MUMBAI: General Insurance Corporation, the state-owned reinsurer, has posted a loss of Rs 2,469 crore in 2011-12, the first in its history, as it had to pay out more due to natural catastrophes in countries such as Japan and Thailand, while yield on investments and inflow of fresh business were hit on account of the global economic slowdown.
2011-12 was a difficult year for reinsurance companies with substantial exposure to Asia, as countries as far apart as Thailand, Japan, New Zealand and Australia were hit by natural calamities such as earthquakes and floods.
Reinsurance refers to insurance bought by insurors from other insurance companies. GIC, the only Indian insurer allowed to provide reinsurance and which made a profit of Rs 1,033 crore in 2010-11 proved no exception to these global trends.
The corporation has increased its exposure to overseas markets in the past few years, a decision that did not prove beneficial during 2011-12 as it reported an underwriting loss – the difference between payouts to insurance companies and premiums received from them – of Rs 4,971 crore.
This includes a Rs 1,956 crore hit on account of floods in Thailand and Rs 400 crore and Rs 470 crore respectively due to earthquakes in Japan and New Zealand. GIC, also made an additional provision of Rs 811 crore to cover possible losses arising from providing reinsurance for the motor vehicle industry.
“Most of the losses have come because of global programs where we participated,” said A K Roy chairman and managing director GIC. “We are cutting down exposure to such programs. So, for example if Munich Re covering catastrophe in various countries, we have brought down that exposure.” Overall GIC saw claims of Rs 7,672 crore against an income of Rs 5,924 crore from abroad.
Global reinsurance firm Swiss Re has termed 2011 as the costliest year for the reinsurance industry with catastrophic losses exceeding $110 billion, of which 60% is from the Asia Pacific region.
GIC saw its premium income rise 16% to Rs 13,000 crore in 2011-12. The company reported investment income of Rs 2,255 crore, marginally down from Rs 2,339 crore in the previous year. “We have made provision of Rs 2,491 crore. Actual payment of claims will be paid in next few years.
GIC’s solvency ratio is more than 150% despite all this losses. Overseas business contributed 44% to the premium growth. The combined ratio, which is claims and operating expenses as a percentage of premium income, from overseas business was at 191%,” Roy said.
“GIC will grow more slowly at 10% this year. We have taken proactive steps, cut underwriting losses, brought down expense and are looking to improve investment income,” Roy said. It has a reserve of Rs 9,000 crore, which will come down to Rs 7,000 crore because of the provisioning on account of losses.
The corporation has been exiting segments where it has failed to make money over a five year period. GIC, for instance, has stopped providing reinsurance for insurors in the health and credit insurance businesses.
FINMIN FILES PILE UP INTO A RAISINA HILL AS WORK STOPS
NEW DELHI: The possibility of Finance Minister Pranab Mukherjee moving to Rashtrapati Bhavan has brought activity in key economic ministries to a near-halt. Officials in these ministries are preferring to wait and see which politician gets what portfolio, rather than clear files. Decision-making has come to a halt at a time the government is trying to boost growth and lift the overall mood. “I will not call it paralysis, but everyone is in a wait-and-watch mode,” a senior government official told ET. The official confirmed that several measures are being planned to improve sentiments, which have turned gloomy after GDP growth dropped to a nine-year low of 5.3% in the last quarter of 2011-12. While decisions such as opening multi-brand retail to MNCs or allowing foreign airlines to invest in domestic carriers require political engagement, measures such as clearing investment proposals or providing coal supply to power projects can be implemented through administrative action. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/decision-making-in-economic-ministries-comes-to-a-halt-as-babus-wait-to-see-if-pranab-mukherjee-becomes-president/articleshow/13859390.cms)
RBI FOR OVERHAUL OF BANKS’ HR PRACTICES
MUMBAI: The Reserve Bank of India (RBI) has called for a complete overhaul of human resource practices at banks, especially public sector ones where several staffers are due to retire in seven to eight years. K C Chakrabarty, one of the central bank’s deputy governors, says this sort of increasing intervention in the affairs of public sector banks was needed due to lack of management capacities at the latter. Earlier, PSBs had expressed discomfort at increasing interference from above in day-to-day operations on credit sanctioning, loan pricing, and human resource (HR) issues. The Union finance ministry had recently asked all banks to follow a uniform practice on promotion and recruitment. At a HR summit of PSBs, Chakrabarty said: “Why are the promoters and owners being made to take a keen interest in your routine affairs? Efficient and effective HR systems are the key here. In my opinion, this may be due to something lacking in the management capacity of the banks.” (For details log on to : http://www.business-standard.com/india/news/rbi-for-overhaulbanks-hr-practices/476424/)
EURO ZONE MELTDOWN: INDIA PREPARES CONTINGENCY PLAN
NEW DELHI: Indiahas prepared a contingency plan for Greeceexiting the euro zone and even a collapse of the monetary union, Indian officials said on Tuesday. The euro zone debt crisis has already put a damper on India’s exports to Europe— the biggest destination for Indian goods — as well as capital inflows into equity and debt markets. Prime Minister Manmohan Singh’s government blames Europe’s woes for the slowdown in Asia’s third-biggest economy, though economists say Indian policy inertia is also to blame. Finance ministers from the Group of Seven major economies discussed the progress towards financial and fiscal union in Europe, the US Treasury Department said on Tuesday, after the ministers held an emergency call on the euro zone debt crisis. “The G7 ministers and governors reviewed developments in the global economy and financial markets and the policy response under consideration,” the US Treasury said in a statement. The US Treasury did not elaborate on whether a consensus was emerging among European leaders for a specific plan of action or whether the G7 was considering a joint response to the EU crisis which has intensified with distressed Spanish banks threatening the global financial system. (For details log on to : http://www.business-standard.com/india/news/euro-zone-meltdown-india-prepares-contingency-plan-/476457/)
MARKETS AWAIT 25-BASIS POINT RATE CUT
MUMBAI: While slowing growth, lower core inflation and fall in crude oil prices make a case for rate cuts in the upcoming policy review, economists say the central bank will have to be cautious. The Reserve Bank of India (RBI) is set to announce the mid-quarter policy review on June 18. “There would be pressure on RBI to cut interest rates because growth data has been weak but the real question is whether the cost of capital will actually come down,” said Chetan Ahya, Asia-Pacific Economist, Morgan Stanley. On April 17, the central bank began a monetary policy reversal cycle after raising rates between March 2010 and October 2011. “You can see commercial paper rates and inter-bank deposit rates. These have remained at an elevated level even when RBI has cut policy rates by 50 bps (basis points),” said Ahya. He doesn’t see the cost of capital coming down until credit growth decelerates further. (For details log on to: http://www.business-standard.com/india/news/markets-await-25-bp-rate-cut/476423/)
COMMODITIES STUMBLE ON SLOWDOWN FEARS
NEW DELHI: Global commodity prices have slumped up to 34% since January on fears a deepening economic slowdown will reduce demand, although a depreciating rupee will limit any soothing impact on domestic inflation. Economists, however, reckon softening commodity prices will offer some relief to India as huge imports of crude oil strained its trade balance and drove up the current account deficit to an unprecedented level — 4% of the gross domestic product — in 2011-12. Barring gold, the dip in prices was felt across major commodities, including crude, copper, aluminium, silver, coal, sugar, coffee and cotton, since January. On Monday, economic affairs secretary R Gopalan said falling oil prices would ease pressure on the rupee and trim the current account deficit. Indiaimported crude oil worth $155.6 billion in 2011-12, up 47% over the year before. (For details log on to : http://www.financialexpress.com/news/commodities-stumble-on-slowdown-fears/958427/)
CORPORATE BOND ISSUES TO PICK UP AS SPREAD OVER GILTS WIDENS
MUMBAI: Corporate bond issuances are set to pick up in coming weeks after a tepid May as the yield spread over government bonds and state bonds has widened, merchant bankers said. In May, bond issuances had fallen as supply of central and state bonds have managed to corner in most of investors’ funds. Moreover, with the government bond yields hardening faster, the spreads between them and corporate debt reduced, thereby, making sovereign papers more attractive to investors, merchant bankers said. A little over R6,000 crore worth of bonds were issued in May, according to merchant bankers. The spread between a 10-year state bond and a corresponding corporate bond had shrunk to as low as 5 basis points then. In some instances, state loans were offering higher yields than corporate bonds. (For details log on to : http://www.financialexpress.com/news/corp-bond-issues-to-pick-up-as-spread-over-gilts-widens/958240/)
PSBs UNAMORTISED PENSION BILL PEGGED AT RS 14,000 CRORE
MUMBAI: Public sector banks (PSBs) may have to set aside about Rs 14,000 crore before January 2013 as unamortised pension liabilities to comply with Basel-III norms, according to rating agency CARE. Unamortised items are those for which provisions have not been made. Banks are required to write-off all unamortised pension liabilities from the books before January 2013 under the new regulatory norms. As a consequence, PSBs are required to write off roughly Rs 14,000 crore, representing four to 12 per cent of their net worth in 2011-12. The return on equity (ROE) of banks may be severely hit if these liabilities are charged to the profit and loss account, CARE said in a research note. To avoid a dent in ROE, most banks would seek approval from the Reserve Bank of Indiato directly write off from the reserves account. RBI had permitted State Bank of Indiato write-off pension liability worth Rs 7,900 crore from reserves in financial year 2011. If RBI refuses to allow banks to directly adjust the unamortised amount with the balance sheet (reserves), then ROEs of public sector lenders may be hit severely in the current fiscal. (For details log on to : http://www.business-standard.com/india/news/psbs-unamortised-pension-bill-pegged-at-rs-14000-cr/476435/)
NOW, LOUNGE BANKING FOR THE RICH
KOLKATA: Lounge or private waiting area has so far been a forte of airports and luxury hotels. But this is changing with most private sector banks now introducing lounges in select branches to service private banking and wealth management clients. Earlier, banks had set up dedicated branches for high networth customers. With the number of affluent individuals in Indiaon the rise, several private banks are now setting up lounges in many branches across cities. The lenders that have dedicated waiting areas in their branches for affluent clients include ICICI Bank, HDFC Bank, Axis Bank and YES Bank. Rich clients meet relationship managers here. Sometimes banks also allow customers to do their own businesses from these lounges. “We have set up lounges in some of our branches across metro cities,” a senior executive with Axis Bank told Business Standard. “We allow our clients to use this space to do their own business. For instance, suppose we have a client in Mysorewho does not have an office in Bangalore. Now, he is meeting his supplier in Bangalore. If he requests us, we will give him access to our lounge to conduct the meeting.” (For details log on to: http://www.business-standard.com/india/news/now-lounge-banking-forrich-/476425/)
AUSTRALIA CENTRAL BANK CUTS RATES
SYDNEY: Australia’s central bank cut interest rates for a second month running on Tuesday in a bid to shore up confidence at home, just as finance chiefs of advanced economies around the world prepare to hold emergency talks on the euro zone debt crisis. Citing a weaker outlook abroad and only modest domestic growth, the Reserve Bank of Australiacut its cash rate by 25 basis points to 3.5 per cent. The local dollar showed little lasting reaction because the decision was largely expected, although some had hoped for an even bigger cut given the darkening global outlook. “The Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy,” RBA Governor Glenn Stevens said in a statement. The move followed grim economic data around the world, from US payrolls to Chinese manufacturing. Australia’s A$1.4 trillion economy is heavily dependent on foreign demand for its resource exports. (For details log on to : http://www.business-standard.com/india/news/australia-central-bank-cuts-rates/476437/)
NEW NORMS ON DESIGNING OF LIFE-INSURANCE POLICIES COMING
KOLKATA: The Insurance Regulatory and Development Authority (IRDA) will come out with product designing guidelines for life insurance companies within a month. The move is aimed at helping protect consumer interest by preventing mis-selling of life insurance, said Mr S. Roy Chowdhury, Member (Life), IRDA. This will also bring parity among products offered by various insurers. The insurance regulator has set up a product design committee which has representatives from the industry. The IRDA has also circulated draft guidelines to initiate discussions, according to industry sources. Some of the proposals in the draft include: maintaining minimum premium payment term at five years; capping the maximum commission that can be charged for the first year and subsequent years; and phasing out products guaranteeing highest NAV. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3494756.ece)
BANCASSURANCE TIE-UP WILL DEPEND ON FINAL NORMS: MALAY GHOSH
MUMBAI: Reliance Life, the life insurance arm of ADAG’s Reliance Capital, says it is busy integrating the best practices of Nippon Life, its new partner. Malay Ghosh, president and executive director, talks to Niladri Bhattacharya about it. Edited excerpts: It’s nearly a year since Nippon Life took stake in the company. How has been the integration process? We are incorporating the best practices of Nippon Life in all aspects — product offerings, customer relations, agent management. In products, we plan to launch some unique offerings in health insurance, particularly inspired by Nippon. We have just started our health insurance business and the premium collection was Rs 21 crore in the last financial year. We have planned to launch a product where there will be no concept of a sum assured. It will be based on the concept of a ‘unit’, where each unit would entitle a policy holder to get a fixed lump sum payout, based on the type of disease. The fixed payout would be predetermined. For instance, if a customer buys one unit of the policy, the payout for, say, gall bladder surgery will be pre-determined for Rs 50,000, or Rs 2 lakh for heart disease, and so on. This coverage per disease would go up with the increase in units purchased — four units would entitle the customer Rs 8 lakh for heart disease. (For details log on to : http://www.business-standard.com/india/news/bancassurance-tie-up-will-dependfinal-norms-malay-ghosh/476436/)
NON-BANKING UNITS MAY HAVE TO GO RURAL TO SET UP URBAN ATMs
MUMBAI: Non-bank entities that are keen to be a White Label ATM (WLA) operator may need to open three ATMs in rural and semi-urban areas to open one in a metropolitan city, said a senior banker who was part of the deliberations team formed by the Reserve Bank of India. In February, the central bank came out with guidelines on such ATMs where it said non-bank entities can set up, own and operate ATMs to accelerate their growth and penetration in the country. The central bank also mandated these WLA operator to have a minimum net worth of Rs. 100 crore at the time of making the application and on a continuing basis after issue of the requisite authorisation, which may be relaxed in the follow-up guidelines expected from the central bank. The banker said that it would be left to the WLA operator and the sponsor bank to work out a revenue sharing model. However, the central bank in its draft guidelines stated that the WLA operator shall not be permitted to charge any fee from the customers for the use of the ATM resources. (For details log on to : http://www.financialexpress.com/news/nonbanking-units-may-have-to-go-rural-to-set-up-urban-atms/958238/)
IIFCL-LIKE FIRM ON CARDS FOR URBAN INFRASTRUCTURE
NEW DELHI: The government proposes to set up a state-owned company on the lines of India Infrastructure Finance Company (IIFCL) to ensure low-cost long-term finance for urban transportation projects. The company, to be christened National Urban Transport Finance Corporation (NUTFC), would facilitate both equity and debt financing. It will raise funds by various means — long-term debt from the domestic market, loans from bilateral and multilateral institutions and external commercial borrowings (ECBs). According to the proposal by the ministry of urban development, the proposed company’s borrowings would be protected with sovereign guarantee to enable it to mobilise cheap funds. (For details log on to : http://www.financialexpress.com/news/iifcllike-firm-on-cards-for-urban-infrastructure/958412/)
NBFCs’ PROFITABILITY UNDER PRESSURE IN FY13, FEELS FITCH
MUMBAI: Cost of funding is set to increase for non-banking finance companies, especially those that provide equipment finance, due to the Reserve Bank of India’s new guidelines on the same. Therefore, profitability of such companies could come under pressure in 2012-13, said Fitch Ratings. Funding costs may increase by 75-100 basis points for some major NBFCs,” said Fitch ratings in a seminar hosted online on Tuesday. In May, the RBI released final guidelines on securitisation wherein it has prohibited credit enhancements of direct assignment transactions. Such a move will deter banks to invest in such transactions as the entire credit risk will be transferred on their portfolio. Costs of raising capital will jump. Dependence of bank funding unlikely to change, for want of alternatives,” said Ehsan Syed, director of financial institutions ratings at Fitch. (For details log on to : http://www.financialexpress.com/news/nbfcs-profitability-under-pressure-in-fy13-feels-fitch/958244/)
MARKET PLAYERS SEEK EASIER TAX NORMS FOR QFIs
NEW DELHI/MUMBAI: Market players associated with handling foreign investment in the country, on Tuesday demanded changes to the tax structure for qualified foreign investors (QFI) in a meeting with finance ministry officials. Requests were made to bring the tax structure at par with foreign institutional investors (FIIs) by removing withholding tax. The finance ministry, however, said there was no intention of the government at this juncture to make any significant changes to the taxation mode for QFIs. Senior officials, who attended the the meeting, said taxation will continue to remain a contentious issue when it comes to attracting capital flows through this newly-introduced route. “The present structure still makes it more attractive for QFIs to come through the FII or the participatory note route. There has to be a level-playing field to see serious flows come through this route,” said an official who attended the meeting. (For details log on to : http://www.business-standard.com/india/news/market-players-seek-easier-tax-norms-for-qfis/476410/)
PAN MAY BE MADE MANDATORY FOR QUALIFIED FOREIGN INVESTORS
NEW DELHI: The Government may make Permanent Account Number (PAN) necessary for Qualified Foreign Investors (QFIs). It may also allow netting off provision for taxation of capital gains. Recently, the Government allowed foreign individuals, associations or trusts from 45 countries to invest in equity, debt market and also through mutual funds. On Tuesday, the Finance Ministry called a meeting of market participants to make the QFI scheme clearer. According to a source, “The meeting devoted maximum time on the tax provision and norms for QFIs.” The Central Board of Direct Taxes is expected to issue a clarification soon. A senior Government official said that PAN will be cleared after the completion of Know Your Client (KYC) norms. However, it will be incidental to KYC norms under form 49 AA issued by the income tax department. He said the KYC formalities can be fulfilled by Qualified Depository Participants (QDP), with whom will also lie the responsibility of tax deduction. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-others/tp-variety/article3494662.ece)
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