NEW DELHI/MUMBAI: The finance ministry has asked the Reserve Bank to open a $10-billion window for individual foreign investors in corporate debt, hoping high yields on Indian paper will attract greater flows and prevent large government borrowing from pushing up interest rates.
This year’s budget has proposed to allow qualified foreign investors, including individuals, trusts and pension funds, to invest in bonds of companies. At present, FIIs can invest up to $15 billion in government bonds and $20 billion in corporate bonds.
“There is a need to create a separate window for QFIs,” a finance ministry official told ET. “This will deepen the debt market.”
Investment through this route will not only make the process simpler for foreign investors but also less expensive as they will be required to just open an account with a depository participant and place orders.
The ministry hopes this will attract foreign investors who can earn much higher returns from Indian corporate bonds than in the US and Europe even after hedging. QFIs are allowed to invest in mutual funds and equities.
Yields on benchmark 10-year government bonds are hovering around 8.2% while that on triple A-rated corporate bonds are 9.6%, compared with 1.95% in the US and 1.85% in Germany.
FIIs have invested $3.5 billion in India since January as against $8.6 billion in the previous year.
“There is scope to attract money from QFIs, given the high yields in corporate debt papers in India compared with countries like US and Japan,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
He said the government should also find a mechanism to allow these investors to hedge their currency exposure. “The policy should suggest some ways on how these issues can be tackled,” he said.
However, the tax rules need to be changed for the proposal to be effective, said Amit Shah, executive director of IIFL Private Wealth’s international operations.
“Clarity is required on the income tax rates applicable to QFIs,” Shah said. “For the scheme to be successful, the QFIs should be treated at the same income rate as that applicable to FIIs.”
The government has been trying to woo foreign investors that have been pulling out of Indian capital markets due to downturn in the global economy. But apprehensions over the tax proposals in the budget have made its task tougher.
The government has a net borrowing programme of Rs 4.8 lakh crore, which can test the bond market given the slow pace of deposit mobilisation.
Widening the investor base for corporate bonds will ensure companies are not denied the much-needed credit because of the government’s borrowing. It will also help bring in capital to bridge the current account deficit that is likely to top 3.6% of GDP this fiscal.
FINANCIAL SECTOR REFORM BILLS: TOUGH ROAD AHEAD FOR GOVERNMENT
NEW DELHI: Even as the Union government has assured legislation on reforms in the sectors of pension, insurance and banking this year, the road ahead might not be that comfortable for these financial sector Bills. For, the main opposition Bharatiya Janata Party (BJP) has strong reservations over the proposed legislation and wants the government to build consensus on these issues. It was in Washingtonyesterday that Finance Minister Pranab Mukherjee expressed confidence about passing the reform Bills on pension, insurance and banking this year. Today, senior leaders of the BJP told Business Standard the Bills feature several contentious issues. This is more so in the case of the Insurance Laws (Amendment) Bill and Banking Laws (Amendment) Bill, on which the government has not yet held discussions with the Opposition parties. (For details log on to : http://www.business-standard.com/india/news/financial-sector-reform-bills-tough-road-ahead-for-government/472320/)
HALVED TAX TO KEEP PEs ALIVE & KICKING IN INDIA
NEW DELHI/MUMBAI: The finance ministry is set to halve the tax burden to keep alive the interest of private equity (PE) players, who constitute the biggest foreign direct investor group in India. The ministry is prepared to lower long-term capital gains tax on unlisted stocks to 10% for PEs, government sources told ET, since equity infusion by PEs helps startups and mid-sized firms to grow. The proposed change will put PEs at par with foreign institutional investors, who currently enjoy a concessional long-term capital gains tax rate of 10% on gains from unlisted or off-market share transfers. (For listed securities, there is no tax on long-term capital gains for transactions taking place on stock exchanges.) A senior government official said the revenue department, which vets taxation proposals, has been taken on board and if it passes muster, the change in tax rate will feature in the official amendments to the Finance Bill, 2012. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/govt-may-cut-capital-gains-tax-on-pes-unlisted-stocks-to-10/articleshow/12830241.cms)
IMPORTANT REFORMS COMING IN SIX MONTHS, SAYS BASU
WASHINGTON: After the flak over his remarks to a think tank here, Chief Economic Advisor Kaushik Basu feels India will see “some important” reforms in the next six months, including on subsidies and maybe partial diesel decontrol and FDI (foreign direct investment) in retail. However, he feels the “biggest reform” GST (Goods and Services Tax) may be tougher because it is good and not everybody wants it to happen under the present regime. “It is not that there is any stoppage of reforms,” Finance Minister Pranab Mukherjee told Reuters here. “That process is going on and I’m hoping that three important pieces of legislation — the pension funds and regulation amendment act, the insurance amendment act and the banking amendment act — are likely to be passed in the current or next session of Parliament.” (For details log on to : http://www.business-standard.com/india/news/important-reforms-coming-in-six-months-says-basu/472307/)
COMMERCIAL PAPER MARKET RETURNS TO LIFE AFTER INTEREST RATE CUT
MUMBAI: Companies are thronging to the debt market to raise short-term funds as the market is offering attractive interest rate differential for both issuers and investors. There have been commercial paper issuances to the tune of Rs 7,500 crore after the 50 basis points (bps) rate cut announced in the annual monetary and credit policy on Tuesday. Typically, there are issuances worth Rs 1,500 crore-3,000 crore every week. Commercial papers (CPs) are debt instruments issued by companies to borrow funds for up to one-year maturity. Other than usual issuers like non-banking finance companies, there were borrowers from the fast moving consumer goods, power and infrastructure industries. “The correction in the yield curve was far better than the reduction in banks’ base rates post policy rate cut,” said Ajay Manglunia, senior vice president, Edelweiss Securities. Rates on CPs maturing in three months fell by 50-100 bps while a few banks reacted with base rate cuts of 25 bps last week. Companies raised funds for three months via CPs at 9.3-9.4 per cent on Friday. These rates had risen to 11.85 per cent levels in the previous month. (For details log on to : http://www.business-standard.com/india/news/commercial-paper-market-returns-to-life-after-interest-rate-cut-/472288/)
MCA FOR ALLOWING BANKS AS AGGREGATORS ON COMMEXES
MUMBAI: The ministry of consumer affairs has written to the finance ministry suggesting that banks be allowed as aggregators on commodity exchanges. While the Reserve Bank of India (RBI) is still deliberating on the issue of allowing banks as direct hedgers in the commodities market (as institutional traders), MCA feels banks can be allowed to play the role of aggregator hedgers to increase volumes. An aggregator is one who aggregates others’ risk and hedges on their behalf as an institution. “Banks lend to commodity traders and companies dealing in commodities and, thus, they have a better idea of the risks emerging from a genuine commodity position. It does not require any amendment (in banking laws), since banks are not required to take any positions on their own books or proprietary positions. They will take a position on behalf of others,” said official sources. (For details log on to : http://www.business-standard.com/india/news/mca-for-allowing-banks-as-aggregatorscommexes/472322/)
GOVT MAY PAVE WAY FOR PROBE INTO MAURITIUS INVESTMENTS
NEW DELHI: The finance ministry may amend or withdraw a decade-old circular that could bar its officers from probing a tax avoidance case under the General Anti-Avoidance Rule (GAAR). Alternatively, it may specifically clarify that GAAR, if invoked, would override the circular, number 789, issued in April 2000 in connection with the India-Mauritius treaty for avoidance of double taxation. This took away the powers of assessing officers to investigate veracity of a person claiming to be a resident of Mauritiusto avail of treaty benefits. This resulted, says the ministry, in third-party residents claiming “unintended” treaty benefits. Though, a finance ministry official said, the treaty overrides provisions under GAAR would apply to this circular, too, there have been apprehensions that the power given to the tax officers in GAAR to probe an arrangement could be challenged on the grounds that Circular 789 prohibits then from doing so. (For details log on to : http://www.business-standard.com/india/news/govt-may-pave-way-for-probe-into-mauritius-investments-/472325/)
ORIENTAL BANK CUTS RATES OF SOME DEPOSITS 50-100 BASIS POINTS
NEW DELHI: Oriental Bank of Commerce (OBC) has slashed deposit rates by 50-100 basis points on certain maturities for deposits of Rs 15 lakh and above. No changes have been made for term deposits of less than Rs 15 lakh and those deposits with maturities of one year and above. The revised rates will come into effect from April 23. The deposit rate reduction comes close on the heels of the RBI reducing the repo rate by 50 basis points at its monetary policy announcement on April 17. Ahead of the RBI policy announcement, OBC had cut its base rate by 10 basis points to 10.65 percent. The OBC Chairman and Managing Director, Mr S. L. Bansal, had recently indicated that the bank would look at reducing interest rates to pass on the benefits of RBI rate cut to customers. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3343299.ece)
SBI LAUNCHES ‘VIRTUAL’ CARD FOR ONLINE TRANSACTIONS
MUMBAI: State Bank of Indiahas launched a ‘virtual’ electronic debit card for e-commerce transactions. The ‘State Bank Virtual’ card can be created by a customer using the bank’s Internet Banking facility with transaction rights. The product allows the user to create a virtual card for any online transaction and the customer is not required to share the details of the principal account on the merchant Web site, said the bank in a statement. The new product is a convenient and secure gateway to online payment for SBI’s Internet banking users. Among the features of the virtual card are: no charges on creation of the card and the customer can create any number of cards at the same time. The card is created for each online transaction and is valid for a maximum of 48 hours. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3343298.ece)
YES BANK EYEING 60-70% GROWTH IN RETAIL CUSTOMERS
CHENNAI: YES Bank, India’s fourth largest private sector bank, is currently focusing on bringing more retail customers on board to boost its CASA ratio (current account and savings account as a percentage of total deposits). “Our target is to grow the number of retail customers by 60-70 per cent every year,” said Ms Sonu Bhasin, Group President (Branch Banking), YES Bank. It is towards this end, the bank has signed MoUs with the Indian Army and Navy to offer YES Vijay, a product tailor-made for the service personnel. Besides, it is also expanding its branch network and is targeting 750 branches by 2015. Announcing the launch of its new branch at Adyar, in Chennai, the bank’s Group President, Mr R. Ravichander, said with this, the total number of branches has gone up to 360, of which, 55 are in the South. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3343295.ece)
STANDARD CHARTERED BANK RESEARCH REPORT WARNS OF FURTHER SLIP IN DEPOSIT GROWTH
MUMBAI: An industry report has said the concerns about the falling deposit growth persist, and if the uptick falls below 16 per cent, it is likely to put pressure on bank spreads in a falling rate environment. Despite the recent one-off rise in deposits towards the last fortnight of the past fiscal, there are concerns about the deposit growth, says a Standard Chartered Bank research report. “If deposit growth is below 16 per cent, it is likely to put pressure on bank spreads in a falling rate environment because banks will not be able to bring down deposit rates sharply while weak corporate demand coupled with likely government pressure will drive lending rates to come down faster,” says the report. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/standard-chartered-bank-research-report-warns-of-further-slip-in-deposit-growth/articleshow/12822158.cms)
MAGMA FINCORP A STEP CLOSER TO KICK-STARTING INSURANCE BIZ
KOLKATA: Kolkata-based Magma Fincorp Ltd is one step closer to getting its general insurance venture operational. After almost three years Magma has got R2 licence from the Insurance Regulatory and Development Authority (IRDA). In July 2009, Magma had signed a joint venture agreement with Germany-based HDI-Gerling International Holding AG for its foray into general insurance business. The joint venture company — Magma HDI General Insurance Company Ltd — had received Reserve Bank of India’s approval in October 2009. The company also received R1 licence from the IRDA in April 2011. The licences R1, R2 and R3 are the three approvals required by an insurance company to kick-start operations in the country. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3343296.ece)
SEBI TO PROBE FLASH CRASHES
MUMBAI: The frequent flash crashes — sharp falls in stocks or indices within minutes — have the Securities and Exchange Board of India (Sebi) worried. The board has decided to initiate an investigation into these incidents. On Friday, the CNX Nifty fell nearly seven per cent within seconds — from 5,300 to 5,000 — causing panic amid traders and institutional players, as stop losses were triggered. The National Stock Exchange (NSE) has begun a preliminary inquiry, which will be followed by a Sebi probe, according to senior officials with the market regulator. Friday’s incident wasn’t a one-off. In the recent past, there have been several incidents where stocks or markets fell sharply. For instance, on Friday itself, the Infosys stock fell 20 per cent in the first half of the trading session. Similarly, the Bombay Stock Exchange had to annul all trades on ‘muhurat day’ in 2011 due to extraordinary volumes. In June 2010, the Reliance stock suffered a similar fate when it fell 20 per cent within minutes, bringing down the Sensex by 600 points. The latter was attributed to a punching error. (For details log on to : http://www.business-standard.com/india/news/sebi-to-probe-flash-crashes/472305/)
DEPARTMENT OF DISINVESTMENT’S NOMINEE ON SUUTI AMC BOARD
NEW DELHI: In what would confirm the government’s intentions for the new asset management company formed out of stakes that the government-owned entity SUUTI holds in some firms, the department of disinvestment will be represented on the AMC’s board. The government will rope in a chief operating officer for the AMC from the corporate world. The idea is to leverage these stakes and mobilise funds from banks to buy government stakes in PSUs when the disinvestment plans are going haywire due to lack of investor interest. The AMC could sell the stakes on profit when market conditions improve. A government official said that for the AMC’s smooth functioning, three departments in the finance ministry — economic affairs, financial services and disinvestment — need to be on its board. (For details log on to: http://www.financialexpress.com/news/dods-nominee-on-suuti-amc-board/940278/)