, they, however, think that outsourcing will continue to offer significant cost arbitrage and access to the right skill sets (in terms of outsourced employees) to companies. “There can be a case of prices of outsourcing contracts getting re-negotiated to reflect the prevailing tough times. That can’t be ruled out,” says Sampat. 
    And the good news, according to most consultants, is that Indian companies need not entirely sacrifice their growth aspirations and plans at the altar of the current slowdown. 
    aman.dhall@timesgroup.com 

Source: ET, Page 1, Dated: 7-Dec-08

LPOs flourish on US business - American Economic Downturn Opens New Windows Of Opportunity

Mansi Tiwari NEW DELHI 

THE Wall Street crisis has proven to be a windfall for legal process outsourcing (LPO) companies. The crisis that impacted the fortunes of Indian IT firms has the country’s LPOs laughing their way to the banks with huge amount of litigation work coming their way from the US. After leading BPO companies like Infosys and Wipro, a leading software solution provider Zenith Software and Nasdaq-listed EXL Service are now looking at LPOs as a major business opportunity. 
    “We have defined LPO as one of our strategic areas of focus and we have hired a senior executive with rich experience to head our LPO initiative. We are in the process of building up the operations team. We are also servicing a client in this space and are confident of signing new clients in 2009,” said Rohit Kapoor, president and CEO of EXL Service. 
    Zenith Software recently entered into a JV with a Oregon-based law firm. The name of the newly incorporated company has not been revealed yet. “Seeing the kind of opportunity that it offers, we wanted to get into LPOs. But we wanted to do it in a systematic manner and have partnered with a law firm in the US,” said P Sampathkumar, CEO of Zenith Software. Considering the Wall Street crisis, the company is sure to bag some big projects in 2009 as there will be lot of litigation related to bankruptcy, M&As and other related aspects. 
    Industry figures estimate the LPO sector to be approximately $3-4 billion. According to experts, around 30% of the top 10 Indian BPO players have shown interest in starting LPOs. “LPO has the potential to become one of the sunshine sectors for the Indian Economy. IT companies, non-outsourcing and non-legal entities, captive and large Indian law firms are expressing interest in it. But every company has its own strengths and weaknesses,” said Soumitro Chatterjee, CEO of FM Legal Circle Services. Dealing with post meltdown issues 
LPOS have seen an increase in the work flow from the US and the UK. Most of them deal with post-meltdown issues like downsizing, closure of branches, restructuring and termination notices to collaborators and franchisees. 
    LPOs in India are about 60% more cost efficient than in the US. According to estimates, a senior associate in US gets approximately $200 per hour for a document review whereas it costs around $30 in India. India also has abundant talent in law. “On the demand side, the rising litigation costs in the US and the UK are driving the business offshore. On the supply side, India conducts its legal proceedings in English, making it relevant in both the US and the UK markets. India borrows from the British legal system thereby strengthening outsourcing prospects in the UK,” said Kapoor. Reports suggest that around 300,000 students enrol in various law schools in India every year. There is thus no doubt that India is emerging as a sought-after destination for legal outsourcing. 
    mansi.tiwari@timesgroup.com 

Source: ET, Page 1, Dated: 7-Dec-08

Google CEO’S Search

If rumours are to be believed, crashing stock might not be Google’s only problem. Its CEO, Eric Schmidt, might be jumping ship too. According to a blog by Henry Blodget, co-founder of Silicon Alley Insider, Schmidt may be on his way to joining the Obama administration. Recently, Schmidt has been seen devoting much of his publicspeaking time to press for greenenergy stimulus plans, and discuss auto industry bailout. Technology, Media & Telecom Analyst speculates he is getting ready for a governmental position. Blogs have been putting up few interesting theories. One speculates that Schmidt wants out because he made an observation about the impending end of the search product cycle, and that Google has not yet found another product to drive the next wave of growth. What do you think?

Source: TOI, Page 14, Dated: 7-Dec-08

Many see moral uplift as a result of recession

Recessions, before the Great Depression, were often viewed as good things. Secretary of the Treasury Andrew Mellon, even after the crash of 1929, expressed the common view of the time: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.” “Liquidate labour,” he thundered, “liquidate stocks, liquidate the farmers, liquidate real estate.” Though the current Treasury Department seems a bit more compassionate, the idea that a recession is good lives on. A Conservative leader in Britain was forced to apologize last week for extolling the health virtues of an economic decline. “Recession can be good for us. People tend to smoke less, drink less alcohol, eat less rich food and spend more time at home with their families.” With less money and perhaps no work, people don't generally splurge on cigarettes, booze, and unhealthy food. And, with nothing to do all day, they do hang around the house more. While recessions can be occasions for moral renewal, “They’re also about fear and diminished expectations,” writes David Brooks. “The cultural consequences of recessions are rarely uplifting.” Crime rises, and birthrates fall. The ranks of the poor swell.Marriages fall apart.” “Recessions tend to raise divorce rates,” says Nobel laureate and University of Chicago Graduate School of Business, economist Gary Becker.

Source: TOI, Page 12, Dated: 7-Dec-08

$15bn loan likely to bail out US auto industry

Event Date: 6-Dec-08

Washington: Facing massive job losses, the White House and congressional Democrats are working to provide about $15 billion in loans to prevent Detroit’s weakened auto industry from collapsing. 

    After yielding to President George W Bush on a key point, House Speaker Nancy Pelosi said the House would consider legislation next week to provide “short-term and limited assistance” to the US auto industry while it undergoes “major restructuring.” 
    “Congress will insist that any legislation include rigorous and ongoing oversight to guarantee that taxpayers are protected and that resources are directed to ensure the longterm viability and competitiveness” of the industry, Pelosi said in a statement. The Senate is also scheduled to be in session next week. 
    The legislation, which was being crafted this weekend, would act as a lifeline to General Motors Corporation, Ford Motor Co. and Chrysler LLC while meeting demands from many skeptical lawmakers that Congress refrain from writing a blank check for the beleaguered industry. 
    Several officials in both parties said a key breakthrough on the long-stalled bailout came when Pelosi bowed to Bush’s demand that the aid come from a fund set aside for the production of environmentally friendlier cars. 
    The California Democrat spoke to White House chief of staff Josh Bolten during the day to signal her change in position, they added. AP

Source: TOI, Page 7, Dated: 7-Dec-08

RBI policies will perk up sagging housing sector

Event Date: 6-Dec-08

Mumbai: Real estate players are sceptical about how much these measures would actually boost the consume confidence, which is currently weighed down by negative sentiments. 

    According to Jai Mavani, KPMGs executive director and head of real estate practice, the government’s move to increase liquidity and ease credit crunch is a step in the right direction, and this should result in cooling of interest rates. However, the government needs to look beyond these monetary policies and boost the mid-market or low-income housing projects, which would perk up the housing sector. Another factor impacting demand is the consumer sentiment, which is yet to reverse. Though real estate prices have been correcting, property buyers feel that prices are still firm and expect to fall further. 
    Transactions in the residential sector, especially in metros, have slowed down where prices had touched the sky few months back. Demand has been impacted even in the smaller cities because of high home loan rates. According to Sanjay Verma, Cushman & Wakefields south Asia & Australia MD, consumers will now have a wider choice of lenders with housing finance companies getting a refinance line from the banking industry. 
    Niranjan Hiranandani of Hiranandani Constructions said, so far, the RBI has been announcing measures to ease inflation. Now the focus is on boosting growth in the economy, of which the real estate and housing sector is a core area, having downstream effect on 260 industries like steel, cement and aluminum. The latest measures would help the real estate sector, enabling developers to restructure loans, as many projects have been delayed because of lack of availability of funds. 
    With the repo rate going down the bank must be liberal and improve liquidity in the system which will give a morale boost to the developer, but the sales can happen if home loan rates drop to around 8% and banks become more liberal in advancing housing loans. Secondly, job security during this time would also play a vital role for those applying for home loan, said real estate consultant Ashok Narang. 
    A lot depends on the banks for reducing the rates on home loan and constructions loans. The RBI should take more positive steps urgently to improve the realty sector.

Source: TOI, Page 6, Dated 7-Dec-08

RBI hopes rate cuts will improve flow of credit to productive sectors

Event Date: 6-Dec-08

Mumbai: Stating that their bank is not in a position to cut lending rates, Keki Mistry, managing director, HDFC, said, “Unless the lending rates of banks and our cost of funds come down, we won’t be in a position to reduce rates.” The RBI cut its benchmark lending rate — the repo rate, the interest it charges for lending to banks — from 7.5% to 6.5%. The central bank also cut its reverse repo rate — the rate at which it borrows cash from banks — from 6% to 5%. These cuts, the RBI hopes, “will improve the flow of credit to productive sectors of the economy on viable terms”. 

    So, will interest rates come down? And, when? Everyone believes that the rates — both lending as well as deposit — will go down, but nobody is quite ready to predict when. “The direction is very clear. Banks are likely to reduce their PLR and deposit rates,” said Sachidanand Shukla, chief economist, Enam Securities. “But we can’t expect banks to do that overnight. We have to wait and watch.” 
    Most bankers believe that banks will have to reduce their deposit rates before cutting their lending rates. “Many banks have recently hiked their deposit rates to attract customers. Now, they will start cutting the deposit rates,” said a banker, who didn’t want to be quoted. 
    “We have to first see some meaningful reduction in key deposit rates first. Probably, the lending rates would come down after that. It will take a few weeks or even months,” said Harsh Roongta, CEO of ApnaLoan, an independent online portal for loan seekers. 
    Some industry players said the RBI had addressed the liquidity issue, but now it has to address the issue of credit availability for customers. 
    “What is the point of rates coming down by a per cent or two when banks are not willing to lend to customers?” asked an industry expert. “Banks are going slow or sitting on disbursing loans, be it housing, personal or motor loans. They just don’t want any default on their book,” he added. 
    Some experts also believe that banks are unlikely to chase customers with loan offers like they used to in the past. “Even if there is a reduction in rates, I don’t expect that banks will be eager to lend money. They may be ready to offer money to customers with excellent track records, but won’t be over-enthusiastic with others,” said a senior banker. 
    Roongta said even customers were not flocking to banks for loans because of the current economic conditions. “The demand is low now because of the higher interest rate. But it remains to be seen whether the demand will pick up after the rate cuts,” he said. 

India Inc expects more than what RBI offers 
Mumbai/New Delhi: India Inc feels that the steps announced by the Reserve Bank of India (RBI) on Saturday are not enough to revive beleaguered core sectors like steel, cement, auto and power. 
    “The RBI should have also announced cuts in SLR (statutory liquidity ratio) and CRR (cash reserve ratio) to inject liquidity into the system. Steps announced are not big enough to induce a revival. We were expecting a steeper cut of 2% in the reverse repo rate,” said Seshagiri Rao, director (finance), JSW Steel. RBI announced a 100 basis points cut in repo and reverse repo rates. 
    Adi Godrej, chairman, Godrej group concurred: “I would have preferred a deeper cut of 150 bps.” 
    FICCI described the RBI effort as a good start in the correct direction. It said it was hopeful that commercial banks would cut their lending rates following the steps taken by the RBI. Until now, banks have been very sluggish and have not reduced lending rates in a substantive manner. However, the FICCI said it was disappointed to note that there was no major succour for the automobiles and the white goods sector. 
    Assocham president Sajjan Jindal hoped that the money would flow into the system to support the projects that had been put on hold. According to DD Rathi, whole-time director and CFO, Grasim Industries: “In principle, the direction appears to be softening of interest rates and boosting liquidity. However, what is needed is a change in recovery laws which will speed up the decision making process while dealing with defaults. This will enable banks and other financial institutions to lend.” TNN

Source: TOI. Page 6, Dated 7-Dec-08

Exporters may get Rs 2,000 cr

Event Date: 6-Dec-08

New Delhi: In order to help the export community ride out the impact of economic downturn, the government has prepared a stimulus package of Rs 2,000 crore for the sector. Export sector which has fallen by 15% from a year earlier in November, is likely to announce reliefs like 2% subsidy to micro, small and medium exporters across the board. In addition, a 2% subsidy for textile, marine, handicraft, leather, carpet sectors is also expected according to sources in the ministry of commerce. This, according to sources, is likely to cost the exchequer around Rs 600 crore. 

    However, the bigger sop for the exporters might be the Income Tax waiver under Section 80 HHC of the Income Tax Act. The government might reintroduce Section 80 HHC of the Income Tax Act which provides exporters exemption from Income Tax on their income. Even though, an income tax waiver could mean a revenue loss of between Rs 10,000 and 15,000 crore to the exchequer, the government is likely to go ahead with it as it will be a substantial incentive for the exporting community. 
    Additionally, a Rs 300 crore booster for schemes such as Market Development Assistance (MDA) and Market Assessing Scheme (MSA) has been earmarked with a view to helping the exporters develop new markets. This will be applicable to all exporters. Another Rs 800 crore is likely to be earmarked for the Technology Upgradation Fund according to sources. 
    In addition to these, the exporting community also expects Rs 350 crore to be given to the Export Credit Guarantee Corporation (ECGC) for continuing the single buyer policy. G K Gupta, president of the Federation of Indian Exporters Organization said since ECGC was not interested in continuing the single buyer policy, this booster will force them to take this scheme. This will be applicable for all levels of exporters. Other export relief measures may include increased duty drawback rates used by exporters to get back duties like excise paid on producing goods for overseas sales. Moreover, an extension of period of postshipment export credit from 180 days at present to about 270 days may also be also on the cards. 
    Indian goods’ exports fell for the first time in five years in October and are likely to stay sluggish for the rest of the year, making it difficult for the country to meet its target, said sources. Therefore, amongst the other packages being announced by the government, exports will also get a leg up by the government. 
    Additional export relief measures may include increased duty drawback rates used by exporters to get back duties like excise.

Source: TOI, Page 14, Dated 6-Dec-08

Infosys to freeze new hiring as growth slows

 Event Date: 5-Dec-08

NEW DELHI, INDIA: Infosys Technologies Ltd will freeze recruitment after meeting this fiscal year's target of hiring 25,000 staff, a telling sign the global downturn is hitting India's $52 billion outsourcing sector.

India's second largest software services firm however has no plans to cut jobs and is sticking with its third quarter outlook, CEO Kris Gopalakrishnan told reporters.

He said the outsourcing sector's growth rate would halve next year as some customers delay orders.
"Last year the IT industry grew more than 30 percent, this year it is looking at somewhere in the region of 15 percent," Gopalakrishnan said.

India's export-driven IT sector, used to a scorching pace of growth, has been hit by the financial crisis and recession in the United States, which contributes more than half their revenue.

In the last few years, the outsourcing industry has created tens of thousands of jobs, mainly attracting young workers, as global companies look to trim labour costs.

Infosys hired 16,000-17,000 employees in the first half of the fiscal year that began in April and would honour commitments to 6,000 under training, Gopalakrishnan said.

Infosys, which counts Goldman Sachs and Philips Electronics among its clients, cut its full-year dollar revenue outlook in October due to the worsening global downturn. 

Gopalakrishnan said on Thursday the company would freeze fresh recruitment, apart from meeting specific skill needs.

"We will have to look at controlling our cost, controlling our expenses making sure that we run an optimized business. We will have to look at what are things we need to do in order to prepare ourselves for the recovery."

"Growth is coming more and more from emerging markets so these are the things we need to prepare ourselves. We should not lose momentum in this slowdown," he said.

But Infosys still expects its strong client base and a weakening rupee to help it meet a forecast for December quarter earnings of $0.57 a share. The rupee has fallen nearly six percent so far this quarter against the dollar.

"Infosys is seeing further degradation of the demand environment, with headwinds from leadership changes at customers, a shrinking large deal pipeline.... Pricing pressure has emerged," CLSA Asia-Pacific said in a report this week.

By 0845 GMT, Infosys shares were up 2 percent in a Mumbai market, but outperforming a 4 percent gain in the broader Mumbai market. Infosys shares have fallen 33 percent so far this year.

©Reuters

Source: http://www.ciol.com//Global-News/News-Reports/Infosys-to-freeze-new-hiring-as-growth-slows/41208113416/0/

An introduction

Financial crisis of 2007–2008, initially referred to in the media as a "credit crunch" or "credit crisis", began in July 2007 when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve and the European Central Bank. The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008. In September 2008, the crisis deepened, as stock markets world-wide crashed and entered a period of high volatility, and a considerable number of banking, mortgage and insurance company failures in the following weeks.

Share in GDP of US financial sector since 1860.^[6]

Although America's housing collapse is often cited as having caused the crisis, the financial system was vulnerable because of intricate and over-leveraged financial contracts and operations, a U.S. monetary policy making the cost of credit negligible therefore encouraging such over-leverage, and generally an "hypertrophy of the financial sector" (financialization).

The global financial crisis of 2008 is a major financial crisis, the worst of its kind since the Great Depression, which is ongoing as of December 2008. It became prominently visible in September 2008 with the failure, merger or conservatorship of several large United States-based financial firms. The underlying causes leading to the crisis had been reported in business journals for many months before September, with commentary about the financial stability of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis.

Beginning with failures of large financial institutions in the United States, it rapidly evolved into a global crisis resulting in a number of European bank failures and declines in various stock indexes, and large reductions in the market value of equities (stock) and commoditiesworldwide. The crisis has led to a liquidity problem and the de-leveraging of financial institutions especially in the United States and Europe, which further accelerated the liquidity crisis. World political leaders and national ministers of finance and central bank directors have coordinated their efforts to reduce fears but the crisis is ongoing and continues to change, evolving at the close of October into a currency crisis with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund. The crisis was triggered by the subprime mortgage crisis and is an acute phase of the financial crisis of 2007–2008.

Sources: 
http://en.wikipedia.org/wiki/Financial_crisis_of_2007-2008
http://en.wikipedia.org/wiki/Global_financial_crisis_of_2008