New Delhi: Fresh uncertainty has gripped the telecom sector after the presidential reference to the Supreme Court last week effectively brought under review the legality of mobile licences allotted since 1994. Until the constitutional bench decides the matter, which could take up to two years, there would be uncertainty with regard to further funding of telcos serving 800 million of India’s 900-million cellphone users, besides damping sentiments on 4G auctions scheduled for December. Bankers would be wary of funding telcos that have got dragged into fresh legal issues by virtue of the presidential reference.
Not surprisingly, bankers are taking a dim view of the one-time sunshine sector. Between them, Bharti Airtel, Reliance Communications, Vodafone, Idea, Aircel and Tata Teleservices serve 700 million users while state-owned BSNL and MTNL serve 100 million.
After the Supreme Court termed the first-come-first-served policy illegal and cancelled 122 licences, the government made a presidential reference on the legality of basic service licences granted in 1994 and 2003-07, since there were no auctions in these cases either. The government wants to know if it should withdraw spectrum if found illegal, or whether it should charge the price discovered through an auction. It also wants to know if 35 dual technology licences granted to RCom, Tata Tele, Shyam and HFCL in 2007-08 were illegal.
Analysts and bankers told FE that until the SC gives its views, the sector would be at a standstill. “There will be virtually no bank loans to fund expansion of networks. If at all any of these firms spot a good overseas acquisition, getting finance would be difficult and no foreign firms would look at picking any stake in any of these firms,” said an official from a leading bank.
Another banker said the reference could lead to a negative bias in lending. “We have a very small exposure to the telecom sector. But we will be patient and adopt a wait-and-watch approach before taking a call on lending to the sector,” the official added.
Corporate lawyer Diljeet Titus of Titus & Associates agreed, adding in such a scenario, the rising cost of doing business would affect consumers. “It’s a done thing that banks and other such institutions would refrain from lending to the companies till the SC gives its views. Companies would be left with no other choice but to look at other methods of raising funds for which chartered accountants and lawyers would work out the modalities. The result would be that the cost of doing business would increase and ultimately consumers would suffer,” Titus said.
Some bankers offered a more nuanced approach. “We are not worried about the Presidential reference and will continue lending to the sector if we are convinced that the borrower’s business model is strong. Even if there are cancellations of telecom licences going forward, new licences will be auctioned as there are consumers who need to be serviced. Thus, we do not expect to see a slowdown in growth in the sector. We currently have an exposure to two top telecom players,” said SL Bansal, CMD of Oriental Bank of Commerce.
Echoing a somewhat similar view, MD Mallya, CMD, Bank of Baroda, said: “We are yet to study the entire situation from the reference document on 2G spectrum allocation of telecom companies; however, we have little exposure to telecom. Those who we have lent to have their licences in different circles.”
INFLATION, EXTERNAL SECTOR CLOUD FISC AS SUBBARAO WEIGHS SUPPORTING GROWTH
MUMBAI: Concerns on inflation as well as the vulnerability of India’s external sector might keep the Reserve Bank of India (RBI) from cutting policy rates when it meets to review monetary policy on Tuesday. If the somewhat hawkish tone of its review of the macroeconomic and monetary developments for 2011-12 is any indication, taming inflation remains the RBI’s top priority and it would not risk inflation getting out of hand. As such, even though business and consumer confidence may need to be addressed by policy initiatives, the RBI is unambiguous that “monetary policy has to tread with care in working towards reviving growth, while not exacerbating inflation and other risks”. In other words, RBI will exercise extreme caution when it comes to reversing its monetary policy stance “even as growth adjusts to its trend”. (For details log on to : http://www.financialexpress.com/news/inflation-external-sector-cloud-fisc-as-subbarao-weighs-supporting-growth/937782/)
INVESTORS RESTIVE AT BUDGET TAX PROPOSALS
NEW DELHI: It has been a month since the Budget was tabled in Parliament, but the controversy involving the finance ministry’s international tax proposals is refusing to die down. Starting with the proposed retrospective amendment to Section 9 of the Income Tax Act, seen as a move to get over the adverse Supreme Court verdict on Vodafone, the controversy spilled over to taxation of foreign portfolio investments and taxation of foreign assets of Indians. While the industry fears the proposals are retrograde and would bring back ‘inspector raj’ by giving draconian powers to tax officials, the ministry has been trying hard to justify its move. Its officials have provided several clarifications to allay the fears of foreign investors, including foreign institutional investors (FIIs), who are threatening to pull out from Indiaif the proposals are not revisited while passing the Finance Bill. (For details log on to : http://www.business-standard.com/india/news/investors-restive-at-budget-tax-proposals/471614/)
CBDT PEGS TAX REFUNDS AT RS 1.25 LAKH CRORE
NEW DELHI: The finance ministry issued tax refunds of Rs 98,000 crore in 2011-12, as against Rs 74,000 crore in the previous year, as about half the country’s taxpayers filed their returns online. Higher online filing of returns that is expected in the ongoing financial year will enable faster processing of claims and hence a further increase in refunds. This time, though, the ministry will try to avoid cash problems for the government, as had happened in the initial months of last financial year. In 2011-12, as many as 16,400,000 taxpayers filed e-returns, compared to 90,500 in 2010-11, a jump of 82 per cent. The Central Board of Direct Taxes (CBDT) now expects e-returns to touch Rs 2.5 crore in 2012-13, while refunds may increase to Rs 1.25 lakh crore. This year, however, the ministry will be cautious that refunds are staggered during the year. This is being done to avoid a situation like last year’s, when refunds of Rs 40,000 crore were issued in the first two months of 2010-11. The situation prompted the government to go for short-term borrowings to meet its immediate cash requirements. (For details log on to : http://www.business-standard.com/india/news/cbdt-pegs-tax-refunds-at-rs-125-lakh-crore/471617/)
GROWTH MAY HAVE BOTTOMED OUT IN Q3
MUMBAI: The growth in the Indian economy may have bottomed out in the October-December quarter, going by an improved show subsequently, according to the Reserve Bank of India (RBI). The optimism stems from early signs of improvement in investment activities, resilience in the service sector, strong credit offtake in the last two months and prospects of higher capacity utilisation, going forward. While a dip in inflation and election-related spending in a few states are expected to boost consumption, investment demand is also seen improving, largely on account of base effect. “Current indications are that growth may have bottomed out in Q3…. The implicit growth rate for Q4 works out to 6.9 per cent,” the central bank said in its Macroeconomic and Monetary Developments report for 2011-12. The report was released here on Monday. (For details log on to : http://www.business-standard.com/india/news/growth-may-have-bottomed-out-in-q3/471587/)
MONETARY POLICY CAN’T ADDRESS ALL EXTERNAL RISKS: RBI
MUMBAI: Saying there existed limited room for the monetary policy to manage external sector risks, the Reserve Bank of India (RBI) on Monday favoured a hike in petroleum product prices and steps to curb demand for precious metals to arrest a widening current account deficit (CAD). Further reforms in policies are a must to attract more foreign direct investment (FDI) or equity in the country, the central bank said in its Macroeconomic and Monetary Developments report released ahead of its annual policy for 2012-13. RBI said the monetary policy would need to support growth without risking external balance or inflation by excessively fuelling demand. While capital inflows have improved in Q4 of 2011-12, global uncertainties aggravate downside risks to the external outlook. Dependence on debt-creating capital inflows needs to be reduced by encouraging renewed equity flows through accelerated reforms to attract FDI. (For details log on to : http://www.business-standard.com/india/news/monetary-policy-cant-address-all-external-risks/471586/)
RBI MAY CUT CRR, REPO: BANKERS
NEW DELHI: The Reserve Bank of India (RBI) may cut interest rate by about 0.25 percentage points and release more liquidity in its annual credit policy tomorrow in the light of sagging factory output and a moderation in economic growth, say bankers. “My personal stance is that cut CRR…I would expect 75-basis-point cut in CRR,” SBI Chairman Pratip Chaudhuri said. Last month, RBI slashed CRR (cash reserve ratio) — the percentage of deposits that banks have to keep with RBI — from 5.5 per cent to 4.75 per cent. With this, the central bank had infused Rs 48,000 crore into the economy. Indian Overseas Bank Chairman and Managing Director M Narendra said, “Given the microeconomic condition, there is expectation that RBI would cut both repo and CRR by 25 basis points (0.25 per cent)”. (For details log on to : http://www.business-standard.com/india/news/rbi-may-cut-crr-repo-bankers/471593/)
BANKS’ BALANCE SHEETS IN POOR HEALTH
MUMBAI: Deteriorating asset quality and depleting capital adequacy have made banks opt for safer investment avenues, such as government securities. The Reserve Bank of India (RBI), in its Macroeconomic and Monetary Developments report on Monday, said sharp deceleration in economic activities had resulted in poor credit offtake. And, some parameters indicated deteriorating health of banks’ balance sheets. This has made lenders seek refuge in “safer” investment avenues, resulting a “compositional” shift in banks’ asset portfolio in favour of investments in government securities. “Banks tend to become risk-averse, as corporate profitability impinges on the health of their balance sheets and the possibility of adverse selection increases in a rising interest rate environment,” it said. RBI said the capital adequacy ratio of public sector banks had declined during 2011-12. “These factors appear to have a bearing on their capacity to extend credit,” it said. (For details log on to : http://www.business-standard.com/india/news/banks-balance-sheets-in-poor-health/471592/)
INFLATION MAY STAY AROUND 7% IN FY13
MUMBAI: The Reserve Bank of India (RBI) on Monday said it expected inflation to stay around current levels in this financial year, 2012-13, though in the short term there are risks of a spike due to the waning base effect in food prices, lagged pass-though impact of rupee depreciation and stubborn global commodity prices. The Wholesale Price Index was 6.89 per cent in March 2012, in line with the central bank’s projection. The overall headline inflation had started easing from November 2011, after staying high for two years. “Inflation in 2012-13 is likely to remain around current levels. Importantly, the near-term trajectory is subject to significant upside risks,” said RBI in its ‘Macroeconomic and monetary developments’ report for 2011-12, released on Monday. (For details log on to : http://www.business-standard.com/india/news/inflation-may-stay-around-7-in-fy13/471591/)
RBI FOR HIKING PRICES OF PETROLEUM PRODUCTS
MUMBAI: Making a case for increasing prices of petroleum products and deregulating diesel prices, the Reserve Bank today said these steps are necessary to contain fiscal slippages and arrest decline in growth. “The policy design to achieve macro-objectives hinges on deregulation and the upward adjustment of oil prices by letting the demand effects work towards diminishing fiscal and external risks,” the RBI said in its Macroeconomic and Monetary Developments in 2011-12. While petrol prices are market-linked, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/rbi-for-hiking-prices-of-petroleum-products/articleshow/12691530.cms)
BIG BOYS OF INDIA INC BET ON RATE CUT, LINE UP RS 10,000 CR WORTH BOND ISSUES
MUMBAI: Tomorrow, finance heads and chief financial officers (CFOs) across boardrooms will remain glued to their TV sets to get the right cues from the Central banker. But the moment the governor finishes his credit policy speech, expect a mad scramble from the poster boys of India Inc over who hits the corporate bond market first. Clearly, everybody is keen to take advantage of the first policy rate cut in three years. Starved of cash and halfway into their capex cycle, blue-chip companies from the diversified Aditya Birla and Tata groups are all awaiting the right cues from the Reserve Bank of India (RBI). According to investment banking and corporate sources, Rs 7,000–10,000 crore of rupee-denominated bond issuances are set to hit the market in the coming days. (For details log on to : http://www.business-standard.com/india/news/big-boysindia-inc-betrate-cut-liners-10000-cr-worth-bond-issues-/471599/)
HONG KONG TAKEOVERS LOOM LARGE WITH BANKS LENDING IN YUAN
HONG KONG: As Hong Kong establishes itself as a hub for offshore trade and investment in China’s currency, the city’s family-owned banks can be acquired at some of the lowest valuations since the global financial crisis. Chong Hing Bank Ltd is trading at the lowest price to book multiple since the aftermath of Lehman Brothers Holdings Inc’s collapse, while Dah Sing Banking Group Ltd is valued at a 37 per cent discount to its net assets, according to weekly data compiled by Bloomberg. With competition pushing Chong Hing, Dah Sing and Wing Hang Bank Ltd down an average of 28 per cent in the past year, the prices of Hong Kong banks are “attractive” for a takeover, according to Mike Smith, chief executive officer of Australia & New Zealand Banking Group Ltd. Suitors could be lured to Hong Kong’s financial firms as China’s promotion of its currency overseas increases opportunities to finance trade and investment in yuan, Aberdeen Asset Management Plc said. Banks in the city, which is home to the world’s fastest growing population of wealthy individuals, hold 566 billion yuan ($90 billion) in deposits and handled 92 per cent of the trade settled in China’s currency last year. With smaller banks lacking the scale to stay competitive, family owners may be motivated to sell, according to Kim Eng Securities Hong Kong Ltd. (For details log on to : http://www.business-standard.com/india/news/hong-kong-takeovers-loom-largebanks-lending-in-yuan/471588/)
AUSTRALIA BANK WESTPAC TO OPEN BRANCH IN MUMBAI
MELBOURNE: Australia’s leading bank Westpac said on Monday it will open its first branch in Indiato increase commercial and wholesale banking business in the region after having received clearance from the Reserve Bank of India. Having operated a representative office in the country for the past five years, Westpac announced that it has received in-principle approval for a foreign banking licence to operate in India. The Indian licence allows the bank to now carry out rupee-denominated transactions. The bank’s first branch in Indiawill open in Mumbai, group executive, Westpac Institutional Bank, Rob Whitfield was quoted by local media reports here. (For details log on to : http://www.financialexpress.com/news/australia-bank-westpac-to-open-branch-in-mumbai/937528/)
FRANC TRADERS CHALLENGE SNB AS CRISIS MEETS NEGATIVE YIELDS
PARIS: For the first time in seven months, traders are testing the Swiss National Bank’s determination to limit the franc’s strength against the euro as Europe’s resurgent debt crisis drives up demand for safer assets. The franc breached the central bank’s cap of 1.20 to the euro on April 5 and April 9, and options show investors are predicting even more appreciation. It jumped 1.1% versus nine peers in a basket of currencies in March, the biggest gain since July, and is up 1.8% from a nine-month low on Jan. 11, according to data compiled by Bloomberg. Demand for Swiss assets is so strong that investors accepted negative yields at an auction of six-month government bills last week as Spain’s borrowing costs rose toward levels that prompted bailouts for Greece, Irelandand Portugal. (For details log on to : http://www.financialexpress.com/news/franc-traders-challenge-snb-as-crisis-meets-negative-yields/937534/)
CITIGROUP EARNS $2.9 BN IN Q1, MISSES STREET ESTIMATES
NEW YORK: Citigroup made $2.9 billion in the first three months of the year, helped by record revenue from processing transactions for its international clients and more customers paying back loans on time. The bank earned 95 cents per share, falling short of the $1.01 expected by analysts surveyed by FactSet, a provider of financial data. The bank pointed to a separate figure for quarterly income, $1.11 a share, which does not include a $1.3 billion accounting charge that Citi took because the value of its debt increased. Revenue was $19.4 billion, down 2% from the year-ago quarter. Citigroup, which has the most international branches of any USbank, took advantage of increased international trade. Its international transaction services had quarterly revenue of $2.7 billion, up 7% from last year. (For details log on to : http://www.financialexpress.com/news/citigroup-earns-2.9-bn-in-q1-misses-street-estimates/937524/)
MAY DEADLINE FOR $6.5-BN ING ASIA INSURANCE BIDS: SOURCES
HONG KONG: ING has set a deadline of the third week of May to submit bids for its Asian life insurance business, sources said on Monday, as the Dutch bancassurer kickstarted its Asian divestments to repay part of the bail-out money received during 2008 financial crisis. ING is selling the insurance and investment management businesses separately in deals that could fetch in excess of $6.5 billion. It has sent out information booklets for the sale to some potential suitors, while others are likely to get the documents later this week. Information memorandums (IMs) contain financial details of the businesses being sold which will help suitors arrive at their bid values. By sending out IMs, the bailed-out Dutch bank and insurer has set in motion an auction that has generated interest from global insurers keen to get a foot-hold in Asia’s rapidly growing insurance industry. (For details log on to : http://www.business-standard.com/india/news/may-deadline-for-65-bn-ing-asia-insurance-bids-sources/471590/)
BSE STARES AT GREY DAYS AHEAD
MUMBAI: The future appears bleak for the Bombay Stock Exchange, the oldest in Asia. The exit of Wall-Street-returned Madhu Kannan, after three-odd years as managing director and chief executive is only one reason for this. Shareholders of BSE said the Securities and Exchange Board of India’s (Sebi) new regulatory regime, announced earlier this month, has put a spanner in BSE’s turnaround drive. Listen to Thomas Caldwell, Toronto-based chief executive officer (CEO) of Caldwell Securities, which owns five per cent in BSE: “The shifting sands of regulation will make it difficult for exchange executives to operate and execute plans. Support for BSE could have come from top global exchanges like Deutsche Borse, a shareholder, but new regulations do not make it interesting enough and are pro-monopoly.’ Others said BSE was already in a fragile state and the new regulations would make the situation worse. Cash market volumes are down to just Rs 2,000-Rs 3,000 crore due to lack of trading interest in small and mid-cap stocks. While activity in the derivative segment has picked up, it is anybody’s guess whether this will continue after the market-making scheme. Currently, futures and options in excess of Rs 10,000 crore are traded daily. (For details log on to : http://www.business-standard.com/india/news/double-whammy-for-bse/471578/)
NEW SEBI NORMS REDUCE LISTING-DAY VOLATILITY
MUMBAI: Listing-day restrictions introduced recently by the Securities and Exchange Board of India (Sebi) have significantly reduced price volatility by curbing speculative trades. According to an analysis, the average fluctuation in share prices (difference between the highest and lowest prices on the day of listing) for companies that got listed last year was a little more than 100 per cent. The new rules have significantly reduced such volatility. While NBCC and MT Educare, which got listed last week, moved within a range of just five per cent, shares of MCX, which got listed in March, moved in a band of 11 per cent on listing day. Said Girish Nadkarni, executive director, Avendus Capital, “Since only delivery-based trades are allowed in smaller issues, volume and volatility will automatically come down as speculators won’t be able to participate.” Added Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, “It’s not just about the rules but also the quality of the issues and the pricing. Most companies that have entered the market after this year have been good quality issues, unlike last year, when we saw a lot of dubious companies get listed.” (For details log on to : http://www.business-standard.com/india/news/new-sebi-norms-reduce-listing-day-volatility/471580/)