Europe crisis raises banks risk by 300 billion euros: IMF

Europe's debt crisis has increased the risk exposure of banks in the region by 300 billion euros and they need to recapitalize to ensure they can weather potential losses, the International Monetary Fund said on Wednesday.

In its Global Financial Stability Report, the IMF said it sought to "approximate the increase in sovereign credit risk experienced by banks over the past two years."

The report did not measure bank capital needs, which the IMF said would have to be determined by fully fledged stress tests to identify balance sheet assets, income or losses.

Earlier this month, IMF Managing Director Christine Lagarde drew fire from European officials when she called for a mandatory recapitalization of Europe's banks.

News reports last month said the IMF had identified a 200 billion euro shortfall in European bank capital, but officials in Europe insisted the figure was off the mark and the capital position of most banks in the region was solid.

European officials stood by bank stress tests they conducted in July that found only eight banks deficient in capital with a combined shortfall of only 2.5 billion euros, a figure widely criticized as too low and politically skewed.

The IMF's report on Wednesday made clear the 200 billion figure was not a hard measure of a capital shortfall.

Instead, it measured how risk exposure had increased as sovereign debt prices had fallen. It said a further 100 billion euro increase in exposure was related to a recent decline in bank asset prices and rise in bank funding costs.

The report said banks should raise capital privately although public funds may be necessary for viable banks. Lagarde had said Europe might need to consider tapping its sovereign debt bailout fund to bolster banks.

DAMAGE TO EMERGING MARKET BANKS
The IMF said the damage could spread from Europe to banks in emerging market economies.

For the first time, it estimated emerging market bank balance sheets could be reduced by up to 6 percentage points if the pace of global growth fell sharply on the back of Europe's troubles and forced a sudden reversal in capital flows.

The IMF said banks in Latin America were most vulnerable, while banks in Asia and eastern Europe were more sensitive to increases in funding costs.

"Risks are elevated and time is running out to tackle vulnerabilities that threaten the global financial system and the ongoing economic recovery," the report said.

The IMF called for a "coherent" strategy to address the risk of financial and economic spillovers from the European debt crisis, which has forced Greece, Portugal and Ireland to turn to the European Union and IMF for rescue loans.

In a surprise move on Monday, Standard & Poor's cut Italy's credit rating -- a sign the crisis was spreading to larger euro zone economies.

The report said political differences among European policymakers on providing support for crisis-hit countries in the euro zone periphery slowed Europe's crisis response and rattled confidence.

It also said there were growing doubts that political leaders in the United States could agree on ways to lower US budget deficits over the medium-term, which it called critical for global financial stability because of the status of the US dollar as a reserve currency.

The IMF said markets had started to question the ability of both Europe and the United States to get their budget deficits under control, raising concerns about the risk of default.

It said banks in some economies have already lost access to private funding markets, raising the possibility of a wider bank lending freeze and more severe deleveraging unless adequate steps were taken to address budget strains and strengthen banks.


Source : ET

From Oct 1, switch your health insurer in 7 days

Your health insurance portability will be a quick affair now. Insurers will have to share the data on policies to be migrated within seven days from the date of request.

This has been mandated by the Insurance Regulatory and Development Authority (IRDA) in its final guidelines on the portability, communicated to the insurers by a circular.

“We have just received the circular dated September 9, 2011, which also clarifies that portability would be applicable only from a non-life company to another,” Mr B. Subrahmanyam, Vice-President, Bharati AXA General Insurance Company, told Business Line on Tuesday.

Health insurance portability is to come into force from October 1.

Those who wish to migrate need to apply at least 45 days prior to the date of renewal. The bonus accrued, if any, would be carried forward by the new insurer after migration, says the circular.

Apart from individual policies, portability is also extended to ‘family-floating' policies where cover is offered to select family members of the insured.

PREPARED

“Internally, we are prepared to execute portability and have already done the test-run of an exclusive portal,” Mr T. V. Ramalingam, Head – Underwriting, Bajaj Allianz General Insurance, said. The portal would be the key for portability as information sharing on a policyholder's data is routed through it.

With this data, the credit for pre-exiting diseases can be given to customers immediately if they are migrating to another insurer.

“From our side, everything is in place to execute portability,” Mr Sanjay Datta, Head – Customer Service, ICICI Lombard General Insurance Company, said.

IMPACT

“There will be some migrations but the impact on business could be slow initially,” Mr Datta said. Those customers who have some issues with their existing health cover providers might opt for migration, while others might take time to understand the process.

The portability would be very ‘beneficial' for the customers, but smaller companies with good service might also stand to gain, said Mr Subrahmanyam.

Health insurance portability was originally supposed to come into force from July1, 2011. The regulator had put off the date to October 1 on requests from the industry.

Source : Business Line

How Gold Rush Affects India's Growth Story & Dents the savings of Indian Households

The glitter of gold is taking the shine off India's growth story. According to World Gold Council, India's gold imports rose 60% in April-June 2011 from a year ago, as people snapped up the timetested hedge against inflation. India has always been a huge gold consumer, but the yellow metal is now our second-biggest import, behind crude, up from fifth place in 2007-08.

But, this fascination with gold could be a reason why growth seems to be flagging. Money locked up in the yellow metal effectively disappears from the economy to become jewellery or sits idle in bank lockers. "Money spent on gold is mostly wasted because it's only hoarded and simultaneously excluded from the financial inter-mediation system," said Abheek Barua, chief economist, HDFC Bank.

As money has flowed into gold, India's household savings have moved away from productive financial assets, falling to 9.7% of GDP during 2010-11 compared with 12.1% in the previous year. This shift away from financial savings can dent growth, but it's hard to say by exactly how much.

"To the extent there is a shift from household savings in financial assets towards gold, which we know has been happening, it would lead to some loss in the GDP growth," said Indranil Pan, chief economist, Kotak Bank, "although it's hard to gauge the magnitude of the loss." Gold imports are up nearly half a percentage point of the GDP in the last three years, implying that much more of savings is getting locked up in an unproductive asset.

That much of the gold is imported also worsens the current account deficit. The hunger for gold seems to have been triggered by increased risk aversion after the global financial crisis. Surprisingly, the soaring prices of gold, now at three-decade highs haven't driven buyers away.

Of course, national accounts do not consider gold as physical saving - gold imports are considered as consumption - but, as far as buyers are concerned, gold buying has a high savings consideration. "Gold is the preferred form of savings for people and there's nothing one can do about it.

It is, therefore, important to make financial savings more attractive," said C Rangarajan, chairman, Prime Minister's Economic Advisory Council. The fact that India doesn't produce much gold but imports most of the stuff increases leakages from the economy.

"If instead, the same money was spent on other assets like homes, the money would have circulated in the economy," said Sunil Sinha, senior economist with Crisil, a ratings agency. Pronab Sen, member, Planning Commission, agrees with the argument that high gold imports are not good for the economy, but he doesn't feel it is material in the current economic environment. "Since investments aren't really taking off at the moment, to talk about this in terms of inadequate savings isn't necessarily true," Sen said. "This shift to gold could become a problem over time as household savings in productive assets fall, but not right away"...

Source : TOI

Global economy stepping in ' new danger zone': World Bank President Robert Zoellick

The world economy is stepping into a "new danger zone," World Bank President Robert Zoellick said on Saturday, as growth slows and investor confidence weakens.

Speaking in Beijing, Zoellick urged Europe and the United States to tackle their debt problems, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people.

"The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union , banks, and competitiveness of some countries," he said.

"My country, the United States, must address the issues of debt, spending, tax reform to boost private sector growth, and a stalled trade policy."

Turning to China, where he is leading a World Bank study on how the nation can improve its economic growth model, Zoellick was upbeat.
China  is "well positioned" to become a "high-income" nation in the next 15 to 20 years, from its status as an "upper-middle income" country now, he said.

The question is whether China can avoid the "middle income trap", where national productivity and income growth stalls after per capita income hits $3,000 to $6,000, Zoellick said.

"If China were to continue on its current growth path, by 2030 it would have an economy equivalent to 15 of today's South Koreas, using market prices," he said.

"It's hard to see how that expansion could be accommodated with an export and investment-led growth model."

Although China is the world's second-largest economy, its per capita gross national income stands at just $4,260, World Bank data showed, less than a tenth of the $47,140 seen in the United States.

Critics have long said China relies too much on heavy investment and exports to drive its economy, and should encourage domestic consumption.

For Chinese consumption to take off, analysts say China needs to cut income taxes, improve healthcare services and labour mobility, and reduce Beijing's share of national income by raising dividend payouts from state firms, among other measures.

Source : ET