MUMBAI: The government’s move to defer the easing of foreign direct investment (FDI) in insurance will hit IPO plans of large companies and, possibly, push consolidation.
TOI had on Tuesday reported that the proposal to increase FDI cap in insurance to 49%, introduced in the 2004-05 Budget, had been shelved as government did not have the numbers to get the bills passed. For large companies like ICICI Prudential Life, HDFC Life and SBI Life, the absence of foreign investors virtually terminates their IPO plans. But it would otherwise improve their position in terms of market share as they don’t need capital unlike new entrants.
The second rung of companies without the distribution network, which includes those who have been around for a decade, are also hit by the move to shelve FDI reforms. Indian promoters of these companies will have to continue to pump in funds to build up distribution. The third set includes the dozen-odd companies that acquired licences after 2005. These companies are yet to break even and largely have managements led by foreign partners. These companies are the worst hit by the delay in the new guidelines and there could be some consolidation in this segment.
“The first level of talks in terms of engaging in discussion is already happening. There are four to five companies seriously looking at identifying new Indian partners,” said Ashvin Parekh, partner and national leader, Ernst & Young. Those looking for new partners include Bharti Axa Life Insurance and Future Generali Life. Both are keen on a partner with a distribution network like a bank. Max New York Life is seeking a new foreign partner. ING has put its Asia business on the block, but it is not clear what itsIndiaplans are.
“The life insurance market is in a bad condition and is quite different from 2008 when the industry was growing at a compounded annual growth rate (CAGR) of 32% and companies quoted high valuations,” said Parekh, pointing out that these pressures were being felt even before the decision to shelve FDI reforms was taken. According to Parekh, smaller companies would feel the heat because they would continue to be under pressure to expand even when they are losing money.
GOVT TO USE RSBY SMART CARDS TO DELIVER LIFE INSURANCE COVER TO POOR
NEW DELHI: The government will use smart cards issued for the Rashtriya Swasthya Bima Yojana, or RSBY, to also deliver life insurance cover to the poor. The finance ministry will ride on the RSBY delivery mechanism to provide life insurance cover to the poor under the Jan Shree Bima Yojana. “The RSBY card will now be used for housing information for both the schemes. The idea is to spread both schemes throughout the country without much administrative difficulty,” director general of labour welfare Anil Swarup told ET. The RSBY scheme run by the labour ministry provides Rs 30,000 annual health cover to about 28 million families while the finance ministry’s JSBY provides life and disability cover up to Rs 75,000 to 20 million families. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/govt-to-use-rsby-smart-cards-to-deliver-life-insurance-cover-to-poor/articleshow/12554002.cms)
BANKS WITH MAJORITY FOREIGN STAKE NOT TO BE CONSIDERED FOREIGN BANKS
NEW DELHI: Private sector banks, such as ICICI Bank and HDFC Bank, that have majority foreign holding will not be considered foreign banks under a compromise solution thrashed out between the Reserve Bank of Indiaand the government. The updated foreign direct investment policy that is expected anytime could give a special status to these banks, on par with Indian-owned banks. This will mean that these banks will not face any restriction on their downstream investments that are applicable to foreign companies. “The broad understanding is that these banks may be foreign-owned but are controlled and run by Indians and needed to be treated like domestic banks,” a government official privy to the discussions told ET. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-with-majority-foreign-stake-like-icici-bank-hdfc-bank-not-to-be-considered-foreign-banks/articleshow/12553954.cms)
EPFO MAY PROVIDE 8.6% INTEREST RATE FOR 2012-13
NEW DELHI: Faced with criticism for slashing interest rate on deposits by 1.25 per cent for 2011-12, the retirement fund body EPFO may raise it to 8.6 per cent for this fiscal to benefit about 5 crore subscribers. Last month, the Employees’ Provident Fund Organisation (EPFO) had brought down the rate of interest to 8.25 per cent for 2011-12 from 9.5 per cent provided in 2010-11, evoking sharp criticism within and outside Parliament. “EPFO is working on income estimates to provide 8.6 per cent rate of return on provident fund deposits during this fiscal,” a source privy to the development said. He further said the EPFO’s apex decision making body, Central Board of Trustees (CBT), headed by the Labour Minister could meet next month to take a call on the issue. (For details log on to : http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/epfo-may-provide-8-6-interest-rate-for-2012-13/articleshow/12545219.cms)
FINMIN TO WORK ON S&P RATERS NEXT WEEK
NEW DELHI: After a successful exercise last year in convincing Moody’s Investors Service to improve India’s sovereign ratings, the finance ministry is set to repeat the process with another global rating agency, Standard and Poor’s (S&P). A senior ministry official told Business Standard the S&P team was slated to visit them on Tuesday, with presentations and meetings with individual departments to run into Wednesday. The main two-hour inaugural meeting with the rating agency would be chaired by economic affairs secretary R Gopalan. “This will be followed by smaller explanatory meetings with officials from various departments, including infrastructure, capital markets, revenue and disinvestment, running into Wednesday,” he added. The exercise would be broadly similar to what was done when Moody’s team came last year. (For details log on to : http://www.business-standard.com/india/news/finmin-to-worksp-raters-next-week/470292/)
SOVEREIGN GUARANTEES CLOSE TO PRUDENTIAL CEILING
NEW DELHI: The government has been stretching itself to the limit to guarantee various kinds of loans. It was close to the maximum limit of 0.5 per cent of gross domestic product (GDP), as set out in the fiscal consolidation law, towards the end of 2011-12. Till February 15, the government committed or approved guarantees for loans worth Rs 41,253 crore, which constituted 0.46 per cent of the estimated GDP for 2011-12. However, some of it would be netted as part of the loans coming for redemption. For 2011-12, the government guaranteed Rs 13,427 crore of loans, 0.18 per cent of GDP. Most guarantees were for India’s agreements with international financial institutions, foreign lending agencies, foreign governments, contractors and consultants, etc, towards repayment of various kinds of loan. (For details log on to : http://www.business-standard.com/india/news/sovereign-guarantees-close-to-prudential-ceiling/470334/)
LOW INFLATION GIVES ROOM FOR POLICY RATE CUT: RBI
NEW DELHI: Ahead of its annual monetary policy, the Reserve Bank said on Thursday cutting policy rate to promote investment depends upon moderation in inflation and fiscal consolidation. “We need to have low inflation, we need to have rising investment ratio, we need to have strong fiscal consolidation and this in turn provides space for monetary policy to actually support investment …” Deputy Governor Subir Gokarn said at a summit here. RBI is scheduled to announce annual monetary policy for 2012-13 on April 17. There is widespread expectation that the central bank may cut policy rate later this month to prop up growth and investment. (For details log on to : http://www.business-standard.com/india/news/low-inflation-gives-room-for-policy-rate-cut-rbi/470324/)
SBI AIMS 19-20 PER CENT CREDIT GROWTH THIS FISCAL
MUMBAI: Country’s largest lender, the State Bank of India (SBI) is hopeful of posting a credit growth of 19-20 percent in the current financial year, a top bank official said. “The target (for credit growth) is 19-20 percent (this fiscal), which was 18-20 percent (last fiscal),” SBI chairman, Pratip Chaudhari said. During last fiscal, the public sector lender has reduced its credit growth target to 16-19 percent from an estimated projections of 19-22 percent at the beginning of the year. Lowering of growth targets was mainly due to lack of demand from corporates owing to economic slowdown in general. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-aims-19-20-per-cent-credit-growth-this-fiscal/articleshow/12545541.cms)
PSU BANKS MAY REQUIRE RS 1 LAKH CR OVER NEXT 5 YEARS
NEW DELHI: State-run banks would require about Rs 1 lakh crore in the next five years to be able to meet with the increased credit and comply with the stringent Basel III norms of risk assessment. While the finance ministry has set up a committee to chalk out a roadmap looking into the issue of infusing capital into other banks and financial institutions, the World Bank has said that it would be open to providing more funds to the government if approached. The World Bank has already provided Rs 20,000 crore for recapitalisation. Finance minister Pranab Mukherjee, while presenting the Budget for 2012-13 announced infusion of Rs 15,888 crore into the public sector banks as part of a recapitalisation exercise for the current financial year. The amount will help banks, which have been hit by a liquidity crunch, push credit growth and strengthen their balance sheets. (For details log on to : http://www.hindustantimes.com/BusinessSectionPage/BusinessBankingInsurance/PSU-banks-may-require-Rs-1-lakh-cr-over-next-5-years/Article1-836081.aspx)
PRIVATE BANKS GAIN MARKET SHARE IN TRUCK FINANCING BUSINESS
CHENNAI: Private sector banks, including HDFC Bank Ltd, IndusInd Bank Ltd and Kotak Mahindra Bank Ltd, have gained market share in commercial vehicle financing last fiscal as non-banking financial companies (NBFCs) grappled with high cost of funds and a drop in demand. The share of private banks’ rose 10 percentage points to 32.5% in 2011-12 from 22.5% in 2009-10, according to rating agency Crisil. HDFC Bank, the largest lender among these banks, did not respond to email queries. Commercial vehicle financing more than doubled to Rs.48,500 crore in 2011-12 from Rs.19,400 crore in 2008-09, according to Crisil estimates. Truck financing has been predominantly done by NBFCs and the global financial crisis in 2008-09 saw some banks exit this business while others went slow because of high delinquencies. (For details log on to : http://www.livemint.com/2012/04/05221157/Private-banks-gain-marketshar.html?atype=tp)
INSURING THE FUTURE
There is not much writing in the public domain regarding the life insurance sector in India. We believe that the Indian insurance industry, in particular the life insurance sector, has been impacted by the financial crisis in 2008 and possibly in 2011. However, more importantly, the sector is witness to a structural change post September 2010 following the implementation of wide ranging regulatory changes proposed by IRDA. These changes, relating to product specifications pertaining to unit linked insurance products (ULIP) have resulted in the industry embracing newer practices in an attempt to emerge stronger and leaner post-2010. In this piece, we will highlight some of the fundamental differences in the industry pre- and post-2010 and some of the typical challenges currently being faced. (For details log on to : http://www.financialexpress.com/news/insuring-the-future/933180/)
IIFCL TO LAUNCH $1-BILLION INFRA FUND THROUGH MF ROUTE
NEW DELHI: State lender India Infrastructure Finance Company (IIFCL) is set to announce a $1-billion infrastructure debt fund through mutual fund route on April 10. With the funding of R1,350 crore, IIFCL will own 26% stake in the fund while IDBI Bank will have 14% and Life Insurance Corporation 10% stake. IIFCL chairman and managing director SK Goel told FE that Asian Development Bank, HSBC and Barclays will contribute the remaining 50% in the fund. IIFCL along with LIC and IDBI will be contributing $500 million while ADB will be putting in $250 million and Barclays and HSBC will be contributing $150 million each. Such infrastructure debt funds (IDFs) are expected to address the long-term financing needs of infrastructure projects and fast track them. IIFCL has already got provisional approval from Sebi in March and expected to receive final approval in a day or two. Sources said the formal announcement about the IIFCL-led infrastructure debt fund is expected by finance minister Pranab Mukherjee on April 10. The fund is expected to be operational by April end. (For details log on to : http://www.financialexpress.com/news/iifcl-to-launch-1bn-infra-fund-through-mf-route/933302/)
FINO TO TAP NORTHEAST
CHENNAI/HYDERABAD: Financial Inclusion Network and Operations (Fino), a Mumbai-based financial inclusion facilitator, is planning to tap the north-eastern region and help in achieving financial inclusion there. “The northeast region is not fully tapped by the banks. We will be covering it in partnership with several banks. Currently, we have tied up with four banks including State Bank of India (SBI), Axis Bank and ICICI Bank to tap this region,” Mario S Roche, vice-president and head (zonal operations), Fino, told mediapersons here. The company is studying the market and designing customised products to suit the customers there. The banks are expecting around six million accounts from the region, he added. Indiahas 80 million account-holders, of which 90 per cent accounts have been opened by business correspondents and the rest is done by the banks themselves. So far, Fino has enrolled 46 million customers through its BCs out of the 80 million, leading the market in this segment. It plans to enroll around 100 million customers in the next three years, he said. (For details log on to : http://www.business-standard.com/india/news/fino-to-tap-northeast/470244/)
SEBI MULLS NEW ETHICS CODE FOR BROKERS, FREQUENT INSPECTIONS
NEW DELHI: With an aim to check flow of illicit funds and other manipulative activities in the stock market, regulator Sebi is planning more frequent inspection of various market entities and a new code of conduct for brokers. Besides, the capital market regulator would also ask all the market entities, including brokers and mutual funds, to implement the new common KYC (Know Your Client) norms even for their existing clients in a phased manner. These are part of the policy initiatives proposed by Sebi for the current fiscal year, 2012-13. These have been approved by its board and would be implemented over the year ending March 31, 2013. The proposed ‘code of conduct’ would detail various obligations that the brokers have towards their clients and would be drafted by Sebi in consultation with the stock exchanges. (For details log on to : http://economictimes.indiatimes.com/markets/regulation/sebi-mulls-new-ethics-code-for-brokers-frequent-inspections/articleshow/12547128.cms)
PRIVATE EQUITY INVESTMENTS SLOW AS UNCERTAINTY PREVAILS
Risk capital investors continue to go slow in deploying capital in Indian businesses. For the third quarter in succession, deal flow has stayed under the $ 2 billion mark as investors battle sluggish market conditions, high valuations and regulatory uncertainty. In the first three months of this year private equity and venture capital investors have put in $ 1.9 billion of capital according to consulting firm Ernst & Young. In comparison in the first quarter of 2011 they pumped in a total of $ 2.5 billion across 94 deals in sector ranging from infrastructure to logistics, technology and automobiles. The deceleration has been particularly severe in the final fortnight of March when budget proposals that impact the risk capital industry spooked investor sentiment. A majority of the investors blame the change in regulations announced in the budget, like the introduction of General Anti Avoidance Rules, or GAAR, which allows authorities to tax offshore funds when they sell a stake in an Indian company. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/private-equity-investments-slow-as-uncertainty-prevails/articleshow/12554261.cms)
VOLATILE MARKET MAKES FY12 AMONG THE WORST FOR IPOs
MUMBAI: A volatile market forced 58 Indian companies to allow regulatory approval for their initial public offerings (IPOs) to lapse in fiscal 2012 (FY12), requiring them to seek a fresh mandate if they want to tap investors. The names include Nimbus Communications Ltd, Credit Analysis and Research Ltd, Shemaroo Entertainment Ltd, Tata AutoComp Systems Ltd, Emaar MGF Land Ltd, Lokmat Media Ltd and Lavasa Corp. Ltd. Since the applications are valid for just a year after the Securities and Exchange Board of India (Sebi) clears them, these firms will now have to file a fresh application if they want to float a public issue since their applications lapsed on 31 March. However, most of them have chosen not to do so. “Most of the past two years have either seen a downward trend and/or huge volatility. It is not about not enough companies wanting to raise capital; that list is very long and continuously growing. The problem is on the demand side,” said Prithvi Haldea, chairman and managing director of Prime Database, a Delhi-based primary market tracker. “When people are not willing to buy listed stocks, it is almost impossible to expect them to buy stocks of new companies where the risk is also higher.” (For details log on to : http://www.livemint.com/2012/04/05223630/Volatile-market-makes-FY12-amo.html?atype=tp)
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