MUMBAI: The Indian rupee fell the most since December to a new closing low on Wednesday, while currency strategists forecast more pain as central bank intervention remains limited and inflows dry up.
The rupee may touch a new low of 57 to the US dollar in the next three months, one of the 10 forecasts polled by ET predicted. Most others remain conservative with a forecast between 52 and 55 to the US dollar. The currency fell 1.3% to 53.85, a closing level last seen in December. Its all-time low is 54.30 on December 15.
The rupee, which has fallen 7.2% since the Budget, now stands out as a weak currency when compared with its peers such as Chinese Yuan, Brazilian Real and South African Rand. All these currencies have appreciated this year, thanks to current account surpluses and relatively steady economic fundamentals.
India’s current account deficit is at 4.3% of GDP, far worse than the generally acceptable levels of 3%. The balance of payments, the difference in total value between payments into and out of a country, turned negative for the first time in the December quarter since the collapse of Lehman Brothers in 2008.
Some paint a grim picture by comparing the external trade position to the balance of payments crisis in 1991.
Repayments of more than $130 billion of debt are to be done this year.
The government is easing the pressure by relaxing the repayment and conversion conditions on companies’ overseas convertible bonds.
Many companies are staring at default since the stock price is far lower than the agreed conversion price.
“The rupee would be largely under pressure due to huge current account deficit and redemption of foreign currency convertible bonds, which would mean demand for dollars will be higher than the supply,” said Brinda Jagirdar, CGM, economic research, at State Bank ofIndia.
Insatiable appetite in the boom years of 2005-2008, fuelled by easy credit aimed at high economic growth and cheap dollar flows, has led to a consumption binge without creating adequate infrastructure to boost exports that could take care of forex needs.
Since the foreign fund flow has slowed without proportionate slowing in imports, the pressure is mounting on the Rupee. Trade deficit, the excess of imports over exports, last fiscal reached a record high of $185 billion.
Policy mess-up in the form of tax uncertainties robbed the advantages of record inflows in the first quarter at net foreign institutional investors’ asset purchases of 43,951 crore. Since April, the Rupee has reversed a 5.8% gain to a 1.01% loss. The Real has appreciated 3.7% against the US dollar andRandis up 5.3% this year.
Any measure by the RBI or the government could only be a temporary relief unless exports are raised substantially, or imports curbed.
“The ultimate determinant is about how much capital comes in… the way the current account deficit is managed and cut down,” Subir Gokarn, deputy governor at the Reserve Bank ofIndiasaid on Tuesday.
“These are the main stress points.” Currency strategists say forecasting has become difficult as the European crisis worsens and foreign investors’ outlook on India changes with the introduction of anti-tax avoidance law (now delayed till next year) and a retrospective tax on overseas M&A deals widely seen as being aimed at British telecom major Vodafone.
“This morning I decided, I would not take a view on the Rupee,” said Ramesh Krishnan, head, treasury, Dhanlaxmi Bank. “With the recent measures that were taken, the Rupee should have come back to 51.50-52 to the dollar. But markets have now lost the confidence on the measures taken to address deficits.”
The RBI governor Duvvuri Subbarao, who in December resorted to measures that were last used during the Asian crisis in 1997 to shore up the Rupee, may still have a few weapons in his depleted armoury, such as ordering exporters to bring in the greenback early, said traders.
Funding crude oil and gold imports through the $295-billion foreign exchange reserves are also possible, they say. And the Rupee could recover just as it happened last year when speculative curbs were announced after the December 15 low.
But it may be short-lived given that the value of overseas goods consumption is far higher than the foreign exchange earned through exports.
“The government and RBI could do little to address the related impact of higher dollar pay-out on imports and reduced supply of dollars due to lower demand forIndia’s goods and services,” said Moses Harding, head, Asset Liability Committee and Economic Research at IndusInd Bank.
“At best, they could provide incentives to exports to maintain competitiveness or allow Rupee depreciation and effect cost pass-through of imports into consumers.”
AFTER VODAFONE, TAXMEN TO GO SNAPPING AT MANY PAST DEALS INVOLVING INDIAN ASSETS
NEW DELHI: The income-tax authorities will pursue all targeted cases that concern overseas transactions involving Indian assets, said a senior finance ministry official, making it clear the intent of retrospective tax was not merely to penalise Vodafone, and the exemptions announced by the finance minister earlier this week will not benefit most of the deals being investigated. The controversy over the retrospective amendment to law that will allow the government to tax past overseas transactions involving Indian assets has so far centred around the multi-billion dollar demand on the Vodafone-Hutchison transaction. But the stage is now set for a showdown between tax authorities and other affected companies, which are exploring legal options to challenge the constitutional validity of the amendment. Finance ministry officials said the deals under the scanner include SABMiller’s acquisition of Foster’s India, Vedanta Group’s purchase of a majority stake in Sesa Goa through the acquisition of Finsider International, and General Atlantic and Oak Hill Partners’ buyout of GE’s 60% stake in Genpact. In all these transactions, tax notices had been served, they said. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/after-vodafone-taxmen-to-go-snapping-at-many-past-deals-involving-indian-assets/articleshow/13072108.cms)
PANEL MOOTS SEBI-RBI MECHANISM TO TRACK FOREIGN FUND FLOWS
NEW DELHI: The parliamentary standing committee on finance has proposed a Securities and Exchange Board of India(Sebi) and Reserve Bank of India (RBI) co-ordination mechanism to monitor foreign investments in the stock market. In its report on the Prevention of Money Laundering (Amendment) Bill, 2011, tabled in Parliament today, the panel said, “The committee has been informed that the participatory notes (P-notes) being issued by FIIs (foreign institutional investors) are being regulated by Sebi, and the P-notes can be issued to regulated entities alone. However, the committee is surprised to learn other investments in the stock market, including foreign currency flows by both individual and institutional investors are not being monitored by Sebi”. The Bill was introduced in Parliament and subsequently referred to the committee on January 5. The committee, headed by Bharatiya Janata Party leader Yashwant Sinha, stressed it wanted Sebi to set up the co-ordination mechanism. (For details log on to : http://www.business-standard.com/india/news/panel-moots-sebi-rbi-mechanism-to-track-foreign-fund-flows-/473925/)
NEW SECURITISATION NORMS TO HAVE AN IMPACT ON MARKET
MUMBAI: The Reserve Bank of India’s new norms for securitisation would hit the volume of direct assignment transactions, shift the market to issuing pass through certificates (PTCs) and increase the cost of doing these deals, said bankers and analysts. The norms curb credit enhancement for direct assignment. This would drastically reduce the volumes, said Ramraj Pai, director, ratings, at CRISIL. However, since these would only apply to new transactions, the capital adequacy impact should be only incremental. Issuance in the Indian securitisation market rose in 2011-12 to Rs 36,600 crore from Rs 30,825 crore in 2010-11, according to Icra estimates. In 2010-11, volumes had dipped 29 per cent over 2009-10. They were hit after RBI proposed norms for a minimum holding and minimum retention period. Direct assignment is a bilateral portfolio sale. There is no Special Purpose Vehicle as buyer. An operating entity like a bank or mutual fund buys assets. In securitisation, the SPV issues receipts or PTCs to investors. (For details log on to : http://www.business-standard.com/india/news/new-securitisation-norms-to-have-an-impactmarket/473919/)
RUPEE DEPRECIATION MAY IMPACT CORPORATE PROFITS: ECONOMISTS
NEW DELHI: The depreciating rupee, which hit a record low on Wednesday, may impact companies’ profits, particularly of those using imported material. This is because in the current scenario of low demand, these do not have the pricing power to pass costs on to customers. This would harm the overall economic growth, say economists. The falling rupee would also take away much of the benefits of declining international crude oil prices, though global prices had come down at a faster rate than the pace of the rupee’s depreciation against the dollar, economists said. Though normally, exports should rise with a decline in the value of the rupee, this did not happen in the previous financial year, despite the rupee losing value against the dollar, since it faced declining demand in the US and Europe. The situation is not going to change much this financial year, too. (For details log on to : http://www.business-standard.com/india/news/rupee-depreciation-may-impact-corporate-profits-economists/473918/)
STREAMLINE SENIOR HR RULES, GOVT TELLS PSBs
MUMBAI: The Union finance ministry has told all government-owned banks to follow a standardised policy on personnel management at senior levels. In a recent note to public sector bank chiefs, the ministry said the appraisal system, particularly at the level of general managers and deputy general managers, should be streamlined. According to sources, the ministry felt the current vacuum at the top management in these banks was largely due to divergent human resource policies. The ministry wants prospective executive directors (EDs) to have experience in all aspects of the banking system, such as retail, field, recovery, corporate lending and treasury. (For details log on to : http://www.business-standard.com/india/news/streamline-senior-hr-rules-govt-tells-psbs/473907/)
FOREIGN INDUSTRY BODIES SEEK MORE CLARITY ON FINANCE BILL 2012
NEW DELHI: Ten overseas associations, including USIBC and USCC, in a letter to Finance Minister Pranab Mukherjee have sought further confirmation that Finance Bill, 2012 will not override India’s DTAAs. The associations said Mukherjee’s May 7 statement in the Lok Sabha “helpfully confirms” that the indirect transfer provisions of the bill will not be applied to override the provisions of the Double Taxation Avoidance Agreements (DTAAs) that India currently has in place with 82 countries. “We would appreciate further confirmation that the other provisions of the Finance Bill, 2012 will, similarly, not be applied to override the provisions of any of India’s DTAAs, including any future DTAAs or amendments to DTAAs currently in force,” the letter said. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/foreign-industry-bodies-seek-more-clarity-on-finance-bill-2012/articleshow/13070987.cms)
PUNJAB NATIONAL BANK NET UP 18.6 PER CENT ON INTEREST INCOME
NEW DELHI: Punjab National Bank (PNB) on Wednesday reported a 18.6 per cent rise in net profit to Rs 1,424 crore for the quarter ended March 31, against Rs 1,201 crore in the fourth quarter of the previous year. The increase came on account of a rise in interest income and lower provisioning during the quarter. Total income increased by 27.6 per cent to Rs 10,956 crore in the January-March quarter from Rs 8,585 crore in the year-ago period. The country’s second largest state-run lender saw its Q4 operating profit grow 17.1 per cent to touch Rs 2,936 crore, compared with Rs 2,508 crore in the corresponding period of 2010-11. The bank had to make lower provision for retirement pension and taxes paid in the last quarter as it made higher provisions in the previous quarters, Chairman and Managing Director K R Kamath told a press conference after declaring the results. (For details log on to : http://www.business-standard.com/india/news/pnb-net186interest-income/473909/)
UNION BANK NET PROFIT UP 29 PER CENT
MUMBAI: Despite higher provisioning, public sector lender Union Bank of Indiaon Wednesday reported a 29.3 per cent rise in net profit for the quarter ended March 31, on the back of healthy recovery from bad debts and lower employee cost. Net profit for the quarter stood at Rs 773 crore, against Rs 598 crore reported in the corresponding period a year ago. Recovery from written-off accounts, which stood at Rs 162 crore in the quarter, was up 65.3 per cent from Rs 98 crore a year ago. As a result, non-interest income of the bank grew 25.7 per cent to Rs 755 crore from Rs 604 crore a year ago. Employee cost in the quarter was lower by 43.4 per cent to Rs 594.8 crore from Rs 1,053 crore in the corresponding quarter last year. The bank had to provide for pension during the corresponding quarter last year, which increased the employee cost. However, this year it has been provided for evenly in the four quarters. Net interest margin (NIM) declined to 3.2 per cent from 3.3 per cent the previous quarter. The lender aims to maintain NIM of over three per cent in the current financial year. (For details log on to : http://www.business-standard.com/india/news/union-bank-net-profit29/473906/)
INDIAN OVERSEAS BANK MAY NEED RS 9,500 CRORE MORE TO MEET BASEL III BY 2017-18
CHENNAI: The Indian Overseas Bank (IOB) may need additional capital of around Rs 9,500 crore till 2017-18, to maintain the capital adequacy ratio (CAR) as per the Basel III international accounting standards, which according to Reserve Bank of India (RBI) would come into effect from January 1, 2013. Speaking to reporters while announcing the annual financial results of the bank, he said, “We may require an additional capital of nearly Rs 9,500 crore to meet the Basel III requirements. Starting January 1, 2013, we expect the real impact of the new standards by 2015.” The estimation is based on assumption that the credit rate would be about 20 per cent. The bank would look at options to raise the capital. “Whichever options, including QIP (Qualified Institutional Placement), follow-on issue or qualified equity, will be looked at for raising funds to meet the requirements,” he said. (For details log on to : http://www.business-standard.com/india/news/iob-may-need-rs-9500-cr-more-to-meet-basel-iii-by-2017-18/473869/)
SYNDICATE BANK TO RAISE MORE CAPITAL
CHENNAI/HYDERABAD: Manipal-based public sector lender, Syndicate Bank, is aiming at garnering a total business of Rs 40,000 crore from Andhra Pradesh in the current financial year, as against Rs 30,000 crore achieved last year, according to executive director M Anjaneya Prasad. “Our growth in Andhra Pradesh is not at par with the state’s growth, and the real market share is yet to come to the fore. Our focus is now on scaling up our branch network in the state to trigger the targeted growth,” he told reporters here on Monday. The bank presently has less than 5 per cent market share in Andhra Pradesh with Anantpur, Kadapa and Kurnooldistricts being the biggest market. Of its network of 2,700 branches, Andhra Pradesh stands second with 419 branches, next only to Karnataka, the home state for the bank. The bank’s CD (credit-deposit) ratio in the state is 123 per cent. (For details log on to : http://www.business-standard.com/india/news/syndicate-bank-to-raise-more-capital/473868/)
ICICI, IOB RAISE FOREIGN CURRENCY DEPOSIT RATES
MUMBAI/CHENNAI: ICICI Bank and Indian Overseas Bank (IoB) on Wednesday hiked their interest rates on foreign currency deposits by non residents by 175 basis points. The hike in the Foreign Currency Non Resident (FCNRB) Deposits by ICICI bank will be applicable from Tuesday and is across currencies in different maturities ranging from one to five years, the bank said in a statement. The move comes within a week of Reserve Bank hiking interest rate caps on foreign currency deposits by the diaspora in its quest to arrest slide in the rupee. (For details log on to : http://www.financialexpress.com/news/icici-iob-raise-foreign-currency-deposit-rates/947444/)
SMFL’S WITHDRAWAL OF IPO DASHES HOPES OF PRIMARY MARKET REVIVAL
MUMBAI: Samvardhana Motherson Finance’s (SMFL) withdrawal of its R1,665-crore initial public offering (IPO) last Friday has once again dashed hopes of a revival in the primary market this year. Motherson Finance is the second public offer to be withdrawn this year after that of Goodwill Hospital & Research Centre. Of the four other issues that hit the market in 2012, only MCX’s R663-crore IPO (subscribed 54.1 times) and MT Educare’s R65-crore public offering (subscribed 4.8 times) saw a good response. As many as 14 firms have let their one-year validity period for launching IPOs worth R5,353 crore expire in 2012. This would mean that these firms will have to refile their offer documents with Sebi. Another R2,000-crore worth of public offerings, including that of Reid & Taylor and Tata Autocomp Systems, may lapse in the next two months. About 43 firms currently have a valid approval from the market regulator Sebi to launch their IPOs. Ortel Communications (R1,000 crore), Powerica (R650 crore), Kalpataru (R1,000 crore) and PC Jeweller (R600 crore) are some of the big-ticket IPOs lined up this year. (For details log on to : http://www.financialexpress.com/news/smfls-withdrawal-of-ipo-dashes-hopes-of-primary-market-revival/947471/)
BUMPY ROAD AHEAD FOR INFRASTRUCTURE FUNDS
MUMBAI: The infrastructure sector, considered the most attractive private equity investment destination, is going through a crisis in fund raising and investments. Though nine infra-focused funds were launched in Indiawith a plan to raise about Rs 20,000 crore during 2009-2012, they have managed to raise only Rs 7,800 crore due to the uncertainties looming over the sector. According to senior executives, general partners’ (GPs or fund managers) lack of experience and sector knowledge remains a major reason that keeps them away from convincing limited partners (LPs or investors) for successful fundraising. Of nine funds launched since 2009, only three have completed fund raising successfully. SREI Venture Capital raised relatively small amounts of $13 million and $20 million, while SBI Macquarie Infrastructure Management raised $1.2 billion. According to media reports, Enam has ceased fundraising of its $750-million Enam India Infrastructure Fund. (For details log on to : http://www.business-standard.com/india/news/bumpy-road-ahead-for-infrastructure-fundsn/473915/)
HOSTILE ANDHRA PRADESH FORCES SKS MICROFINANCE TO SHIFT BASE TO MUMBAI
MUMBAI | HYDERABAD: Put off by stifling rules and a hostile business environment, India’s largest micro-lender SKS Microfinance will move its headquarters from Hyderabadto Mumbai. The decision, cleared by the SKS board, sends a strong signal to the Andhra Pradesh government that has come down heavily on microfinance institutions (MFIs), including SKS, following the passage of a new law. The development comes at a time SKS, the only listed microfinance institutions, is positioning itself as a national company with a growing presence in other states. The company’s exposure to borrowers in Andhra Pradesh has shrunk considerably, having written off 1,491crore loans in the past six quarters. Its loan outstanding in Andhra is down to 236 crore. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/hostile-andhra-pradesh-forces-sks-microfinance-to-shift-base-to-mumbai/articleshow/13072578.cms)
AMFI WON’T SEEK UPFRONT COMMISSION BAN
MUMBAI: Following a hue and cry over the issue of abolishing upfront commission to mutual fund distributors selling equity schemes, industry body Association of Mutual Funds in India(Amfi) has succumbed to the demand of small fund houses to scrap the proposal. Industry officials told Business Standard Amfi would no more pursue this proposal with the capital market regulator Securities and Exchange Board of India (Sebi). This has brought relief to fund houses, especially the smaller ones, which are either new in the industry or do not have a strong distribution network. In response to a query sent, H N Sinor, chief executive officer (CEO) of Amfi, refused to comment on the development. Amfi, the apex body of all registered asset management companies (AMCs), was incorporated in August 1995, as a non-profit organisation. All the 44 AMCs registered with Sebi are its members. (For details log on to : http://www.business-standard.com/india/news/amfi-wont-seek-upfront-commission-ban/473891/)
MOST INITIAL PUBLIC OFFERINGS OUT OF THE MONEY THIS YEAR
MUMBAI: With shares of most companies listed this year slipping below their issue prices and two initial public offerings (IPOs) already withdrawn, the scenario has remained challenging for the primary market. The latest addition to the list of IPOs closing below the issue price on listing day was Tribhovandas Bhimji Zaveri (TBZ). Shares of the Mumbai-based jewellery retailer on Wednesday closed nearly eight per cent lower at Rs 110.5, compared to the issue price of Rs 120 per share. After opening at Rs 115, the stock traded between Rs 110 and Rs 120 on the National Stock Exchange. The company had raised Rs 200 crore through the IPO in April, which had received only 1.15 times subscription. Shares of three of the five companies that went public this calendar year are trading below their issue prices, while that of the Multi Commodity Exchange (MCX) is almost flat, having slipped below the issue price in the past few trading sessions. (For details log on to : http://www.business-standard.com/india/news/most-initial-public-offerings-outthe-money-this-year/473892/)