INDIA'S AVIATION SECTOR NEEDS GOVERNMENT INTERVENTION.
According to Bloomberg,
The (global) airline industry’s profit next year will fall 49 percent [...] as the sovereign-debt crisis in Europe hurts economic growth, the International Air Transport Association (IATA) said.
That's not good news for the five leading domestic airlines in India — Jet Airways, Kingfisher Airlines, Air India and SpiceJet Ltd — which have combined liabilities of Rs.84,058 crore.
The industry has already escalated the crisis right up to the Prime Minister's Office.
INDIA'S POWER DISTRIBUTION SECTOR NEEDS URGENT GOVERNMENT ASSISTANCE.
The sector had loans of about Rs.4.8 trillion from various creditors in March 2011! Canara Bank faces almost certain insolvency with 13.3% of its assets exposed to the sector. India’s top two lenders, State Bank of India and ICICI Bank, have more than Rs.300 billion of exposure each.
The government has stepped in waving the magic wand of "reforms". This may buy some time - but little else.
INDIA'S REAL ESTATE INDUSTRY IS DANGEROUSLY DEEP IN DEBT.
According to Bloomberg-Businessweek, India’s biggest real estate developers are having to fork out an unsustainable 20% interest for borrowing because of already high debts.
And while facing high interest rates, falling demand, dropping profits, high inventories, and bad forecasts, they also need to come up with the means to repay their towering debt of Rs.1.8 trillion over the next two to three years!
INDIA'S TEXTILE SECTOR IS HEADING FOR LOAN DEFAULT.
According to a report by CNBC-TV18,
The banks have a total exposure of about Rs.80,000 to Rs.1 lakh crore to the entire (textile) sector including unlisted companies. While so far none of these companies have reported major defaults, they fear that due to the fall in demand these companies may report defaults going forward.
Falling demand from their key western markets has prompted the industry to seek the Finance Ministry's support in restructuring their loans. Specifically, "[...] they have sought two things. One is repayment of principal amounts on long-term loans should be postponed for the next 24 months and also there should be easier norm for working capitals for the next five years."
In layman's terms, the textile industry don't seems to have the capital to keep factories operational - let alone service their debt. And they obviously do not see this as a "short-term" downturn either.
Given the huge numbers of direct employees, the farming communities upstream, and the massive exposure of the banking sector - all of who could literally "lose their shirts" - the GoI is almost certainly going to have to "do something".
SEVERAL OF INDIA'S STATES ARE ALREADY FINANCIAL BASKETCASES.
West Bengal's Chief Minister, Mamata Banerjee, this month managed to wrestle permission from the GoI to raise an overall amount of Rs.21,614 crore from various sources. This, despite inheriting a state indebted to the tune of Rs.2 lakh crore. In fact, West Bengal's debt is currently around 40.8% of its (Gross State Domestic Product) GSDP, and the state spends about 33% of its entire revenue on just interest payment!
Other states on central fiscal life-support include, Punjab (debt, 34.1% of GSDP) which spends 21.1% of all revenue on interest payment alone; and Kerala (debt, 33.4% of GSDP) which pays 19.6% of its entire revenue on interest payment ...And these two are supposedly among the progressive role-models in the union!!!
INDIA'S BANKING SECTOR IS GETTING A GOVERNMENT BAILOUT.
I had posted previously on SBI's "request" for capital infusion from their largest shareholder: the Government of India.
The sectors that pose the most "troubled assets" for SBI, according to its Chairman...
The 'doomsday' scenario for SBI according Moody's...
Since SBI claims to be "leveraged" 12 to 14 times, 12 percent Non-Performing Assets (NPAs) translate into at least 144 percent of capital fund - that isn't "extreme stress" - that's insolvency! Besides, SBI is not the only bank that needs to be "recapitalised" to offset its NPA.
In fact, banks in India are so worried of NPAs, that they are refusing to lend - creating a 'credit crunch' in the market!
THE RISING RISK OF INDIA'S EXTERNAL DEBT.
Recently, the Reserve Bank of India (RBI) has had to inject 'liquidity' into the system by buying GoI securities. The amount? Rs.22,000 crores in three weeks!
The following is a snapshot of where India stood in terms of debt issuance even before the RBI opened the liquidity tap...
According to a Ministry of Finance press release on 2 December 2011,
Credit growth to specific sector may pose concerns. According to the data published in the Report on Trend and Progress of Banking in India 2010-11, [...] credit to infrastructure, real estate, retail and Non-Banking Financial Companies witnessed a growth of 38.6 per cent, 21.4 per cent, 19.5 per cent and 54.8 per cent, respectively [...]
(The emphasis is mine.)
According to the Finance Ministry report, India’s external debt at end-March 2011 was US$ 305.9 billion, of which, corporate borrowing was 28.9% - and growing! BusinessLine has an article on the growing similarities between the 1991 'balance-of-payment' crisis and today's circumstances... And the falling value of the Indian Rupee certainly isn't helping.
The main difference is massive scale of the problem today.
AND WHAT WE MUST REMEMBER, IS THAT INDIA'S SOVEREIGN DEBT RATING AT "Baa3" - THAT IS JUST ONE STEP ABOVE 'JUNK'!!!