Weekly digest (7/11/11 to 13/11/11)

DGCA to look into reasons behind cancellation of flights by Kingfisher

The Directorate-General of Civil Aviation (DGCA) will examine the reasons behind more and more cancellation of the Kingfisher flights. The airline has cancelled over 80 flights over past three days including nearly 30 on Wednesday itself.

The airline is believed to have grounded six aircraft. In this regard, the airline clarified that it has initiated reconfiguration of its aircraft. This exercise will require few of the aircraft to be out of service for the next few weeks, requiring a temporary modification of some of the flight schedules. Once the reconfiguration is complete, these aircraft will be pressed back into service, it added.

Reality check:

The airline, laden with huge debt, is facing problems from various vendors and service providers over payment. It is getting service on cash and carry basis from oil companies. Kingfisher has suffered a loss of Rs 1027 crore in 2010-11 and has a debt of over Rs 7057 crore. Kingfisher is trying to reduce expenditure as much as possible.

Aviation sources said the airline has grounded eight of its leased turboprop ATR aircraft. Airport operators, too, are putting pressure on the airline to clear their dues relating to airport and other charges.

Video:

http://ibnlive.in.com/videos/201105/cashstrapped-kingfisher-cancels-almost-80-flights.html

Moody's downgrades rating of Indian banks

Global ratings firm Moody's on Wednesday downgraded the entire Indian banking system's rating outlook from “stable” to “negative,” citing the likely deterioration in asset quality in the months ahead.

The ratings agency said monetary tightening and a slowdown in the economy would cut bank loan growth, while a recent liberalization of savings deposit rates by the central bank would pressurize lenders' profitability.

The BSE banking index fell on the news of the downgrade to 11,307.99 at 9:37 am, down 0.1 per cent, against a 0.2 per cent rise in the benchmark index.

Financial Services Secretary D.K. Mittal said, “We are not concerned. We are not affected by the downgrade. Looking at how the global banks are faring, we are much stronger and the ratings have no significance”.

SBI Chairman Pratip Chaudhuri pointed out that the health of Indian banks was much better compared to their global lenders. “Perhaps they [rating agencies] are stung by experience elsewhere. But otherwise I feel Indian banks are well-regulated. We don't deal in exotic products. Also, the amount of leveraging is low, we do 12-14 times while the best of European banks leverage up to 20 times,” he said.

The new Moody's report further concludes that bank ratings may come under downward pressure, although currently, the negative outlook on the banking system contrasts with the stable outlook assigned to the bank financial strength ratings of 14 of the 15 rated banks.

For those banks with weaker capital ratios on average and higher asset quality pressures relative their individual rating levels, their standalone ratings are likely to come under pressure as underscored by Moody's downgrade of the State Bank of India's BFSR to D+/Stable/Baa3 from C-/Stable/Baa2 on 4 October 2011.

Moody's expects the government to remain committed towards providing support to both public and private banks. Such potential support translates to an average one-notch uplift to the banks' debt and deposit ratings to Baa2, compared with their standalone base line credit assessment of Baa3.

Microfinance institutions may continue to face credit crunch

Exactly a year after the state government introduced a self-styled AP Micro Finance Institutions Act— a first in the country— MFIs are grappling to survive. Not only have repayments plunged from about 90 per cent to less than 10 per cent in the past year, fresh loan disbursements are few and far between.

The Act prevents MFIs from offering multiple loans and stipulates they cannot give loans without government permission.

Lending from banks has also dried up with MFIs coming under fire for allegedly charging exorbitant interest rates and pressurizing borrowers to repay loans.

Banks had stopped lending to microfinance institutions across the country after the Andhra Pradesh Government put in place a regulation in October last year.

According to a senior official of Indian Banks' Association, corporate debt restructuring of loans of major microfinance institutions early this year made banks aware of the ‘hollowness' in the asset quality.

It is important for banks to avoid a repeat of this situation and, hence, there is caution, he added.

As a result, operations have been hit hard and companies including top five players in the country chiefly SKS Microfinance Ltd, Bharatiya Samruddhi Finance of Basix Group, Spandana Spoorty, SHARE Microfin and Asmita Microfinance Ltd are now diversifying into other services such as offering insurance policies, gold loans and credit for buying mobiles.

 Dilli Raj, CFO, SKS Microfinance said, “We are not adding any new members this year. We’d rather focus on servicing existing customers. While micro loans will continue to be our activity, we are planning to seek a banking license so as to diversify our services. Besides, we are also conducting pilot programmes such as loans for mobile phones and facilitating kirana stores to buy goods on credit.