NEW DELHI: The government is consulting state-run banks before it finalises the new licences that will be issued to telecom companies winning spectrum in the auctions to be held later this year, as it is keen to ensure bids are bankrolled without a hitch.
The first round of auctions is scheduled to be held by August 31, and with the Telecom Regulatory Authority of India (Trai) setting astronomical reserve prices, banks will have a vital role to play in the success of the process.
Most telecom companies will finance bids through debt and their bidding strategy will, to a large extent, depend on the enthusiasm shown by lenders.
A senior finance ministry official said banks would be more inclined to lend at favourable rates if the licences contain safeguards to protect their money.
“Banks and the department of financial services are vetting the draft licence agreement as a sort of pre-check to ensure quick lending,” he said. The department of telecom and the law and finance ministries will be involved in finalising the new agreement.
Experts, however, caution that banks may be wary of lending to the controversy-dogged telecom sector.
“Banks already have huge 2G debt on their books, so they would be hesitant,” said Romal Shetty, national telecom leader, KPMG.
According to government data, state-run banks have lent 18,571 crore to companies whose licences were cancelled by the Supreme Court earlier this year. A PwC report has pegged the total exposure of state-run banks to the telecom sector at 1,00,000 crore. If the auctions are to succeed, this figure will have to rise substantially.
“While foreign players can raise funds from overseas, Indian companies will need bank funding,” said Shetty.
The finance ministry has dismissed concerns about the ability of telecom companies to raise debt and said banks are in a good position to lend to these players. The loans to the telecom sector are secured through tangible and other assets, said the finance ministry official.
In its recent recommendations on auctions, Trai has endorsed the finance ministry’s view that telecom companies could use spectrum as collateral for bank loans. It has even urged finance ministry, the Reserve Bank of India and the law ministry to urgently explore if spectrum could be mortgaged to foreign institutions after putting in place adequate safeguards.
An official of an industry body representing telecom companies welcomed the move to include banks in the pre-vetting stage. “It makes sense as the government has a tight deadline, and it would want to ensure all blocks are in place before the auction,” said the official.
EPS HAS NO DEFICIT, CAN BE FUNDED FOR DECADES: STUDY
NEW DELHI: A report into the viability of the Employees’ Pension Scheme (EPS) has concluded that it has no deficit and can be funded for decades, a finding that could force the government to stump up thousands of crores each year as it comes under renewed pressure to expand the plan’s coverage. Earlier actuarial estimates had concluded that the 142,000-crore EPS, had run up a 54,000-crore deficit by 2009-10, becoming a stumbling block for a wider rollout of the country’s only formal state-run social security scheme. But the latest viability report, based on the World Bank’s ‘PROST’ model, has concluded that the scheme can be fully funded until 2075. The report, put together by KA Pandit Consultants & Actuaries and submitted to the Employee Provident Fund Organisation (EPFO) last July, was submitted to the government in January this year. (For details log on to : http://timesofindia.indiatimes.com/business/india-business/EPS-has-no-deficit-can-be-funded-for-decades-Study/articleshow/13161036.cms)
GOVT MAY HAVE STRETCHED LIMIT ON GILT ISSUE TO RS 80,000 CRORE
MUMBAI: Despite benchmark government bond issues having topped the Rs 60,000-crore informal limit, the government has not yet issued a new 10-year bond, as it may now be considering Rs 80,000 crore as the ceiling. Contrary to expectations, the government sold the 8.79 per cent 2021 bond last week though issues had reached Rs 70,000 crore. Then, a finance ministry official had said there was “more space” to issue the 8.79 per cent 2021 bond. Banking industry officials said the informal limit had now been reset, keeping in mind the expansion in the economy, money supply, balance sheets of banks and market borrowing by the government. So, with the issue of the current benchmarks — the 8.79 per cent 2021 and 9.15 per cent 2024 — reaching close to Rs 80000 crore, a new 10-year paper may be auctioned next week. (For details log on to : http://www.business-standard.com/india/news/govt-may-have-stretched-limitgilt-issue-to-rs-80000-cr/474499/)
T-BILLS A HIT DESPITE HEAVY ISSUANCES, TIGHT LIQUIDITY
MUMBAI: Yields on treasury bills (T-bills) have stayed under check despite concerns such as tight liquidity and heavy weekly supply. Market participants said there was appetite for short-term government securities, amid uncertainty on interest rates over the longer end of the curve. Since the start of the current financial year (2012-13), yields on the 91-day bills have moved in the range of 8.3-8.4 per cent, while those on the 10-year benchmark government bond have fluctuated at 8.3-8.7 per cent. Yields on the T-bills have fallen from the nine per cent levels seen towards the end of 2011-12. T-bills are eligible to be held under the Statutory Liquidity Ratio requirement for banks. These securities can be used to borrow funds from the Reserve Bank of India (RBI) at a repo rate of eight per cent. “The advantage of differential between yields on T-bills and the repo rate would stay till the liquidity deficit is above RBI’s comfort level,” said a senior treasury official from a public sector bank. (For details log on to : http://www.business-standard.com/india/news/t-billshit-despite-heavy-issuances-tight-liquidity/474498/)
RBI INTERVENES AGAIN, SAVES THE RUPEE FROM FALLING TO ALL-TIME LOW
MUMBAI: The Reserve Bank of India (RBI) on Tuesday swung into action to save the battered rupee after it crossed the 54-a-dollar mark in early trade. The RBI action helped the currency appreciate 43 paisa but the gains were eroded later in the day on robust dollar demand from importers. The RBI’s support came as the rupee threatened to touch a record low of 54.30, earlier hit on December 15, 2011. According to Bloomberg data, the rupee opened at 54.05 a dollar, which prompted public sector banks to sell dollars on behalf of the central bank. According to dealers, banks may have sold $500 million in the spot market. On Monday, the rupee had closed at 53.96 against the greenback, registering a fresh all-time closing low. On Tuesday, it closed at 53.80 a dollar, 16 paisa or 0.3 per cent up from the previous close. (For details log on to : http://www.business-standard.com/india/news/rbi-intervenes-again-savesrupeefalling-to-all-time-low/474453/)
INDIRECT TAX MOP-UP RISES 10% IN APRIL
NEW DELHI: The Centre’s indirect tax collections have risen 10% in April to R32,000 crore as against just over R29,000 crore garnered in the same month of the previous year. Coming on top of a 3.5% contraction in industrial production in March, the 10% rise in indirect tax revenue in the first month of the current fiscal was somewhat reassuring. Indirect tax collection grew 14% in 2011-12. Excise revenue grew an impressive 18% to R12,500 during the month under review as against R10,600 during April, 2011. “The higher excise collections in April, partly attributable to the hike in duty to 12% in the Budget, reflects better health of the industry and could signal a likely pick up in IIP growth in April,” said a finance ministry official. (For details log on to : http://www.financialexpress.com/news/indirect-tax-mopup-rises-10-in-april/949771/)
GOVT GIRDS UP FOR POSSIBLE BREAKOUT IN EUROZONE
NEW DELHI: The finance ministry is mulling some policy interventions to address the eventuality of a breakout in the eurozone. In contrast to the 2008 crisis when the government gave a hefty fiscal stimulus, the Centre would rely on non-budgetary measures this time. This approach is also necessitated by an already bloated fiscal deficit, and it leaves the government with certain administrative relaxations and monetary policy interventions to protect the economy from any severe downturn. R Gopalan, secretary, department of economic affairs in the finance ministry, and his team of senior officials have discussed the likely impact of a full-blown Eurozone crisis on India, official sources said. These officials have prepared policy actions over the past couple of months, which have been discussed in meetings of the Financial Stability and Development Council, headed by RBI governor D Subbarao. (For details log on to : http://www.financialexpress.com/news/govt-girds-up-for-possible-breakout-in-eurozone/949748/)
TAXMAN ON STEROIDS FUELS SPIKE IN LITIGATION AS ECONOMY SLOWS
NEW DELHI: A decline in revenue productivity since 2007-08 has made the tax authorities aggressively step up the pace of mobilisation, sparking a dramatic increase in the amount locked up in litigation at tribunals and courts. According to finance ministry data, the disputed direct tax claims skyrocketed to R4.37 lakh crore by end-2011 from R2.44 lakh crore a year ago. For taxpayers, especially corporates, the taxman’s intrusive approach could not have come at a worse time, given the pressure on business volumes and margins in a slowing economy. (For details log on to : http://www.financialexpress.com/news/taxman-on-steroids-fuels-spike-in-litigation-as-economy-slows/949928/)
BANK EMPLOYEES PLAN 2-DAY STRIKE IN JULY
BANGALORE: About 10 lakh bank employees and officers plan to go on a two-day all-India strike in July this year. The United Forum of Bank Unions has decided to observe a two-day all-India strike during the monsoon session of Parliament in July, said Mr G.D. Nadaf, Convenor, UFBU, in a press release. The forum has also decided to observe May 21 as ‘All-India Protest Day’ against unilateral directions from the Government of India on bilateral issues and the attack on hard-earned trade union rights. There will be centralised demonstrations at all State capitals and a rally before Parliament in New Delhi to mark the protest, added the release. The protest will be against issues such as the Banking Law (Amendments) Bill and other reform measures, closure of rural branches, increased outsourcing of jobs, attacks on trade union rights, and the government’s unilateral directions on bilateral issues. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3423479.ece)
ORIENTAL BANK SLASHES HOME, CAR LOAN RATES
NEW DELHI: Oriental Bank of Commerce (OBC) today announced a revamp of its home and car loan schemes as part of its efforts to ramp up its retail loan book and increase market share in these segments. The new home loan scheme includes features such as reduced interest rates, extended repayment terms, higher loan eligibility for high ticket loans besides loyalty bonus of 0.25 per cent concession in interest rates for certain existing customers, Mr S.L. Bansal, Chairman & Managing Director of the bank said. The changes to home loan and car loan schemes came on a day when the bank further cut its base rate from the existing level of 10.65 per cent to 10.50 per cent. OBC also today reduced its benchmark prime lending rate from 15 per cent to 14.75 percent. As much as 60 per cent of OBC’s loan book is linked to base rate. Base rate is the rate below which a bank cannot lend. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3423483.ece)
IOB PLANS TO RAISE $500 M TO FUND OVERSEAS GROWTH
NEW DELHI: Indian Overseas Bank (IOB) plans to raise $500 million this fiscal to fund its business growth overseas. The funding will be through a Medium Term Note (MTN) programme, which is basically a debt instrument with a maturity of 5-10 years. IOB’s Chairman and Managing Director, Mr M. Narendra, said the bank was waiting for an opportune time to raise the money as the cost of raising funds through this route had gone up. Investors are now looking for a higher yield from MTNs. Last fiscal too, the bank had raised $500 million through the MTN route, Mr Narendra said. IOB’s overseas operations had recorded 40 per cent growth in 2011-12, he said, adding that certain markets abroad had provided ample growth opportunities for the bank. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3423482.ece)
CANARA BANK LAUNCHES NEW PAYMENT FACILITIES
BANGALORE: Canara Bank launched technology products and facilities for easy and secure banking on Monday. A press release from the bank said that the products and facilities would enable customers to avail themselves of the service anywhere, and at any time. Dr Thomas Mathew, Director, Canara Bank, and Joint Secretary (CM), Union Ministry of Finance, launched the products and facilities. Some of the facilities include Internet banking — bill payment; funds transfer by corporate account holder up to Rs 50 lakh per day; welcome kit – provision of Net banking login password; payment of fees to Indian Institute of Science (IISc), Bangalore; electricity bill payment by consumers of Bihar State Electricity Board; and release of booklet on technology products (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3423478.ece)
PNB ‘HAS NO’ EQUITY HOLDING IN METLIFE AS YET
PNB Employees Pension Fund has invested Rs 129.41 crore in life insurer, MetLife, Parliament was informed on Tuesday. While Punjab National Bank (PNB) is functioning as corporate agent of MetLife for life insurance business, it has not yet acquired any share in MetLife, the Minister of State for Finance, Mr Namo Narain Meena, said in a reply to a Rajya Sabha question. The bank had, in July 2011, announced plans to acquire 30 per cent stake in MetLife India Insurance Company, making it the largest shareholder in the joint venture life insurer. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3423484.ece)
HIGHER INTEREST ON SAVINGS ACCOUNTS HELPS BANKS GROW
MUMBAI: Even as deposits of Indian banks are growing at just around 15-16%, a handful of new-generation banks that raised rates on savings accounts have managed to attract more customers. Yes Bank, IndusInd Bank and Kotak Mahindra had hiked interest rates to somewhere between 6-7% after the RBI de-regulated interest rates on savings accounts in September last year. Most other banks continue to offer just 4%. On a very small base, Yes Bank saw its savings account balances grow 40% quarter- on-quarter (q-o-q) to R1,182 crore at the end of December 2011, and 108% q-o-q to R2,458 crore at the end of March, 2012. The corresponding growth figures for IndusInd Bank were 21% q-o-q to R3,977 crore in the December 2011 quarter and 18% q-o-q to R 4,694 crore at the end of March 2012. IndusInd Bank’s base of R4,700 crore savings account at the end of FY12 was less than a fifth of HDFC Bank’s base of R74,000 crore. (For details log on to : http://www.financialexpress.com/news/higher-interest-on-savings-accounts-helps-banks-grow/949753/)
ADOPT LEAD BANK CONCEPT, IRDA CHIEF TELLS INSURERS
HYDERABAD: Insurance companies need to improve their products and post-sale services to ensure that they are demand-driven, Chairman of Insurance Regulatory and Development Authority (IRDA) J. Hari Narayan said. He released a white paper on financial inclusion prepared by Ernst & Young at the national conference on “Financial inclusion: integrating insurance into total package”, organised by the Associated Chambers of Commerce and Industry of India (Assocham) here on Tuesday. He said that the insurance companies had to work hard to make insurance a product that was acceptable to all. Referring to the idea of micro-insurance as a part of financial inclusion, he said that the only difference between micro and macro-insurance was the premium and coverage amount. Companies needed to design the product that was suited to rural customers and the companies must inspire confidence among customers by promptly responding to the claims, he added. (For details log on to : http://www.thehindu.com/todays-paper/tp-business/article3423642.ece)
IRDA SUGGESTS AN ‘EVERYTHING PRODUCT’ FOR VILLAGERS
HYDERABAD: In a bid to make insurance a significant part of the ongoing financial inclusion initiatives in rural areas, the Insurance Regulatory and Development Authority (Irda) has come up with the concept of an ‘everything product’ to address several risks of a typical household, with a single premium. Disclosing this, Irda Chairman J Harinarayan said the regulator was awaiting a response from the Life Insurance Council to its suggestion on such a product that would be available only under the rural social responsibility obligation mandated to insurance companies by law. Speaking at a conference organised by the Associated Chambers of Commerce and Industry on integrating insurance into financial inclusion, Harinarayan referred to an “everything product”, while stating “a relook at products is necessary when we are dealing with this segment of population”. (For details log on to : http://www.business-standard.com/india/news/irda-suggests-an-everything-product-for-villagers/474444/)
IRDA MULLS PREPAID INSURANCE PRODUCTS
HYDERABAD: Following the success of mobile revolution in the country, the Insurance Regulatory and Development Authority (Irda) is looking at prepaid products to boost microinsurance. According to Irda chairman J Hari Narayan, this revolutionary idea can become reality, if the insurance providers, like the telecom service providers, are as quick to give instant policies at a desirable cost to cover multiple benefits and risks, especially for the low-income people. Explaining this thought at a national conference on financial inclusion organised by industry body Assocham, the regulator said that the idea of prepaid insurance products would be beneficial for low-income people, which will also become confirmed premium payments for this section of people. “May be, this could become one of the ways forward for improving the scale and reach of micro insurance products to this section of the society,” he said. (Ford etails log on to : http://www.financialexpress.com/news/irda-mulls-prepaid-insurance-products/949755/)
ROYAL SUNDARAM BREAKS EVEN AS TOPLINE RISES 29 PER CENT
CHENNAI: Royal Sundaram Alliance Insurance Company, a joint venture between Sundaram Finance and Royal & Sun Alliance Insurance, UK, has reported a growth of 29% in its gross written premium (GWP) to R1,479.79 crore for FY12 compared to GWP of R1,143.99 crore in the previous year. The company has also recorded a profit after tax (after pool loss) of R22 lakh during the year under review as compared to a loss of R20.1 crore in the previous financial year. This robust growth makes Royal Sundaram one of the consistent performers among the private sector general insurance companies in the country. Speaking on the performance, Ajay Bimbhet, managing director, said, “It is quite satisfying that we have been consistently outpacing the industry growth. Our current year’s growth is reflected in all lines of business and attributed to our prudent underwriting practices. Despite the challenges faced, Royal Sundaram has been able to keep pace with growth.” (For details log on to : http://www.financialexpress.com/news/royal-sundaram-breaks-even-as-topline-rises-29/949760/)
MUTHOOT NET RISES 80 PER CENT Y-O-Y IN FY12
KOCHI: Kerala- based gold loan financing company Muthoot Finance reported an 80% y-o-y increase in net profit to R892 crore for FY12. MG George Muthoot, chairman, Muthoot Finance, said, “The company has recommended a maiden dividend of 40% for the fiscal ended March 2012, subject to the shareholders approval.” Muthoot Finance has gold loan portfolio of over R24,000 crore and a branch network of 3,678.The total income went up by 96% to touch R4,549 crore for FY12. The gold loan company has 60 lakh loan accounts to its credit and 137 tonne of gold jewellery pledged with it. The RBI in February imposed restrictions on the maximum loan that could be given against the value of the gold pledged. (For details log on to : http://www.financialexpress.com/news/muthoot-net-rises-80-yoy-in-fy12/949758/)
AS FUNDS FLEE, INDIA’S PAIN IS SOUTHEAST ASIA’S GAIN
HONG KONG: Southeast Asian nations are swallowing an outflow of money from India, as foreign investors lose patience with its policy paralysis and slowing growth and aim instead for more promising emerging markets, such as Indonesia. Corruption scandals and high inflation have added to India’s woes, which has seen growth slow to a three-year low while the fiscal deficit widened to 5.9% of GDP in the last financial year. “Indiawas sold on the promise of high growth, which simply hasn’t panned out over the past four years,” said Gautam Prakash, founder of US-based hedge fund Monsoon Capital. Foreign investors pulled a net $540 million out from Indiain March and April, compared with $13 billion in inflows in January-February. (For details log on to : http://www.financialexpress.com/news/as-funds-flee-indias-pain-is-southeast-asias-gain/949785/)
CAPITAL GOODS COMPANIES GRAPPLE WITH POOR ORDER INFLOWS
MUMBAI: Engineering and capital goods companies continue to feel the pinch of the economic slowdown and weak industrial capex with order inflows still sluggish. While most companies demonstrated healthy operational performance, leading to a rebound in net sales and profit growth, analysts expect the tough macro environment to continue to cast a cloud on the order-book growth even in 2012-13. “The order-book-to-build (or sales) ratio for most of the engineering majors, including ABB, Siemens and L&T currently range in the span of 1-3 years, which is expected to drive the growth of these companies. However, if the order ramp-up does not happen in the next two quarters, some of the stocks may see further derating as analysts start factoring in the earnings expectations for 2013-14,” said an analyst tracking these companies. (For details log on to : http://www.financialexpress.com/news/capital-goods-cos-grapple-with-poor-order-inflows/949782/)
CMO’S DEPARTURE A BLOW TO UTI AMC: EXPERTS
MUMBAI: The departure of chief marketing officer Jaideep Bhattacharya from UTI AMC earlier this month will not impact the fund performance, but may considerably diminish its marketing firepower at a time when fund houses are struggling to attract enough investors to equity schemes. “Jaideep’s departure will not, in any way, impact the fund performance of the AMC as performance is solely driven by fund managers. Having said that, the overall sales strategy, branding and promotional activities as well as the overall market perception about the fund house may suffer,” said a senior industry executive, who didn’t want to be identified. As the face of the fund house, Bhattarchaya was instrumental in changing the perception of UTI among institutional investors in the last six years, said market observers. He is known in the market circles for being aggressive in pushing for change in the way the AMC functioned. “It’s a big blow to UTI because he was known to deliver and was around for such a long time,” said the executive. (For details log on to : http://www.financialexpress.com/news/cmos-departure-a-blow-to-uti-amc-experts/949783/0)
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