NEW DELHI: For now, the government seems determined to carry out financial sector reforms, at least those on the Pension Fund Regulatory and Development Authority (PFRDA) Bill and the insurance Bill. The Cabinet, which had deferred the PFRDA Bill in December 2011, is likely to take it up tomorrow.
Officials said the finance ministry had written to the Cabinet Secretariat, asking it to consider the insurance Bill again, this time with a fresh proposal to raise the cap on foreign direct investment (FDI) from 26 per cent to 49 per cent. However, no timeframe for this has been specified so far. Earlier, the Cabinet had deferred even a diluted version of the Insurance Laws (Amendment) Bill, which sought to retain the FDI cap at 26 per cent.
The developments are important, as financial sector reforms are considered the next driver of India’s economic growth, which slipped to a nine-year low of 6.5 per cent in 2011-12.
The provisions of the draft PFRDA Bill, which seeks to give statutory powers to the interim pension regulator, are the same as those on the version the Cabinet had considered earlier. However, this time, the government may get some comfort from the Bharatiya Janata Party (BJP), which had sent a strong signal it would support the Bill in Parliament. Even in December, the BJP had indicated support for the Bill. However, it had insisted the finance ministry and the government respect a parliamentary standing committee’s decision to specify an FDI cap in the legislation. In 2011, the Bill had proposed this power for the executive.
The PFRDA Bill to be taken up by the Cabinet tomorrow would retain the FDI cap at 26 per cent. This was recommended by the standing committee, headed by former finance minister Yashwant Sinha, and the provision has been accepted by the government.
However, there is a catch. The Bill is likely to link the FDI cap in the pension sector with that in the insurance sector. It states an FDI cap of 26 per cent and one in line with the insurance sector should be considered, and the higher of the two should be allowed. This means in the future, if the limit on FDI in the insurance sector is raised, it would also result in a similar rise in the FDI cap in the pension sector.
In a recent Cabinet meeting, the insurance Bill, with the current FDI cap of 26 per cent, was deferred. Officials said Finance Minister Pranab Mukherjee wanted the Bill to raise the FDI cap to 49 per cent.
In December, the Trinamool Congress had opposed the PFRDA Bill. It had asked the government to guarantee minimum returns to those who invested in pension schemes. The finance ministry had said the Bill was likely to give an option to subscribers to invest their subscription in government securities, considered safer than equity markets. However, even government securities might be unable to provide assured minimum returns, as coupon rates on these are linked to prevailing interest rates, officials said.
The concern of the Trinamool Congress that people’s “hard earned money should not be subject to the vagaries of the market” is, therefore, only partly addressed. However, the government is deriving comfort from the fact that with the BJP’s support, the Parliament would pass the Bill.
The PFRDA Bill is one of the three important financial sector reform Bills, the insurance Bill and the banking reforms Bill being the others. The banking Bill, which seeks to raise voting rights of shareholders in private sector banks from 10 per cent to 26 per cent, was approved by the Cabinet, though it is yet to be tabled in Parliament.
PANEL AT GOVT BANKS TO APPROVE BIGGER LOANS
MUMBAI: The government has amended the rules to make the loan sanctioning mechanism transparent in public sector banks (PSBs). Lenders now have to set up a four-member committee to decide on sanctioning of loans above the branch manager’s purview. Till now, such a process was only followed by State Bank of India. Bankers say even the top management at PSBs, such as the chairman and executive directors, will not have the exclusive power to sanction such loans. The Banking Companies (Acquisition and Transfer of Undertakings) Act was changed to enable this. The move comes after bankers became extremely cautious in sanctioning loans, in the wake of rising defaults. There is mounting non-performing asset pressure, impacting profitability. “Bank staff involved in credit decisions became hesitant to sanction loans as the incidence of these turning bad kept rising in the last few years,” said the chairman and managing director of a PSB. “As a result, if loan sanctioning decisions are taken through a joint mechanism, it will give more confidence to officials to take a decision.” (For details log on to : http://www.business-standard.com/india/news/panel-at-govt-banks-to-approve-bigger-loans/476572/)
RBI REVISES NORMS FOR FINANCIAL LITERACY
MUMBAI: The Reserve Bank of India (RBI) on Wednesday released new guidelines for financial literacy and credit counselling centres after a study showed most of the existing centres were “actually working as institutions of sponsor banks”. RBI said a nationwide survey of 30 centres in 16 states showed informational material provided by these centres generally pertained to various products of sponsor banks. “Even though 53 per cent of the FLCCs (financial literacy and credit counselling centres) are run by separate trusts/societies formed for the purpose, these are actually working as institutions of sponsor banks due to their dependence for funding and administrative support,” RBI said in a release. “Thus, FLCCs are not in a position to maintain arms-length distance from sponsor banks as envisaged in the model scheme.” RBI found all such centres were located in urban and semi-urban areas and not in rural areas, where most of the financially excluded population resides. (For details log on to: http://www.business-standard.com/india/news/rbi-revises-norms-for-financial-literacy/476574/)
MUKHERJEE ASKS DEBT RECOVERY TRIBUNALS TO HELP REDUCE NPAs
NEW DELHI: Highlighting the problem of banks’ rising non-performing assets (NPAs), finance minister Pranab Mukherjee on Wednesday asked debt recovery tribunal officers to help in freeing up the resources stuck in these bad assets. Mukherjee was addressing a meeting of chairpersons of Debt Recovery Appellate Tribunals (DRATs) and presiding officers of Debt Recovery Tribunals (DRTs). “The banks are facing the problem of increasing NPAs, which needs to be addressed on priority,” Mukherjee said, according to a statement issued by the finance ministry. The government has advised banks to closely monitor NPAs. Gross NPAs of nationalised banks increased by 50 bps as on March 31, 2011 to 2.4% as on December 31, 2011, while those of SBI Group increased sharply by 130 basis points to 4.3% from 3.0% during this period, ICRA said. Gross NPAs of private banks moderated to 2.1% from 2.3% during the same period, it said. (For details log on to: http://www.financialexpress.com/news/mukherjee-asks-debt-recovery-tribunals-to-help-reduce-npas/958671/)
PRANAB TO MEET BANK CHIEFS ON JUNE 12
NEW DELHI: The Finance Minister, Mr Pranab Mukherjee, will review with public sector banks the flow of credit to various sectors of the economy. He is slated to meet the chief executives of all the public sector banks in New Delhion June 12. This meeting, the first of its kind this year, comes at a time when the non-performing assets of banks have gone up significantly, mainly due to the weak economic environment. In 2011, Mr Mukherjee had meetings with the Chief Ministers of the western, southern and eastern zones to discuss banking-related issues. He had used the occasion to urge State governments to expedite clearances for various projects for which banks had sanctioned loans. Mr Mukherjee has asked debt recovery tribunals to suggest ways to unlock resources of banks that are stuck as non-performing assets. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3498587.ece)
STAFF COSTS HIGHER AT PUBLIC SECTOR BANKS
MUMBAI: The average public sector bank employee is better off than his private sector counterpart. Staff cost per employee in a public sector bank is 150 per cent more than in a private sector bank. According to data provided by the RBI, the cost per employee in a public sector bank in 2010-11 was Rs 7.15 lakh against Rs 5.63 lakh in a private sector bank. In a speech delivered recently at a conference of public sector HR managers, the RBI Deputy Governor, Dr K. C. Chakraborty, said, “One thing is, thus, loud and clear — the competitive advantage in terms of staff costs that we always thought the public sector banks had is no longer there. “The absence of the cost advantage coupled with the problem of lower productivity, underscore the critical need for urgent HR transformation in public sector banks.” He also mentioned that per employee expenses in a public sector bank were higher despite their pension expenses not being full reflected. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3498584.ece)
FINANCE MINISTRY DRAFTS INCENTIVE SCHEME FOR ASSET RECONSTRUCTION COMPANIES TO REDUCE JUNK ASSETS
MUMBAI: The government has thrown new rules at state-owned banks, nudging them to salvage their junk loans, which have strained balance sheets and re-priced stocks of several lenders. The finance ministry, concerned that a mountain of loss assets could call for bigger fund infusion into banks, has stepped in as the junk loan market has been at a standstill since last year. A string of auctions by banks to sell non-performing assets has bombed with the lenders unwilling to accept the price asset reconstruction companies, or ARCs, who deal with sticky loans were willing to fork out. “The ministry must have felt that it was high time to lay down some ground rules and push the banks for quicker recovery of loss assets,” said a junk asset dealer who has handled just one transaction in the last one year. In a recent communique to state-owned banks and ARCs sponsored by public sector institutions, the ministry has laid out broad parameters for recovering dud loan assets. It has also put in place an incentive structure to remunerate ARCs. As per the scheme, the lower the collateral value on a loan account, the higher is the upside for the ARC. (For details log on to: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/finance-ministry-drafts-incentive-scheme-for-asset-reconstruction-companies-to-reduce-junk-assets/articleshow/13879527.cms)
SBI BEATS RIVALS WITH CHEAPER PERSONAL LOANS AGAINST PROPERTY
MUMBAI: State Bank of India (SBI) has taken competition head on by launching a personal loan scheme against property loans at interest rates lower than that of some of its private peers. The scheme, aimed at existing home loan borrowers and linked to the price of property, is offering personal loan at 11.25% to existing home loan customers. The offer is similar to the top-up scheme of other players such as ICICI Bank and home loan provider HDFC, which have pegged their loans at 12.25% and 12.50%, respectively. The new product, called ‘SBI Home Equity scheme’, gains relevance in the context of the rise in property prices over the last few years. The personal loan entitlement under the scheme is linked to the value the property for which the borrower is already paying EMI. The lender will give a maximum 75% of the value of the property after deducting the outstanding amount of the loan. (For details log on to : http://economictimes.indiatimes.com/personal-finance/loan-centre/personal-loans/personal-loans-news/sbi-beats-rivals-with-cheaper-personal-loans-against-property/articleshow/13879375.cms)
ALLAHABAD BANK MAY OPEN 250 BRANCHES THIS YEAR
BANGALORE: Allahabad Bank plans to open 250 branches this year, significantly more than the 100 branches opened during the last fiscal. “With over 2,500 branches across the country, our focus now is to ensure that we are seen as a pan-India bank,” Mr T.R. Chawla, Executive Director, Allahabad Bank, told Business Line on the sidelines of the Global Investors’ Meet 2012 in Bangalore on Wednesday. According to him, being spread out across the country will help reduce risk for the bank. The bank has already recruited 1,600 probationary officers and 350 specialist officers so far, and plans to recruit about 1,200 clerical staff going forward, he added. Allahabad Bank is also aggressively going for customer acquisition and “we are also providing the technology-based products to all customers,” said Mr Chawla. The bank saw an 18 per cent growth in advances last fiscal, and this year, the focus would be on SME, agriculture and retail sectors for lending. However, “we have no appetite for power and steel, and we are selective on lending to the textile sector,” said Mr Chawla. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3498580.ece)
UNION BANK ATM FOR DIFFERENTLY-ABLED
MUMBAI: Union Bank of Indiainaugurated a ‘Talking ATM’ for persons with disabilities at Blind People’s Association, Ahmedabad. The ATM enables visually challenged persons to do transactions based on voice guidance. The ATM has headphones attached to hear the instructions and fill in the required data. There is also an option to blank out the screen as a safety mechanism to ensure no bystander misuses the pin. The ATM site is so designed that physically challenged persons on a wheel chair can also go inside and carry out transactions. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3498582.ece)
HDFC BANK PLANS TO ROLL OUT 10-CURRENCY TRAVEL CARD
KOLKATA: The increase in corporate travel to international destinations and the rise in currency fluctuations seem to have given a fillip to multiple currency forex cards. The demand for such cards is on the rise, senior bank officials said. A forex or travel card is a prepaid card which can be loaded with foreign currency. It can be used like a debit/credit card while travelling overseas. “Multicurrency card enables customers to manage transactions across various currencies in one single card and helps them to lock in the currency exchange rates,” said Mr Uday Sareen, Country Head, Retail Banking, ING Vysya. While most banks have separate cards for the different currencies, some banks such as ING Vysya, State Bank of Indiaand Axis Bank have multicurrency cards offering 5-6 currencies on a single card. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3498586.ece)
ECGC REPORTS RECORD CLAIM PAYOUTS AT RS 713 CRORE
MUMBAI: Hit by an economic crisis in Europe and political instability in Libya, Egypt, Sudanand Iraq, the Export Credit Guarantee Corporation (ECGC), reported record claims for the financial year ended March 31, 2012. The state-owned company paid out 728 claims, amounting to Rs 713 crore during 2011-12, the highest since starting operations in 1957. During 2010-11, the total claims were Rs 621 crore, it said. However, in the same period, net profit rose nearly threefold to Rs 225 crore, from Rs 85.7 crore in the corresponding period a year before. During 2011-12, it also collected Rs 1,005 crore by writing policies, up 13.5 per cent from Rs 885 crore in 2010-11. “Last year’s claims have been higher because of the current global financial situation but recovery, too, has increased to Rs 169 crore against Rs 137 crore. This year we want to grow our business by 10 per cent,” said N Shankar, chairman and managing director, addressing journalists on Wednesday. (For details log on to : http://www.business-standard.com/india/news/ecgc-reports-record-claim-payouts-at-rs-713-cr/476573/)
EX-TRADER KERVIEL SAYS HIDING BETS EASY AT SOCGEN
PARIS: Convicted former trader Jerome Kerviel said hiding trades was commonplace at Société Générale in 2007 and lax risk controls at the French bank allowed “anyone” to make huge bets worth billions of euros without being detected. The 35-year-old is appealing a three-year jail sentence for his role in France’s biggest-ever rogue trading scandal, which cost SocGen euro 4.9 billion and forced it to raise capital in 2008 as the global financial crisis brewed. Kerviel does not deny he masked his huge euro 50 billion positions with fake covering trades but claims his superiors knew what he was doing. SocGen denies any part in the trades. Questioned by the presiding judge and SocGen’s lawyers over one of his hidden trades — a euro 5 billion bet in March 2007 that the German stock market would fall — Kerviel told a Paris court that all his colleagues knew what he was doing and that hiding bets was widespread. (For details log on to : http://www.business-standard.com/india/news/ex-trader-kerviel-says-hiding-bets-easy-at-socgen/476575/)
LIC UNDER SCANNER IN CHHATTISGARH OVER FINANCIAL IRREGULARITY
KOLKATA/RAIPUR: The Life Insurance Corporation (LIC) of Indiahas come under the scanner in Chhattisgarh for allegedly committing serious financial irregularities in a scheme meant for poor people. The country’s premier investigating agency, Central Bureau of Investigation (CBI), on Wednesday raided LIC offices and residence of officials for the alleged irregularities in the Janashree Bima Yojana. The scheme is meant to provide life insurance protection to the rural and urban poor persons below poverty line and marginally above the poverty line. The scam is worth more than crore rupees, a CBI official said, adding that the details would be disclosed only once the investigation was completed. Besides senior officials of the LIC, agents and employees are also involved in the scam that accounted for withdrawing money by showing policy holder dead while he is alive. (For details log on to : http://www.business-standard.com/india/news/lic-under-scanner-in-chhattisgarh-over-financial-irregularity/476520/)
RELIANCE LIFE INSURANCE WINS D L SHAH NATIONAL AWARD FROM QUALITY COUNCIL OF INDIA
Reliance Life Insurance Company ( RLIC), a part of Reliance Capital Limited, on Wednesday announced that it has received the D L Shah National Award on Economics of Quality from Quality Council of India (QCI) for the lean six sigma project reduction in branch operating expenses. This was announced by Mr. Malay Ghosh, President and Executive Director, Reliance Life Insurance. The award was presented to the Reliance Life Insurance team by Mr. Subodh Kant Sahay, Minister of Tourism, and Mr. Arun Maira, QCI Chairman and Member of Planning Commission, at the 7th National Quality Conclave of Quality Council of India in New Delhirecently. The QCI-DL Shah Award has been instituted with a view to demonstrate that bottom-line benefits can be achieved through quality initiatives. The award also recognizes successful projects in an organization that have linked quality initiatives to real-term financial gains and competitiveness. (For details log on to : http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/reliance-life-insurance-wins-d-l-shah-national-award-from-quality-council-of-india/articleshow/13865746.cms)
EVERSTONE CAPITAL EYES BANGALORE LOGISTICS FIRM
BANGALORE: Everstone Capital, an India-focused private equity funding entity with $1.5 billion (about Rs 8,300 crore) of assets under management across four funds, is understood to be aggressively looking to expand its portfolio in the logistics segment. Two of its funds are investing in growth equity in Indian companies, another focuses on the real estate market and the fourth is for the logistics sector. According to investment bankers close to Everstone, it has recently concluded a due-diligence exercise on the Bangalore-heaquartered AS Group of Companies, one of the largest warehousing service providers for a range of consumer goods companies such as Hindustan Unilever, Britannia, ITC, Nestle and Pepsi, among others. According to the sources, the AS Group has total warehousing capacity of four million sq ft, majorly in south India, besides a few places in north India. “As we understand, Everstone may be looking at a $50-million (about Rs 277 crore) investment in the AS Group. While the due-diligence has been completed, Everstone is expected to revert with a final structure for the deal, after which a decision will be taken. Most probably, Everstone may look at a significant stake in AS Cargo Movers, an arm of AS Group,” a banker close to Everstone told Business Standard. (For details log on to: http://www.business-standard.com/india/news/everstone-capital-eyes-bangalore-logistics-firm/476558/)
SEQUOIA CAPITAL TO GET 18% RETURN ON CAFE COFFEE DAY EXIT
BANGALORE: Sequoia Capital India Pvt Ltd, one of the leading private equity funds in India with as much as $1.4 billion (around Rs 7,700 crore) under management, is planning a healthy exit from one of its earlier investments — Amalgamated Bean Coffee Trading Co Ltd, an arm of Coffee Day Group that runs the flagship coffee retailing chain, Café Coffee Day. According to investment bankers close to Sequoia and the Coffee Day Group, the PE fund may sell most of its stake with returns in the range of 16-18 per cent on its investment, made in two tranches of $10 million each in 2006 and 2007. “The discussions are at advanced stages and a closure is expected shortly. Coffee Day Group is already raising resources to buy back the stake held by Sequoia,” an investment banker close to Coffee Day Group told Business Standard on condition of anonymity. (For details log on to : http://www.business-standard.com/india/news/sequoia-to-get-18-returncafe-coffee-day-exit/476557/)
INDIA-FOCUSED FUNDS WITNESS OUTFLOW OF $455 MILLION IN MAY
NEW DELHI: India-focused funds witnessed outflow to the tune of $455 million last month amid concerns over domestic economic growth and depreciating rupee, says a report. This was the fifth largest money withdrawal among emerging markets. According to a report by Kotak Institutional Equities, funds dedicated to all the eight emerging markets were in the negative in May. These funds together witnessed a pull out of $4.44 billion last month. Exchange-traded funds (ETFs) constituted a significant portion of the total outflows in emerging countries, which stood at $2.76 billion, the report noted. Among the individual countries, China-dedicated funds saw an outflow of $1.29 billion, followed by Brazil($1.26 billion), Russia($697 million), South Korea($561 million) and India($455 million). (For details log on to : http://www.business-standard.com/india/news/india-focused-funds-witness-outflow455-mn-in-may-/476543/)
SEBI PULLS UP KOLKATA FIRM FOR ILLEGAL DEBT ISSUE
NEW DELHI: The Securities and Exchange Board of India (Sebi) on Wednesday told the Supreme Court that it had issued a show-cause notice to a Kolkata-based realty and infrastructure company, Vibgyor, for allegedly issuing securities to the public in breach of the rules. Sebi said Vibgyor was the only entity found issuing securities in a manner similar to the Saharagroup. It did not disclose further details about the number of investors involved or the amount raised by Vibgyor. The counsel for the ministry of company affairs also agreed with Sebi’s contention, adding all other companies that had issued securities to 50 or more people had listed their securities on the stock exchanges. Sebi’s disclosure came during the hearing of an appeal by the Saharagroup against the regulator’s order to refund money raised by issuing optionally fully convertible debentures, allegedly in violation of public issue norms. However, Saharacontends it was a private placement by unlisted firms and, therefore, not under the purview of Sebi. (For details log on to: http://www.business-standard.com/india/news/sebi-pullskolkata-firm-for-illegal-debt-issue/476544/)
SHORT-SELLERS BURN THEIR FINGERS
MUMBAI: Short-sellers on Dalal Streetwere caught on the wrong foot on Wednesday. Even as the sharp rise in stock prices was cheered by investors, this breed of traders had to cut their positions amid heavy losses. The Bombay Stock Exchange benchmark Sensex gained 433 points or 2.71 per cent and S&P CNX Nifty index of the National Stock Exchange rose from near-4,800 to touch the 5,000 mark on Wednesday. This was widely unexpected, given the state of excess pessimism due to worsening of the Euro zone crisis and no positive triggers from the domestic economy. “Cell phones of traders were buzzing for requirement of additional margin money as soon as the Nifty index rose above 4,970. It was a crucial level. (For details log on to: http://www.business-standard.com/india/news/short-sellers-burn-their-fingers-/476548/)
FIXED MATURITY PLANS GAIN POPULARITY AMID BLEAK ECONOMY
MUMBAI: Mutual fund houses are turning their attention towards the time-tested investment vehicle of fixed maturity plans (FMP) to lure investors who have become extremely hard to get due to a depressed economy and the stock market. There are fifteen FMPs currently available in the market from fund houses such as HDFC, Birla Sunlife, IDFC and L&T. These FMPs have varying maturity from 90 days to one year. These schemes aim to capture the short term spike in the yields around the advanced tax payments due on June 15. The liquidity in money market is expected to remain tight on the back of fresh issuances of government securities and certificate of deposits by banks. The FMPs are marketed as a vehicle to invest at current yield without getting exposed to any interest rate risk. The spike in interest rates can offer good accruals to investors. As the interest rates are expected to move down in near term, the FMPs offer a good opportunity to lock in your money at prevailing interest rates. (For details log on to : http://economictimes.indiatimes.com/personal-finance/fixed-deposits/fixed-maturity-plans-gain-popularity-amid-bleak-economy/articleshow/13865648.cms)