MUMBAI: Worsening external sector conditions have become a major reason for worry at the central bank, which is concerned about funding the current account gap, as foreign exchange reserves have depleted.
According to several economists who attended the customary pre-monetary policy meeting with the Reserve Bank of India (RBI) on Tuesday, since there was no stable source of funding the gap, the regulator was concerned that if growth did not pick up, capital flows would suffer.
Most economists highlighted the need for a rate cut to revive the economy, but agreed inflation and inflationary expectations remained a key challenge, as commodity prices and international crude oil prices, in particular, remained high. A majority of the economists were of the view that there should be a cut in repo rate by 25 bps in the upcoming credit policy review on April 17.
The RBI had earlier met industry chambers and Indian Bank Association (IBA). The governor is scheduled to meet the Technical Advisory Committee on Monetary Policy tomorrow.
The demand for a rate cut is primarily to boost economic growth, which slowed to 6.9 per cent in 2011-12 from 8.4 per cent a year before. Growth for 2012-13 has been pegged at 7.6 per cent. RBI raised the policy rate 13 times between March 2010 and October 2011 to tackle inflation and then pressed a pause button for consecutive policy reviews.
The country’s current account deficit (CAD) nearly doubled in October-December and rose to $19.6 billion from $10.1 billion a year earlier, due to a sharp slowing in merchandise and services exports, even as imports grew at a rapid pace, data released by RBI showed.
From September to February, RBI has sold a net $20.14 billion in the spot market, to arrest the rapid fall in the rupee’s value. The rupee lost 15.8 per cent of its value in 2011, when it plunged to an all-time low of 54.30 to the dollar in December.
The trade deficit in October-December widened to $47.7 billion from $31.4 billion a year earlier. According to the central bank, India’s balance of payments experienced significant stress as the trade deficit widened and capital inflows fell far short of the financing requirement, resulting in significant drawdown of forex reserves.
Inflation fell below seven per cent in January and February, mainly due to the statistical base effect. Economists said the advantage of a favourable base will not be there after April.
“There is a view to cut the rate now and if inflation again goes up, then keep the option to raise the rate,” said an economist. However, this view has been countered by the opinion that even a rate cut – which would not be more than 50 basis points – along with a hawkish statement would not boost investor sentiment.
FEMA SET TO BE TWEAKED TO ALLOW FDI FROM PAKISTAN WITH RIDERS
NEW DELHI: Indiais close to opening all domestic sectors except a few like defence, atomic energy and space to foreign direct investment (FDI) from Pakistan, a move that could help build confidence in normalising cross-border trade. Finance minister Pranab Mukherjee is said to have approved a commerce ministry proposal to amend rules under the Foreign Exchange Management Act (Fema), 1999, which bars all forms of investment from Pakistan. The move could lead to the Reserve Bank of Indianotifying the changes so that the department of industrial policy and promotion (DIPP) could issue a press note allowing such investments, experts said. Fema, which took effect in 2000, governs all foreign exchange transactions in Indiaand specifically bars transactions from Pakistan. “A non-resident entity (other than a citizen of Pakistanor an entity incorporated in Pakistan) can invest in India, subject to the FDI policy,” says Fema. (For details log on to : http://www.financialexpress.com/news/fema-set-to-be-tweaked-to-allow-fdi-from-pakistan-with-riders/935317/)
PANEL TO REVIEW SERVICE TAX REFUND FOR EXPORTS
NEW DELHI: The finance ministry has formed a committee to review the scheme for electronic refund of service tax paid on taxable services used for export of goods. This follows a two percentage points increase in service tax and introduction of a ‘negative list’ for taxation in the sector. The committee is to suggest a scientific approach for fixing the schedule of rates for service tax refund and propose a revised schedule of rates for refunds, taking into account the recent revision from 10 per cent to 12 per cent and movement towards a ‘negative list’ approach, the ministry said. The panel is to be headed by the director general of service tax, Sanghamitra Panda, and is to give its report to the Central Board of Excise & Customs (CBEC) chairman by June 20. Others on the committee are Sushil Solanki, commissioner of service tax in Mumbai, and J M Kennedy, director in the tax research unit of the CBEC. (For details log on to : http://www.business-standard.com/india/news/panel-to-review-service-tax-refund-for-exports/470897/)
BOND YIELDS EASE IN RUN-UP TO RBI REVIEW MARKETS HOPE FOR RATE CUT
MUMBAI: Yields on the 10-year benchmark government security eased 11 basis points in the past week, as markets factored in expecations on the start of a monetary easing cycle. The yields eased ahead of the Reserve Bank of India (RBI)’s Annual Monetary and Credit Policy on April 17. “Bond markets have factored in a rate cut of about 25 bps,” said Vivek Rajpal, Nomura’s Indiarates strategist. “What matters now is the kind of signal RBI gives on further rate cuts.” On Tuesday, yields on the 10-year benchmark bond closed at 8.6 per cent. Yields had spiked to a four-month high of 8.78 per cent last week, on partial devolvement of the first government bond auction. (For details log on to : http://www.business-standard.com/india/news/bond-yields-ease-in-run-up-to-rbi-review-markets-hope-for-rate-cut/470863/)
RBI NOD TO UP FII HOLDINGS IN INDIAN FIRMS MUST
NEW DELHI: Prior permission from RBI will now become mandatory for foreign institutional investors (FIIs) who wish to increase overall holdings in an Indian company beyond 24%. Also, post RBI nod, the Indian companies will need to get the approval of their respective board of directors and shareholders to allow FIIs to hold over 24% stake in the companies. The government has decided to discourage import of sub-standard machinery and withdraw the facility of giving equity in lieu of import of second hand equipment’s after allowing it for a year. These measures are part of the six-monthly policy review of foreign direct investment (FDI) in the country. (For details log on to : http://www.financialexpress.com/news/rbi-nod-to-up-fii-holdings-in-indian-firms-must/935280/)
NO HIGHER SERVICE TAX ON AIR TICKETS BOOKED BEFORE APRIL 1: CBEC
NEW DELHI: The Revenue Department has said air travellers who had purchased their tickets before April 1, 2012 will not have to pay the higher service tax. “It has been brought to the attention of the Board (CBEC) that some airlines are collecting differential service tax on tickets issued before 1st April 2012 for journey after 1st April 2012, causing inconvenience to passengers,” the Central Board of Customs and Excise (CBEC) said. The rate of service tax was 10 per cent till March 31, 2012 but it has been increased to 12 per cent from April 1, 2012. The Board has asked airlines companies to deposit the differential service tax collected by them on tickets issued before April 1, for journey after that date, in a central government account. (For details log on to : http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/no-higher-service-tax-on-air-tickets-booked-before-april-1-cbec/articleshow/12613629.cms)
OBC CUTS LENDING, DEPOSIT RATES BY UP TO 0.5%
NEW DELHI: State-owned Oriental Bank of Commerce (OBC) on Tuesday slashed base rate or minimum lending rate by a marginal 0.1 per cent while fixed deposit rates on select maturities by up to 0.5 per cent. The bank has reduced the base rate by 10 basis points to 10.65 per cent from 10.75 per cent, OBC said in a statement. The reduction in base rate will make all kind of loans, including housing, auto loans cheaper by at least 0.1 per cent. The new rate would be effective from tomorrow, it said. As far as deposit rates are concerned, the bank reduced interest rate on fixed deposits with maturity between 1-2 years by 0.25 per cent to 9.50 per cent. For term deposits worth Rs 15 lakh to Rs 1 crore with maturity between 46-90 days, the new interest rate will be 0.5 per cent lower than the existing 9 per cent. The bank has increased its rate of interest applicable for senior citizens from 0.5 per cent to 0.6 per cent over and above the card rate. The new fixed deposit rates would be effective from April 16. (For details log on to : http://www.business-standard.com/india/news/obc-cuts-lending-deposit-rates-byto-05/470877/)
KARUR VYSYA IN TIE-UP WITH M&M TO PROVIDE VEHICLE FINANCE
MUMBAI: Private sector lender, Karur Vysya Bank(KVB) has signed a preferred financier agreement with automotive major Mahindra and Mahindra for providing auto finance to its customers. “Under the agreement, M&M customers will be able to avail of vehicle finance from any of the 450-plus branches of KVB,” a bank release said today. Chief Executive Officer and Managing Director of Karur Vysya, K Venkataraman, said, “KVB is expanding its operations in commercial and passenger vehicle financing. Customers of KVB will be benefited out of this tie-up since they will have privileged access to the specialised services of M & M along with provision of loans for purchase of vehicles at a comparatively low EMI.” M&M said that they expect good response from dealers and customers post this arrangement. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/karur-vysya-in-tie-up-with-mm-to-provide-vehicle-finance/articleshow/12611808.cms)
SPANISH BANKS FACE FUNDING LOCK-OUT
LONDON: Covered bond syndicate bankers are expecting weak jobs data out of the USand a persistent deterioration of Spanish bank credit to weigh heavily on the new issue market for the foreseeable future. It’s a backdrop that is likely to lock Spanish banks out of the primary market and deprive the country’s banks of a funding plan B, according to one banker. “The Spanish are continuously looking at the market but the increasing weakness in the government spreads and the confusion around the M&A sector is putting a number of investors off.” Investors are now focusing on the technical difficulties in the Spanish real estate and government bond markets — which are not likely to be solved by austerity cuts or euro 1 trn of fresh liquidity through twin three-year funding operations, or LTROs. (For details log on to : http://www.business-standard.com/india/news/spanish-banks-face-funding-lock-out/470872/)
STAR UNION, DAI-ICHI TO BUILD ON AGENCY MODEL
MUMBAI: Star Union Dai-ichi Life Insurance (SUD Life), which has traditionally relied on bancassurance model, plans to expand its agency distribution. The company is currently running a pilot with 473 agents who have so far brought in R4.79 crore of premium. “Though bancassurance would continue to remain our dominant business model, we have now started experimenting with the agency model in the Eastern region of the country. We plan to increase area offices from 10 at present to 50 this fiscal,” said K Sahay, CEO of SUD Life. SUD Life is a joint venture between Bank of India, Union Bank of Indiaand Japan’s Dai-ichi Life Insurance. As per draft guidelines issued by Irda in late 2011, banks may now be able to sell products of multiple insurance companies. The current Irda regulations stipulate that a bancassurance partner can sell only one insurance company’s products. (For details log onto : http://www.financialexpress.com/news/star-union-daiichi-to-build-on-agency-model/935065/)
MFIN SEEKS RBI’S INTERVENTION TO ENABLE MFIs TO COLLECT DUES
HYDERABAD: Microfinance Institutions Network (MFIN) today sought Reserve Bank of India’s (RBI) intervention to enable micro lenders to collect their Rs 7,000-crore dues, which is stagnated since November 2010 in Andhra Pradesh. “We requested the Reserve Bank to take more direct role in the dialogue with the Andhra Pradesh government. Sidbi (Small Industries Development Bank of India) has also been doing the dialogue,” MFIN President Vijay Mahajan told PTI. “So we will have to find solution.” MFIN is the industry association of micro lenders. According to RBI guidelines, microfinance institutions have to make provisioning for the overdue by March 31 next year. If the MFI sector has to be alive then RBI, the AP government and the central government have to find a solution for this Rs 7,000 crore outstanding in AP,” he added. (For details log on to : http://www.business-standard.com/india/news/mfin-seeks-rbis-intervention-to-enable-mfis-to-collect-dues/470874/)
FII NORMS FOR COMMEXES RELAXED
NEW DELHI: After much dithering, the government released the revised consolidated foreign direct investment (FDI) policy on Tuesday, relaxing norms of investment by foreign institutional investors (FIIs) in commodity exchanges. Now, FIIs will not require government approval to invest in these exchanges. The cap on FII investment, however, remains at 23 per cent. The department of industrial policy and promotion (DIPP) under the commerce and industry ministry said government approval would nonetheless be required for the FDI component of investment up to 26 per cent in commodity exchanges. “This change aligns the policy for foreign investment in commodity exchanges with that of other infrastructure companies in the securities markets, such as stock exchanges, depositories and clearing corporations,” DIPP said. (For details log on to : http://www.business-standard.com/india/news/fii-norms-for-commexes-relaxed/470899/)
NSE WARNED FOR NOT ALERTING SEBI ON CLIENT CODE CHANGES
MUMBAI: The Securities and Exchange Board of India (Sebi) on Tuesday warned the National Stock Exchange (NSE) for its failure to bring to the regulator’s notice high client code modifications by trading members in March 2010. During investigations, Sebi found client code modifications in excess of Rs 55,000 crore were done by brokers in a single month, which NSE failed to disclose to the regulator. It was also found that client code modifications were largely done by the top 10 brokers and their few clients. Changing client codes within 30 minutes after the market closed was a normal practice followed by brokers for rectifying ‘genuine’ errors and mistakes which may have occurred during the trading hours. However, the income tax department in a complaint to the Union finance ministry had said the facility was being misused and brokers transferred gains or losses from one person to another by changing the code, in the garb of correcting an error. These gain or loss-book entries were then used to evade taxes. The ministry had asked Sebi to investigate client code changes. (For details log on to : http://www.business-standard.com/india/news/nse-warned-for-not-alerting-sebiclient-code-changes/470842/)
SEBI MOVES APEX COURT ON MCX-SX RULING
MUMBAI: The Securities and Exchange Board of India (Sebi) has moved the Supreme Court (SC), challenging the Bombay High Court’s verdict in the MCX-SX case. The market regulator has also sought more time from the SC to consider the MCX-SX application for operating as a full scale stock exchange, as directed by the Bombay HC. However, an email query to Sebi went unanswered. Last month, the HC had quashed Sebi’s view that a buyback arrangement entered into by promoters of MCX-SX with other shareholders of the company was illegal. The HC had also dismissed most arguments of the regulator such as interpretation of rules regarding persons-acting-in-concert and shareholding norms. Attorney general Goolam Vahanvati had advised Sebi to file a special leave petition in the SC on the HC verdict. In 2010, MCX had moved the Bombay HC, seeking directions to force Sebi to respond to its application to trade equities, since it had not heard anything from the regulator even after several months. The court had directed Sebi to decide on the issue. (For details log on to : http://www.business-standard.com/india/news/sebi-moves-apex-courtmcx-sx-ruling/470841/)
EQUITY SIPs PROVE A DAMP SQUIB
MUMBAI: Equity systematic investment plans (SIPs), a product introduced by top brokerages last year, have failed to attract investors as volatile equities and product limitations have deterred investment through this route. “The volatile equity market is keeping retail investors and high networth individuals away. Those willing to ‘SIP’ are only‘SIP’ping through mutual fund schemes,” said Amar Ranu, senior manager (third party products research & advisory), Private Wealth Management, Motilal Oswal Securities. “Many brokers launched the product as it seemed to be a good way of piggybacking on the SIP bandwagon and ensure captive business every month,” added an industry observer, on condition of anonymity. (For details log on to : http://www.financialexpress.com/news/equity-sips-prove-a-damp-squib/935157/)