NEW DELHI: The government appears to have buckled under political pressure, as the finance ministry is set to take a diluted version of the Insurance Bill to the Cabinet in the coming week.
The revised Insurance Laws (Amendment) Bill proposes to retain the foreign direct investment (FDI) cap in the sector at 26 per cent, against 49 per cent proposed earlier. This comes barely two weeks after the Cabinet cleared a toned-down version of the Banking Laws (Amendment) Bill.
A higher FDI cap in insurance was expected to give a push to financial sector reforms that Finance Minister Pranab Mukherjee had been talking about. But, a foreign investment ceiling status quo will take much of the sting out of the legislation, particularly at a time when the country desperately needs foreign inflows in the wake of a widening current account deficit and a weakening rupee.
The Bill will make some incremental changes to fine-tune the existing legislation. The ministry has broadly followed the recommendations of Parliament’s standing committee on finance headed by BJP leader Yashwant Sinha. The panel had said instead of seeking foreign capital, companies should tap the domestic market to meet their needs.
The Bill proposes opening up the sector for branch office operations by foreign re-insurers “on terms and conditions of the standing committee”. It also proposes to increase the time period beyond which a policy cannot be questioned on ground of misstatement from two to five years.
“Consumer policy protection remains the prime focus of the Bill. It will be easier to increase insurance penetration in the country… Allowing branches of foreign re-insurers would reduce the exposure of Indian re-insurer (GIC),” an official said in defence of the new version.
Under attack from various quarters for not being able to push reforms, the government recently started moving ahead on key financial sector Bills, stalled for years. The movement, however, has come at the cost of dilutions in some of their key proposals. Last month, the Banking Bill met a similar fate when the Cabinet approved a proposal to raise the cap on shareholders’ voting rights in private banks from 10 per cent at present to 26 per cent, irrespective of their total holding. The original plan was to raise rights in proportion to an entity’s shareholding.
“An understanding has been arrived at between the government and the Opposition that if the standing committee’s recommendations are accepted, the Bills would be allowed to sail through smoothly in Parliament,” a senior government functionary told Business Standard.
The government had also conceded to the standing committee’s suggestion to fix a 26 per cent FDI ceiling in the Pension Fund Regulatory and Development Authority Bill, but it did not pass muster with Trinamool Congress supremo Mamata Banerjee. The Bill has been pending with the Cabinet since December 2011. The proposals may be diluted further, to Banerjee’s satisfaction.
Other Bills such as the Constitution amendment for the Goods & Services Tax and the Direct Taxes Code may also be tweaked so that they can see the light of day before the elections in 2014. Similarly, the decision on allowing up to 51 per cent FDI in multi-brand retail may be altered.
RBI FINALLY SUCCUMBS TO MARKET, GOVT PRESSURES
While announcing the policy in January 2010, the Governor, Reserve Bank of India, made an observation that “getting out of an expansionary policy is much more difficult than getting into it. It is like a Padma Vyuha in Mahabharatha –you know how to get in but not many people know how to get out.” It seems the statement equally holds good when the issue of coming out of a contractionary policy comes up when an unfavourable macro-economic environment exists/persists as of late. The RBI in its credit policy announced on April 17, 2012, gave a surprise by effecting a 50 basis point cut in its repo rate from 8.5 per cent to 8 per cent with immediate effect as against 0.25 per cent expected and speculated by the market. (For details log on to: http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3391492.ece)
BOND YIELDS SEEN UP ON BORROWING CONCERNS
MUMBAI: Yields on government bonds may edge up this week as markets await another round of fresh supply of government securities. According to the issuance calendar, the Reserve Bank of India (RBI) will auction Rs15,000-crore bonds on Friday. Yields on the 10-year benchmark government bond closed at 8.62 per cent on Thursday. The bond was not traded on Friday under the ‘shut’ period as coupon payment on the security is due on Tuesday. This week, yields are seen in the range of 8.55-8.65 per cent, said traders. Last week, the government had raised Rs 18,000 crore via sale of dated securities. Also, there are expectations of the government issuing a new 10-year benchmark bond as the current security may turn illiquid soon. According to data from RBI, Rs 70,000 crore worth of bonds have been issued so far under the security that carries a coupon rate of 8.79 per cent and matures in 2021. Typically, a bond turns illiquid after it crosses issuance of Rs 60,000 crore, though there is no regulatory limit on the amount that can be raised under one security. (For details log on to : http://www.business-standard.com/india/news/bond-yields-seen-upborrowing-concerns/473608/)
EMPLOYEES TO GET UNIQUE EPF ACCOUNTS
NEW DELHI: The Employees’ Provident Fund Organisation (EPFO) will soon give subscribers a unique account number that will operate independent of employers and benefit millions of people holding jobs. “We are going to have the number portability by the end of this year,” a labour ministry official said, requesting anonymity. “The number will be given to the employees independent of their employer.” EPFO, a statutory agency under the labour ministry, has 44 million active subscribers and manages a corpus of more than Rs.3.5 trillion. EPF account holders currently create fresh accounts every time they change jobs because the process of carrying forward the old accounts is considered to be cumbersome and tedious, and is frowned upon by human resource departments of many organizations. (For details log onto : http://www.livemint.com/2012/05/06222931/Employees-to-get-unique-EPF-ac.html?atype=tp)
INDIAN OVERSEAS BANK MULLS NEW CORE BANKING SOLUTION
CHENNAI: As part of its plans to integrate data from various banks through an automated data flow system, the Reserve Bank of India (RBI) has asked the government-run Indian Overseas Bank (IOB) to migrate from its in-house core banking solution (CBS) to an Oracle-based platform. With this, IOB’s plan to set up a joint venture to sell its in-house banking software has temporarily been frozen, according to a senior official from IOB. “The RBI has asked us to shift to the Oracle platform as it wants reports from all the banks in a common format. Since most banks are on this platform, the rest of the banks were asked to migrate to the same,” said IOB general manager S Radhakrishnan. At present, a few banks, including IOB, Canara Bank and Syndicate Bank, are using individual platforms, he said, adding that the RBI had asked to float a request for proposal (RFP) for its implementation. (For details log on to : http://www.business-standard.com/india/news/iob-mulls-new-core-banking-solution/473562/)
IOB TO HIKE FOREIGN CURRENCY NON-RESIDENT DEPOSIT RATES
CHENNAI: Indian Overseas Bank will take a formal decision on increasing interest rates on its FCNR(B) and NRE deposits early next week. Though a decision on that will be formally taken by the bank’s asset-liability committee, it is quite clear that the bank will raise the rates on both the types of deposits. These are deposits in which foreign residents can keep their moneys in foreign currency. In FCNR(B), the deposited amount is kept denominated in the foreign currency and the depositor assumes no exchange rate risk. In NRE, the deposit is converted into rupees — the depositor takes the exchange rate risk. The Reserve Bank of India has imposed a ceiling on the interest rate payable on the FCNR(B) deposits, but the NRE rates are deregulated On Friday, the RBI raised the ceiling on FCNR (B) deposits from 125 basis points above the Libor, to 200 basis points for maturity period of 1 year to less than 3 years, and to 300 bps for maturity period of 3-5 years. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3391488.ece)
SYNDICATE BANK TARGETS 20% GROWTH IN ADVANCES IN FY’13
CHENNAI/BANGALORE: Manipal-based public sector lender Syndicate Bank is aiming at a credit growth of 20 per cent for 2012-13. The bank has achieved a growth of 14 per cent in advances at Rs 1,10,954 crore for the year-ended March 31, 2012. “We are targeting a growth of 24 per cent in deposits this fiscal. During 2011-12, we mobilised Rs 1,47,707 crore, showing a growth of 16 per cent. We have also set a target of achieving a total business of Rs 3.5 lakh crore this, which will be a growth of 23 per cent over 2011-12,” M G Sanghvi, chairman and managing director, Syndicate Bank, told Business Standard. The bank plans to achieve these targets by expanding its branch network during the year. It plans to open 300 more branches to take its network to over 3,000 branches by March 2013. It also plans to focus on mid-corporate segment during the year to increase its business. (For details log on to : http://www.business-standard.com/india/news/syndicate-bank-targets-20-growth-in-advances-in-fy13/473563/)
VIJAYA BANK AIMS 20% BUSINESS GROWTH THIS FISCAL
MUMBAI: The Bangalore-based public sector lender Vijaya Bank aims a 20 per cent growth in overall business in the current financial year with added focus on increasing its low-cost deposit base, a top official said. “We aim an overall business growth of around 20 per cent in the current financial year, which should reach around Rs 1,65,000 crore,” executive director Subhalakshmi Panse told a reporter today. In the past fiscal, total business stood at Rs 1,41,727 crore, which comprised Rs 83,056 crore deposits and Rs 58,671 crore advances. “On the advances and deposit fronts, we hope to post 18-20 per cent growth this fiscal,” she said adding that advances should reach Rs 68,000-70,000 crore and deposits around Rs 92,000 crore. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/vijaya-bank-aims-20-business-growth-this-fiscal/articleshow/13019799.cms)
CENTRAL BANK TARGETS 25 % GROWTH IN ADVANCES THIS FISCAL
State-run lender Central Bank of Indiais targeting a 25 per cent growth in advances during the ongoing fiscal, much higher than the Reserve Bank expectations, as it expects economic growth to pick up. “We expect FY13 to be a better year and have set a target of 25 per cent growth on credit and 20 per cent on deposits,” bank’s chairman and managing director M V Tanksale said. Without divulging the credit and deposit growth for the recently concluded FY12, Tanksale said the fiscal was a difficult one given the slowdown in the economic activity. Sector regulator Reserve Bank of Indiahas said it expects the overall system to clock a 17 per cent growth in deposits and credit for FY 13. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/central-bank-targets-25-growth-in-advances-this-fiscal/articleshow/13021225.cms)
BOB HOPES TO MAINTAIN NIM IN 3.41-3.61 % RANGE IN FY13
Public sector lender Bank of Baroda (BoB) is hopeful of posting a net interest margin (NIM) in the range of 3.41-3.61 per cent in the current financial year, a top bank official said. “In FY13, our margins will be plus or minus 10 basis points of the margin level reported in the last financial year. Despite current economic environment, we are hopeful of maintaining our margin level in the current fiscal,” Chairman and Managing Director of Bank of Baroda M D Mallya said on the sidelines of announcing the fourth quarter result of the bank here. The bank had an NIM of 3.51 per cent in the last financial year. Mallya said that possible reduction in the cost of funds, along with increasing CASA base would support the NIM this fiscal. Referring to the NPA level, he said that NPA would come down during this fiscal. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/bob-hopes-to-maintain-nim-in-3-41-3-61-range-in-fy13/articleshow/13021559.cms)
AMERICAN BANKING SYSTEM IN FINE SHAPE: BUFFETT
OMAHA(NEBRASKA): Warren Buffett, whose Berkshire Hathaway Inc has more than $19 billion invested in USbanks, said the lenders had ample liquidity and were a class apart from European rivals. “I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chairman and chief executive officer, said today at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” before getting assistance from the European Central Bank. Wells Fargo & Co and JPMorgan Chase & Co posted record profits last year and their CEOs are contesting efforts by US policy makers to strengthen banking regulations. European banks have struggled amid the continent’s sovereign debt crisis and turned to the ECB, starting in December, for extraordinary three-year loans at interest rates of 1 per cent. (For details log on to : http://www.business-standard.com/india/news/american-banking-system-in-fine-shape-buffett/473638/)
SUPPORT FOR PENSION BILL HINGES ON PROVISION OF ASSURED RETURN, FDI
NEW DELHI: The Pension Bill may get another roadblock as the Bhartiya Janata Party has insisted that it will support the Bill only when key suggestions of standing committee are incorporated. The Bill is listed for consideration and passage during the ongoing session of the Parliament. This session will end on May 22. A person familiar with the development told Business Line, “the BJP wants standing committee’s recommendation on minimum assured returns and foreign direct investment cap to be included in the Bill before it is brought for consideration and passage.” The Standing Committee on Finance is headed by the BJP leader, Mr Yashwant Sinha. Though a source hoped that these recommendations will be included in the final Bill, there is a technical problem. The committee gave its report last August. Following this, on November 17, 2011, the Union Cabinet approved the revised Bill sans the committee’s recommendation on assured return and FDI cap. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3391493.ece)
ISLAMIC NBFC ALTERNATIVE INVESTMENTS AND CREDITS TO MOVE COURT AGAINST RESERVE BANK OF INDIA
MUMBAI: The cold tussle between advocates of Islamic finance, which forbids the use of interest rate, and the Indian banking regulator, which is adamant that local laws prohibit such funding, is headed for a climax. Alternative Investments and Credits (AICL), the Kerala-based firm that has been stripped of its licence to carry out non-banking finance activities by the Reserve Bank of India, is planning to move court against the central bank. AICL, which is among the very few Islamic finance entities in the country, will also take up its case with the finance ministry. A director of the company told ET that the board is weighing legal options to obtain a stay on the regulator’s decision to cancel the certificate of registration. (For details log on to: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/islamic-nbfc-alternative-investments-and-credits-to-move-court-against-reserve-bank-of-india/articleshow/13027129.cms)
IFC TO MAKE RS 150-CRORE EQUITY INVESTMENT IN EQUITAS & UJJIVAN MFIs
CHENNAI: International Finance Corporation (IFC) is to make an equity investment of around Rs 150 crore in Chennai-based microfinance company Equitas Holdings Pvt Ltd and Bangalore-based Ujjivan Financial Services. These would help both microfinance institutions (MFIs) to support their geographical and business expansion and meet capital adequacy requirements for the next three to five years. Of the total, Rs 100 crore is to go in Equitas, founded by P N Vasudevan, who was involved in consumer financing for a little over 20 years in Cholamandalam Finance, where he was a vice-president. His last commercial assignment before starting Equitas was as head of consumer banking at Development Credit Bank. Apart from Vasudevan, other shareholders include the Small Industries Development Bank of India(Sidbi), Sequoia Capital, Bellwether, Aavishkaar Goodwell, IFIF, Microventures, CLSA, Canaan, Aquarius and Helion. (For details log on to : http://www.business-standard.com/india/news/ifc-to-make-rs-150-cr-equity-investment-in-equitasujjivan-mfis/473631/)
ANCHOR INVESTORS STEP UP SELLING IN MCX SHARES
MUMBAI: Barely two months after Multi Commodity Exchange (MCX) turned the darling of the stock markets post-listing on the Bombay Stock Exchange (BSE) in March, have anchor investors hit the sell button, ask stock brokers. As a consequence, the share price of the Rs 660-crore initial public offering (IPO) is now trading below its issue price of Rs 1,032. The MCX scrip is down over 20 per cent in over a month and was traded at Rs 1,009 last Friday. MCX was an offer for sale by promoters, including Financial Technologies, State Bank of India, GLG Financials Fund, Alexandra Mauritius Limited, Corporation Bank, ICICI Lombard General Insurance Company and Bank of Baroda. However, analysts say in such a market scenario, institutions are not shying away from profit booking in most top companies. Rupee is on a downward spiral hurting foreign players the most and triggering their stop losses. The Indian currency has shed over 10 per cent against the dollar this year. (For details log on to : http://www.business-standard.com/india/news/anchor-investors-stepselling-in-mcx-shares-/473607/)
JITESH KHOSLA OUT OF THE RACE AS UTI AMC HUNTS FOR A NEW CHIEF
The shareholders of UTI Asset Management Company, with the backing of the government, have decided to start afresh the process of appointing a new CEO after a rumpus over the selection of a bureaucrat – who was not shortlisted for the job – left the fund without a full-time head for over 15 months. At a recent meeting, the government told the state-run shareholders of the asset management firm – State Bank of India, Life Insurance Corp, Punjab National Bank and Bank of Baroda – to start the process of selecting a successor to UK Sinha without involving a head-hunting firm, as was done earlier, said two people familiar with the developments. After Sinha left UTI AMC in February 2011 to head the Securities & Exchange Board of India, the process of appointing a new CEO got vitiated when the fund’s largest shareholder, Baltimore-based investment management firm T Rowe Price with 26% stake, protested alleged attempts to influence the selection process to favour bureaucrat Jitesh Khosla. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/Hope-for-headless-fund-house-Jitesh-Khosla-out-of-the-race-as-UTI-AMC-hunts-for-a-new-chief/articleshow/13027690.cms)
EXIT RULES TO TRIGGER MERGERS AMONG REGIONAL BOURSES
MUMBAI: The final exit rules of regional stock exchanges expected from India’s stock market regulator could trigger a consolidation in the industry as bigger exchanges seek to expand by buying asset-rich but ailing bourses that may sell assets or businesses to repay members. The exit guidelines, once released by the Securities and Exchange Board of India (Sebi), are also expected to end a long debate on how assets of regional exchanges should be dealt with as they will now be allowed to sell land and buildings to repay shareholding members. Exchange officials said several regional exchanges are in talks for possible acquisitions or mergers. Officials of two large regional exchanges said they have started discussions to acquire businesses of smaller exchanges. (For details log on to : http://www.livemint.com/2012/05/06212005/Exit-rules-to-trigger-mergers.html?atype=tp)
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