MUMBAI: Bank chiefs will on Monday assemble at the 25-storeyIDBITowersin south Mumbai to draw up guidelines to prevent incompetent and unscrupulous promoters from exploiting the debt restructuring mechanism, which is becoming a drag on the financial system.
Following a recent warning by the government, the bank bosses will also deliberate on the possibility of getting rid of managements of badly-performing companies in order to prevent promoters from indulging in practices such as diversion of funds, said two people familiar with the matter.
The meeting is “to redefine the acceptable parameters for restructuring of borrowers’ debts under corporate debt restructuring (CDR)”, a note from the CDR cell to bank chairmen says.
The finance ministry has “referred to the need to explore change of management in cases of management incompetence/diversion of funds. They have also stated that recourse to long-term cumulative preference shares is not a healthy practice or a desirable policy instrument”, according to the note. The note refers to a recent letter from the ministry to the CDR cell, urging caution in admitting companies into the CDR process. CDR is a platform where lenders and borrowers negotiate new loan terms to avoid defaults, which burden a bank’s balance sheet. Criticism is mounting that the CDR platform designed to bail out businesses affected by external factors are being misused by promoters, resulting in lenders being shortchanged. Crisil, a rating company, estimates that loan restructurings could touch Rs. 2 lakh crore this year. The government has now woken up to stop such unfair practices.
“CDR should only be taken where the slippages have been for reasons beyond the control of the management of the company,” the finance ministry wrote to the CDR cell. “In case CDR is done in cases that have been spoilt due to the incompetence of the management or where diversion or misuse of funds has taken place, change of management must be the first option.” The contents of the letter were reported by ET in its edition dated May 18.
Bankers will dwell on the possibility of removing the management in cases where there has been a diversion of funds or where promoters are not bringing much to the table by way of equity contributions, said another person.
DOLLAR INFLOWS FROM EXPORTERS’ FOREX ACCOUNTS TO SUPPORT RUPEE
MUMBAI: Having fallen to fresh lows thrice last week, the rupee is expected to get some respite, with dollar inflows from Exchange Earners Foreign Currency (EEFC) accounts and hopes that the central bank would take further steps to arrest the fall. On Friday, the rupee fell to an all-time intra-day low of 54.91 a dollar before it closed at 54.49 against the greenback. The currency registered a depreciation of 1.5 per cent over the week. In a circular dated May 10, the Reserve Bank of India (RBI) had given a fortnight for EEFC account holders to convert half of their dollar balances into rupees. “We may see flows of up to $2.5 billion from these accounts, which will help the rupee stabilise for some time,” said a foreign exchange dealer with a public sector bank. Also, measures such as meeting the dollar demand of oil marketing companies directly and curbing speculative trading are expected from the central bank. The RBI, which does not target any exchange rate, has been selling dollars in the spot foreign exchange market on a daily basis to cut volatility. The central bank has sold $20 billion in the spot market since September. However, dollar strengthening on account of a global risk-off mode is adding to the rupee’s woes. (For details log on to : http://www.business-standard.com/india/news/dollar-inflowsexporters-fx-accounts-to-support-rupee/474918/)
DIVESTMENT ONLY VIA PLACEMENTS OR OFFER FOR SALE, SAYS FINMIN
NEW DELHI: The finance ministry has ruled out any more follow-on offers of state-run companies, saying it will instead rely on institutional placement or offer for sale to meet its . 30,000-crore disinvestment target for the current fiscal. The change in the ministry’s stance came after several public sector companies indicated that they would not prefer to raise fresh equity in the current choppy markets. “The disinvestment programme will be pursued mainly through institutional placement or offer for sale,” a finance ministry official said on condition of anonymity. The Securities and Exchange Board of India had introduced institutional placement and offer for sale through the auction route as new methods of share sale in February. “The glitches in the auction process will be sorted out before the disinvestment begins,” the official said, adding that the finance ministry is keen to launch the disinvestment drive early on in the fiscal to prevent any slippage in target. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/divestment-only-via-placements-or-offer-for-sale-says-finance-ministry/articleshow/13325731.cms)
REPORT ON CAPITAL NEEDS UNDER BASEL III THIS WEEK
NEW DELHI: The additional capital requirements of public sector banks under Basel-III norms may be limited to Rs 3 lakh crore in line with earlier projections by the government. A committee of leading state-run banks is likely to submit this week its report on banks’ requirements. “Most public sector banks are well capitalised as of today,” said a member of the panel headed by State Bank of India (SBI) chairman and managing director Pratip Chaudhuri. “So, it will not be difficult to meet Basel-III requirements. The common equity of banks is good. The report will be submitted (to the finance ministry) very shortly after getting a green signal from all the banks.” It was the finance ministry that formed the committee to assess the additional capital needs of all PSBs in line with the recent Basel-III guidelines issued by the Reserve Bank of India (RBI). (For details log on to: http://www.business-standard.com/india/news/reportcapital-needs-under-basel-iii-this-week/474905/)
CANARA BANK LIKELY TO OPEN 600 ULTRA SMALL BRANCHES THIS FISCAL
BANGALORE: To drive more business from its business correspondents, Canara Bank plans to open 600 ultra small branches this fiscal. Of these, 300 would be under the parent bank and 300 under the Canara Bank-sponsored regional rural banks, Ms Archana Bhargava, Executive Director, Canara Bank, told Business Line. The bank has opened 41 ultra small branches so far. “These branches will instil a much wanted confidence in dealing with business correspondents who will now have an identity as the bank’s agents,” she said, pointing out that with the setting up of ultra small branches, all the BCs would be provided with laptops and receive assistance from staff of nearby branches. The brick and mortar branches that Canara Bank set up in its financial inclusion villages last fiscal have also received good response, said Ms Bhargava. The bank set up 167 brick and mortar branches in its financial inclusion villages. “We have so far opened over four lakh accounts with a total business of Rs 405.15 crore,” she said. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3440123.ece)
OBC CUTS INTEREST RATE ON EDUCATION LOANS BY UP TO 1 PER CENT
NEW DELHI: State-owned Oriental Bank of Commerce (OBC) has reduced interest rate on education loans by up to 1 per cent. “We have slashed rates on education loans across the board effective May 15,” OBC Chairman and Managing Director S L Bansal said. With the reduction, education loan up to Rs 4 lakh would be cheaper by 25 basis points, while interest rate on Rs 4-7.5 lakh loans has been reduced by 0.5 per cent, he said. Interest rate on education loan up to Rs 4 lakh would now be available at 13 per cent. The maximum reduction of 1 per cent is on education loans above Rs 7.5 lakh. The rate has been reduced to 13 per cent. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/obc-cuts-interest-rate-on-education-loans-by-up-to-1-per-cent/articleshow/13313295.cms)
BANKS SEE HEALTHY Q4 BUT BAD LOANS MAY THROW A SPANNER
KOLKATA/MUMBAI: Indian banks have managed to perform reasonably well in the fourth quarter despite worries about rising bad loans and shortage of liquidity. They have steered their asset liability management well despite upward pressure on deposit cost but the amount of restructured loans can throw a spanner for many quarters especially for the government banks if suspended projects do not take off soon. “Up to the operating profit level, we are the most efficient among all banks including private sector ones. But we lose out after the operating profit when the loan loss provision comes,” State Bank of Indiachairman Pratip Chaudhuri said. While the state of stressed assets for the banking sector has shown a little improvement since December 2011, March 2012 numbers indicate bad loans or gross non performing assets rose 46% compared to the corresponding period last year. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-see-healthy-q4-but-bad-loans-may-throw-a-spanner/articleshow/13331661.cms)
BANKS RECAST R75,000-CRORE SEB LOANS
MUMBAI: Public sector banks are estimated to have restructured around R75,000 crore worth of loans to state electricity boards (SEBs), mainly the three distribution companies of Rajasthan, Uttar Pradesh and Haryana. Much of the recast has taken place in the March 2012 quarter. Of the total power sector portfolio of nearly of R5 lakh crore, Crisil estimates that approximately R3 lakh crore has been lent to state-owned utilities. Bank of Baroda’s ( BOB) restructured loans worth R5,281 crore in the three months to March, 2012, including R2,000 crore to SEBs. Punjab National Bank restructured loans toalling R4,700 crore to SEBs as a result of which its restructured portfolio jumped to R8,600 crore. At Central Bank of India, too the restructured portfolio ballooned to nearly R8,000 crore in the March quarter, more than half of which related to loans to SEBs. Apart from the power sector, banks have recast loans to the aviation space. Banks have gone ahead with rejigging the loans to SEBs since they are hopeful the state governments will hike tariffs shortly. (For details log on to : http://www.financialexpress.com/news/banks-recast-r75-000crore-seb-loans/951892/)
DESPITE RISING PRICES, HOMES MOST AFFORDABLE IN 30 YEARS: HDFC
NEW DELHI: Housing may be perceived to have gotten very expensive at the current sky-high levels, but data compiled by mortgage giant HDFC shows that home prices are near their most affordable level in over three decades. The home prices have indeed been rising for more than 10 years, except for a temporary slump in 2009, but the ‘affordability’ of purchasing a house has been mostly on a declining trend for almost two decades now, as per HDFC data. This affordability ratio, which takes into account the annual income of the home buyer along with the price of the house, declined to 4.6 in the last financial year, ended March 31, 2012, from as high as 22 in the year 1995. (For details log on to : http://www.financialexpress.com/news/despite-rising-prices-homes-most-affordable-in-30-yrs-hdfc/951676/)
BOFA-ML’S INDIAN WEALTH MANAGEMENT UNIT ON SALE
MUMBAI: Bank of America Merrill Lynch (BofA-ML) has put its Indian wealth management unit on sale, along with its other non-US wealth management businesses, according to persons familiar with the matter. Reuters reported last month that BofA-ML had put its non-US wealth division up for sale, a deal that includes units in Asia excluding Japan, Europe, West Asia and Latin America. The firm’s Indian wealth management unit is also part of this sale process, according to the persons cited earlier, who declined to be named. An e-mail query sent to BofA-ML’s global wealth and investment management spokespersons on the issue remained unanswered. Merrill Lynch Private Wealth Managers, BofA-ML’s Indian wealth management unit, is among the top 10 players in the country. It competes with wealth management arms of foreign players like Standard Chartered Bank, HSBC, Deutsche Bank and local banks like HDFC Bank and Kotak Mahindra Bank. The unit has a staff strength of 125-150 people. (For details log on to : http://www.business-standard.com/india/news/bofa-mls-indian-wealth-management-unitsale/474897/)
HEALTH INSURERS YET TO MAKE A MARK IN RURAL MARKETS
CHENNAI/BANGALORE: Even as Government-backed health insurance has picked up, general insurers still find the going tough in rural and semi-urban markets. State-funded insurance in States such as Tamil Nadu is driving affordability in small towns and bringing more people under insurance cover, said Mr S. Premkumar, CEO, Apollo Hospitals. For instance, Star Health, which bagged the Tamil Nadu insurance mandate, collected a premium of Rs 600 crore last year from the scheme. “While the rub-off effect of State insurance is slowly being seen on firms which are spending a lot of money on rural penetration, it is definitely a long journey for them,” said Mr Premkumar. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3440122.ece)
TOP PRIVATE LIFE INSURERS SHUT 1,500 BRANCHES IN 2 YEARS
MUMBAI: With “profitable growth” replacing “expansion drive” as the buzzword in the sector, the country’s top private life insurers have significantly reduced branches and employees over the last couple of years to cut costs and improve efficiency. ICICI Prudential, the second largest private life insurer in the country, has reduced its branches by nearly a half from 1,923 to 1,000 in the last two years. The top six private insurers, barring SBI Life, reduced nearly 30 per cent of branches, while the headcount was scaled down 27 per cent in the same period. Interestingly, the profits of all these players doubled over the last two years. Insurance companies have different takes on the matter, terming it “right sizing” or “smart usage of realty” or “efficient utilisation of space” but the move to rationalise branch networks was a direct fall-out of the stringent regulations introduced by the Insurance Regulatory and Development Authority (Irda) in September 2010. The Irda had raised the lock-in period and the insurance cover on the popular unit-linked products. (For details log on to : http://www.business-standard.com/india/news/top-pvt-life-insurers-shut-1500-branches-in-2-years/474919/)
RELIANCE LIFE FY12 PROFIT AT RS 373 CRORE
NEW DELHI: Reliance Life Insurance Company, part of the Anil Ambani group, reported its first full-year net profit at Rs 373 crore for the financial year ended March 31. In 2010-11, it had incurred a net loss of Rs 129 crore. During the year, it sold 1.1 million policies, which garnered a total premium of Rs 5,470 crore. Total funds under management stood at Rs 18,767 crore. The number of agents were at 0.15 million, a decline of 20 per cent year-on-year. This was in line with the focus on productivity and performance of agents. (For details log on to : http://www.business-standard.com/india/news/reliance-life-fy12-profit-at-rs-373-cr/474911/)
GAAR PUSHED BACK, BUT NEW TAX RULE MAY STILL DRIVE AWAY FIIS
NEW DELHI: Foreign investors may be relieved over the controversial GAAR tax proposals being pushed back by a year but another new taxation framework could make their Indiainvestments riskier and expensive. The proposals that are a part of the Finance Bill. They state that capital gains arising from the transfer of shares or interest in a non-Indian company — in case the share or interest derives directly or indirectly its value substantially from assets located in India — will be taxable in the country. The new rules could force foreign investors to re-examine their structures for investments in India, while impact would be visible also on global mergers and acquisitions involving Indian businesses to take in to account the potential tax risks from the indirect transfer rules. The FIIs are of the view that their gains from Indiaare as such taxed in the country, and any repatriation of gains to its investors by way of redemption of capital should not come under the offshore transfer provisions. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/gaar-pushed-back-but-new-tax-rule-may-still-drive-away-fiis/articleshow/13313985.cms)
MOST NEGATIVES ARE ALREADY PRICED IN: SUNIL SINGHANIA, RELIANCE MUTUAL FUND
The stock market may not correct sharply from current levels as most negatives are priced in, said Sunil Singhania, head of equity investments at Reliance Mutual Fund. In an interview with ET, Singhania said regulatory risks are worrying investors and revival of confidence will improve fundamentals. Edited Excerpts: The rupee weakening seems to be the biggest concern among investors. What’s your view? The fall has been even more severe last week, because the dollar has strengthened against almost all currencies. To that extent, the rupee has also not been immune. But, there’s a case for the rupee to start stabilising. The currency has weakened far more than the underlying fundamentals. The rupee may not weaken significantly from current levels. There are fundamental attributes to this premise of ours. Oil has fallen from $126 to $106 as on Thursday. Natural gas prices in the UShave come down from $10 to $2 and it is believed that the USwill become self-sufficient in its energy needs in the next three-four years. Fundamentally, as a result of slowing growth in Chinaand India, and low demand from the US, there’s a clear case for oil prices to fall. So, if oil prices were to fall to $100, the country will nearly save $20-25 billion annually in terms of forex. Gold imports, which were averaging $5 billion a month, have come down to $3 billion. (For details log on to: http://economictimes.indiatimes.com/opinion/interviews/most-negatives-are-already-priced-in-sunil-singhania-reliance-mutual-fund/articleshow/13328136.cms)
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