The Banking and Strategy Initiative

Chillin' out till it needs to be funded

The new credit crisis exclusively for my customers!

With RBI stuck in hoops on the inflation front, they would have to potentially raise the Repo Rates by even a 100 points and that would take Treasuries hankering for more yield even after the policy is announced. On the Fixed Income Market front, this means that India is moving in sync with global markets and Fixed Income is chasing yields in most of 2010 without making the historic mark ups it made last year. But outside the Treasury, things are mostly inexplicable. We are in throes of a high growth chapter of Indian Economics and the rising spending power is already whittled by a crippling inflation. The rising availability of growth factors for the Synced up Indian Corporate, some even going global to harvest the business diaspora looking for a natural progression of leadership. And the cost of credit in this high growth era will simply keep rising higher and higher.

It is very plausible for this situation to arise in US and Europe as sovereign debt exceeds the GDP in Britain and even the US. That is apart from a payments crisis in the PIIGS crisis that is otherwise the popular flavor of the sovereign debt crises in the developed world. However, in our recent history as an emerging market, and having lost that tag in World Bank and Copenhagen guides, thence in private public markets for Finance our prime situation as borrower does not preclude costs of debt previously considered usurious at 9-10% for ECB and much higher in the domestic market.

With the regime moving to a bank rate based financing, those like PSUs and global corporations that depend more on short term financing rolled over for their funds beyond Working Capital and more, will have absolutely no recourse to financing for anything other than liquidity. Profitability measures and Coverage will be revisited at every company with or without access to a good credit rating as cost of funds heads from an irritant by 2011 to a major bottleneck by the time 2015 comes. A hyper-growth economy was avoided accidentally by Indian planners during the Hindu rate of growth phase whence many LatAm economies and Russia repeatedly invented new currencies and base years to tackle the instability wrought by hyper inflation. Though as a cynosure of all eyes, we may avoid that pride of place inthe coming decade, we wil all have to get used to a higher cost of financing. We’ll be leaning a little on the CRR as well if the inflation situation stays out of bounds, likely during the policy but hopefully as the measure left over for May as we already seem too dependent on keeping banks the fat cats rather than bank executives that are more commonly fat cat in the developed world. I understand the limitation of the metaphor and the imperatives of the increasing middle class in India ( from 53 million to 583 million with a disposable income of near $10000) However, sitting without a grand leadership job, this seems to be the iceberg we will live inside for time to come. Private Equity has also moved toward s the larger deals as hinted earlier with 56 deals accounting for $2billion in the quarter and Bharti Airtel is also raising billions but at a new price point.


This entry was posted on April 6, 2010 by in CRR, O'nomics, Private Equity, Retail Lifestyle, Uncategorized and tagged , , , , .


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