MUMBAI: The Reserve Bank of India on Wednesday tightened rules for lending against gold by finance companies, saying the rapid growth in such loans in the past few years had increased risks to the banking system and retail investors.
The banking regulator has directed that companies having half their assets in gold should have a minimum equity capital, or tier-I capital, of 12% by April 2014. Further, these companies can’t lend more than 60% of the value of gold jewellery.
NBFCs lending against gold have seen almost 50% annual growth in the past few years as rising prices of the yellow metal led many people without access to banks to borrow from these companies.
Since business was booming, companies such as Muthoot Finance and Manappuram Finance began borrowing substantially from banks and also through sale of bonds. The RBI is worried that since these companies lend 70-75% of the value of gold, a fall in prices could destabilise the system.
The central bank has also banned companies from lending against bullion, primary gold and gold coins, leaving just jewellery.
“The rapid pace of their growth and the nature of their business model, which has inherent concentration risk”, exposes them to “adverse movement of gold prices”, warned the RBI.
More than half the funding requirements of these finance companies are met through borrowings from banks and from sale of bonds. With high profit margins, investors have been lapping up bonds and stocks of gold loan companies.
HIGHER WEEKLY AUCTIONS TO WEIGH ON LIQUIDITY IN FIRST HALF
MUMBAI: Liquidity may come under pressure as the amount in weekly auctions of government securities goes up with the increase in the yearly borrowing target, and likelihood of completing 60 per cent of the programme in the first half of the next financial year. The Reserve Bank of India (RBI) would release the borrowing calendar for April-September next week, after talks with the finance ministry. For 2012-13, the government has pegged net market borrowings at Rs 4.79 lakh crore, which translates into gross borrowing of Rs 5.69 lakh crore. Manoj Rane, head (fixed income and treasury), BNP Paribas, said, “This means there could be a weekly auction of Rs 15,000-16,000 crore.” Weekly auctions stood at Rs 10,000-12,000 crore in the first half of the current financial year. This was stepped up to Rs 12,000-15,000 crore, owing to the upward revision of the yearly target in the second half. The government is expected to front-load the borrowing programme in the first half of the next financial year. (For details log on to : http://www.business-standard.com/india/news/higher-weekly-auctions-to-weighliquidity-in-first-half/468609/)
LOCK-IN FOR RAJIV GANDHI EQUITY SCHEME MAY BE CUT TO ONE YEAR
NEW DELHI: In an effort to further sweeten the Budget proposal aimed at encouraging small investors to put their money into the Rajiv Gandhi Equity Scheme, finance ministry is likely to reduce the prescribed lock-in period from the proposed three years to one year. The changes would form part of the detailed guidelines of the new scheme that are expected to be released by Sebi within a month. To improve the depth of the domestic capital markets, finance minister Pranab Mukherjee in the Budget introduced the new equity scheme to encourage flow of savings into financial instruments. The scheme allows income-tax deduction of 50% of the total investment made by new retail investors in equities. The investment benefit is capped at R50,000. The benefit is available only once to all individuals with an an annual income below R10 lakh. (For details log on to : http://www.financialexpress.com/news/lockin-for-rajiv-gandhi-equity-scheme-may-be-cut-to-one-year/926622/)
BUDGET 2012-13: FLAT, NO BIG IDEAS & NOTHING PATH-BREAKING
The finance minister had a tough task on hand. He was expected to combine political wisdom with fiscal wisdom. His was to do a balancing act that spurs the economy to vigorously rejoin the growth path after the let-down in FY 2011-12. As he himself admitted, he has had “to be cruel to be kind”. The FM held out five lofty objectives – boost demand, encourage private investments, remove supply bottlenecks, mitigate malnutrition and improve delivery system, governance and transparency. All have been touched but the needle may not been moved a lot. If one were expecting a big-bang reform Budget, this one belies all expectations. Of course, it does come across as a realistic document, with little rhetoric. (For details log on to : http://www.financialexpress.com/news/budget-201213-flat-no-big-ideas-&-nothing-pathbreaking/926649/)
BANKS SHOULD OPEN 25 PC BRANCHES IN UNBANKED AREAS: RBI
JAMMU: The Reserve Bank today asked banks to comply with the prescription of opening at least 25 per cent of new branches in a year in unbanked areas with a population less than 10,000. “At RBI we have said at least 25 per cent of all the branches opened in a given year should be opened in unbanked areas with population of less than 10,000,” RBI Governor D Subbarao told a state-level conference of bankers here today. “I hope that prescription would be complied with (by all the banks). It should be done in consultation with state government,” the Governor further said while referring to financial inclusion and awareness drive. Giving further direction to bankers, Subbarao said that it has agreed to take forward financial inclusion programme more meaningfully in Jammu and Kashmir. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-should-open-25-pc-branches-in-unbanked-areas-rbi/articleshow/12357949.cms)
UNITED BANK OF INDIA COMPLETES FINANCIAL INCLUSION TARGET
KOLKATA: United Bank of India has today opened 12 branches in unbanked areas of West Bengal, Tripura and Assamto achieve its financial inclusion target by March 2012. The bank said it has completed extending banking services in 1,808 villages through business correspondents while it opened a total of 35 physical branches before the deadline. UBI chairman and managing director Bhaskar Sen said these branches will extend all sorts of banking services and improve banking facilities in the unbanked villages by opening of NREGA accounts and providing social security pension. On Wednesday, it opened nine financial inclusion branches in West Bengal, two in Tripura and one in Assam. The bank has opened another three branches in Imphal, Karur & Bangalore to take the total tally to 1,678. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/united-bank-of-india-completes-financial-inclusion-target/articleshow/12356756.cms)
BANK OF INDIA RAISES FIXED DEPOSIT RATES BY UP TO 0.75 PER CENT
NEW DELHI: State-owned Bank of India today announced increasing fixed deposit rates of select maturities by up to 0.75 per centage point. Fixed deposits less than Rs 15 lakh with maturity period of 91-179 days will earn 7.25 per cent interest as against existing 7 per cent, the bank said in a filing on the BSE. Similarly, interest rates on 270 days to one year and 1-2 years fixed deposits will be raised by 0.25 per centage points to 8.25 per cent and 9.25 per cent respectively. At the same time, interest rate on 3-5 years term deposits will be increased by 0.75 per centage points to 9.25 per cent while fixed deposits above 5 years by 0.5 per centage point 9.25 per cent against existing 8.75 per cent. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/bank-of-india-raises-fixed-deposit-rates-by-up-to-0-75-pc/articleshow/12356978.cms)
SOUTH INDIA BANK SCRAPS RS 1,000-CRORE QIP PLAN AGAIN
KOLKATA: South Indian Bank has dropped its Rs 1,000-crore qualified institutional placement or QIP again after failing to attract investment at a premium over the floor price fixed by the market regulator. The Kerala-based private lender said it has no urgency to raise funds and it is comfortable with its current level of capital. Securities & Exchange Board of Indiahad pegged the floor price for the QIP issue at Rs 25.60, which was the average stock price over last 15 days prior to March 14. According to market sources, the lender was seeking a minimum 10% premium over this. “”Even though there was a huge response from foreign institutional investors or FIIs, domestic players were not willing to pay a premium over the floor price, so we have decided to cancel the QIP,”” bank chief executive VA Joseph told ET. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/south-india-bank-scraps-rs-1000-crore-qip-plan-again/articleshow/12352940.cms)
AXIS BANK ROLLING OUT ‘NEW LOOK’ BRANCHES
MUMBAI: Given the high real estate costs and the convenience of online banking, a large bank branch may seem like a luxury. But banks are increasingly revamping their branches to attract and retain customers. Axis Bank, India’s third largest private sector bank, is changing the layout and look of its branches. “The idea is that people should feel attracted from outside to walk into a branch, which are brand ambassadors for the bank. They should have a nice experience and leave thinking ‘I am coming back’”, said Ms Manisha Lath Gupta, Chief Marketing Officer, Axis Bank. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3026143.ece)
SWISS BANKS STILL DRAW WORLD’S RICH DESPITE SECRECY BLOWS
ZURICH: Swiss bankers are on the defensive with their secretive industry under sustained attack for sheltering tax dodgers. Some cannot travel abroad for fear of arrest in tax investigations. But the fur coats and expensive cars on display around the Paradeplatz square at the heart of Zurich’s financial district – as well as booming house prices — tell a different story: business is good in a city now ranked the world’s costliest. Zurichovertook Tokyoas most expensive according to a new ranking by the Economist Intelligence Unit because of the soaring Swiss franc. The currency is up 30 percent since 2008, despite a cap imposed last year by the central bank, because investors view it as a safe haven in global economic turmoil. (For details log on to : http://www.financialexpress.com/news/swiss-banks-still-draw-worlds-rich-despite-secrecy-blows/926672/)
CONDITIONS RIPE FOR INTEREST RATE REFORMS: CHINA CENTRAL BANK
BEIJING: Conditions are “basically” ripe for Chinato forge ahead with interest rate liberalisation, but the country still needs to set up a deposit insurance system, central bank chief Zhou Xiaochuan wrote in an article seen on Wednesday. Reforms of Chinese commercial banks had laid “an important foundation” for interest rate liberalisation, Zhou said in the article published in the latest edition of China Finance magazine, a publication run by the central bank. “Currently, conditions for market-oriented interest rate liberalisation are basically ripe. The People’s Bank of China will actively push forward (such reforms),” Zhou said. Beijingcontrols China’s interest rate market by setting a ceiling on deposit rates and a floor on lending rates. This protects banks from competition and ensures they have a decent interest rate margin, which is around 300 basis points. The central bank will quicken the process of establishing a long-awaited deposit insurance as a key component of “financial safety nets” in the country, Zhou said. Deposit insurance policy is a measure to protect depositors from losses caused by a bank’s inability to pay back deposits when they come due. (For details log on to : http://www.financialexpress.com/news/conditions-ripe-for-interest-rate-reforms-china-central-bank/926670/)
LIFE INSURERS CAUGHT IN A CLEFT, COURTESY REGULATOR
The gloves are off. At a time when the life insurance industry is faced with an unprecedented slide in premium collection, its relationship with the regulator-industry seems to be at an all-time low. While the Insurance Regulatory and Development Authority (Irda) is standing firm on its move to usher in sweeping changes to curb mis-selling, insurers say it’s happening all too soon and are reluctant to give up without a fight. Life Insurance Council, the representative body of life insurance players, has taken up the matter with the government to save the day. Insurance industry sources say the finance ministry seems to be taking its role of an umpire quite seriously and is tracking the developments closely. To be sure, the ministry is lending a sympathetic ear to the industry and agrees that some of the regulatory decisions have indeed played a key role in the unprecedented slide in premium collections in the current fiscal. A recent diktat from the regulator suggesting several changes in the product designing process has triggered the latest round of face-off, insurers said. In a letter addressed to all life insurance heads and the Life Insurance Council, Irda has proposed wholesome changes in products, group long term covers, products offering “low” insurance covers, single premiums or products with limited premium payment terms, NAV guaranteed products or benefit illustration procedures. (For details log on to : http://www.business-standard.com/india/news/life-insurers-caught-incleft-courtesy-regulator/468597/)
IRDA RAISES RED FLAG ON RISING RISKS, MULTIPLE SCHEMES
MUMBAI: India’s insurance regulator is uncomfortable with the way the country’s life insurance industry is being run. In a recent letter to life insurers, the Insurance Regulatory and Development Authority (Irda) raised several concerns about the products being sold by insurers without taking into account customers’ interests and the rising exposure to risks. Irda is wary of products that assure unlimited sums as the risks are ultimately borne by the foreign reinsurers over whom the regulator has no control. It has also criticized the life insurance industry for offering multiple policies under the umbrella of a single product without any additional benefits to investors—an observation that India’s capital market regulator had made on the mutual fund (MF) industry sometime back. There are 24 life insurers in Indiawith close to Rs.15 trillion in assets. In the December quarter, the industry collected about Rs.1.08 trillion in premiums, according to the Life Insurance Council, the representative industry body. (For details log on to : http://www.livemint.com/2012/03/21223645/Irda-raises-red-flag-on-rising.html?atype=tp)
IDBI FEDERAL LIFE LAUNCHES NEW PLAN
MUMBAI: Private insurer IDBI Federal Life launched a plan that offers “attractive guaranteed” return along with tax benefits for those willing to invest for a short to medium term. “IDBI Federal Bondsurance Plan is specially crafted for those seeking a one-time lump sum investment that delivers attractive tax-free guaranteed returns along with the promise of life insurance protection,” the company’s Managing Director and CEO, G V Nageswara Rao, said in a release here. Under the scheme, the premium is as low as Rs 20,000. Other benefits include simple buying process, discount on single premium in case the guaranteed maturity benefit is equal to or greater than Rs 1,50,000 and liquidity before maturity through special surrender value after the first year, the release said. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/idbi-federal-life-launches-new-plan/articleshow/12357183.cms)
POWER FINANCE CORP TO RAISE RS 40,000 CRORE IN 2012-13
MUMBAI: Power Finance Corporation (PFC) plans to raise about Rs 40,000 crore in the next financial year. It aims to raise about Rs 3,000 crore through domestic corporate bonds. The bond issue of the government-owned non-banking financial company opened today and would close tomorrow. Chairman and Managing Director Satnam Singh said, “We aim to raise a minimum of Rs 150 crore through this issue. However, we have kept a greenshoe option (option to allot additional shares) and should be able to garner up to Rs 3,000 crore. The response to the issue would decide whether or not we bring out more bond issuances this financial year.” Bonds with tenors of five and 10 years would be issued, with options to buy (call option) or sell (put option) a specified amount of a security at a specified price and within a certain period. Investors can chose from three options — five-year bonds with a put and call option after 18 months and a coupon rate of 9.61 per cent, five-year, 18-day bonds with a put and call option of three years and a coupon rate of 9.66 per cent and 10-year bonds with a coupon rate of 9.48 per cent. (For details log on to : http://www.business-standard.com/india/news/power-finance-corp-to-raise-rs-40000-cr-in-2012-13/468610/)
GAIN FOR REALTY, A STRUGGLE FOR AVIATION & POWER
MUMBAI: Housing finance companies (HFCs) may be able to access external commercial borrowings (ECBs), a route allowed in the Budget, while the aviation and power sectors would face hurdles in accessing this financing window. Arrangers are of the view that prominent HFCs could tap funds with ease despite the stigma attached to the mortgage industry since the sub-prime crisis of 2008. “Housing finance companies will be among the best-placed in terms of ECB access for a large part from specialised financial institutions that focus on this sector,” Brijesh Mehra, managing director, country head-international banking, RBS Markets and International Banking, told Business Standard. “There are some good companies — for example, HDFC — which can tap funds at a reasonable rate despite the challenges faced by the sector in recent past.” ECB access was one of the most sought demands of HFCs. ECBs are loans Indian firms are allowed to take from abroad. Budget 2012-13 allowed this access for affordable housing projects, rupee debt re-financing by the power sector and for raising funds to meet working capital requirement, of the aviation sector. (For details log on to : http://www.business-standard.com/india/news/gain-for-realtystruggle-for-aviationpower/468611/)
BLACKSTONE GROUP, BAIN CAPITAL MAY BUY OUT EURONET’S INDIA ATM BUSINESS
MUMBAI: Private equity funds Blackstone Group and Bain Capital are negotiating to buyout the Automated Teller Machines business of Euronet Worldwide in Indiato benefit from rising use of electronic transactions, said three people familiar with the discussions. The business, which Euronet classifies under the so-called Electronic Financial Transaction segment, is facing profitability pressures due to steady climb in costs, they said preferring anonymity. It is the biggest third-party operator of shares ATMs across the nation. Euronet, the Nasdaq listed firm, had in the past sold a similar business in the UKto Bridgepoint Capital for $30 million. The Indiabusiness, where it operates more than 1,300 ATMs, could be valued as high as $250 million, those people said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/blackstone-group-bain-capital-may-buy-out-euronets-india-atm-business/articleshow/12360762.cms)
SUPER RELIGARE LABORATORIES IN TALKS WITH PRIVATE EQUITY FIRMS FOR STAKE SALE
NEW DELHI: Two private equity PE firms, including International Finance Corporation, are close to buying over 15-20% stake in India’s largest diagnostic chain Super Religare Laboratories (SRL) ahead of its planned public issue. IFC has a tentative agreement to invest around Rs 125 crore, said a person familiar with the negotiations, while either Jacob Ballas Capital or Qatar-based QInvest will invest Rs 150 crore. The deal is expected close in the next few weeks. The fund infusion will help the privately-held company reduce its debt of about Rs 300 crore that came with the acquisition of Piramal Diagnostics in 2010. An IFC spokeswoman said it was premature to comment whether the deal would be closed or not while Qinvest declined to comment. Jacob Ballas did not reply to an email. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/super-religare-laboratories-in-talks-with-private-equity-firms-for-stake-sale/articleshow/12361286.cms)
GOLD ETF INFLOW DIPS SINCE SEPTEMBER
MUMBAI: After equities, it seems retail investors are now wary of gold exchange traded funds (ETFs), too, as the yellow metal’s prices continue to remain higher. Net inflows are fast shrinking and even investors have started moving out of this asset class offered by mutual fund houses. The first half of the current financial year witnessed robust inflows of Rs 2,658 crore, surpassing what the industry could garner in the previous financial year. The investments in gold ETFs touched its peak when investors pumped in close to Rs 1,000 crore in September. However, what followed in the second half of the year suggests lessening investors’ interest in gold. Nitin Rakesh, chief executive of Motilal Oswal Mutual Fund, notes gold is price-sensitive. “Higher prices could be one factor why investors are staying away. After Diwali, it’s an off-season; hence, a reduction in sales,” he says. “I believe that at current prices, investors have shelved their plans. Even so, if markets correct, say to Rs 23,000 or Rs 25,000, then people would put in money.” (For details log on to : http://www.business-standard.com/india/news/gold-etf-inflow-dips-since-sept/468587/)
RELIANCE MUTUAL, HDFC, STATE STREET CORP & SEVEN OTHER FUNDS IN FINAL LAP FOR FIDELITY’S INDIA MUTUAL FUND BUSINESS
MUMBAI: About ten funds, including Reliance Mutual, HDFC, and State Street Corp, have been shortlisted to buy Fidelity’s Indiamutual fund business, people close to the transaction said. The winner is expected to be selected some time in April from a second shortlist of five, they added. JP Morgan, which is advising Fidelity on the transaction, is said to have compiled a shortlist of ten from the 22 funds, who submitted expressions of interest. Of these ten, Fidelity Indiawill recommend the five “best names” to its parent to take the transaction forward, a person close to the development said. The shortlisted asset management companies include Reliance Mutual Fund, HDFC Mutual, ICICI Prudential, Birla Sunlife Mutual Fund, Invesco, Mitsubishi UFJ, Mizhuo Asset, Pramerica and State Street Corp. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/reliance-mutual-hdfc-state-street-corp-seven-other-funds-in-final-lap-for-fidelitys-india-mutual-fund-business/articleshow/12361690.cms)