MUMBAI: Insurance companies have been given the tools to better manage their books and offer a more stable return to policyholders. The regulator has allowed insurers to hedge their liabilities or premium inflow against interest-rate fluctuations for a longer tenure by striking oneto-one derivatives deals with other financial institutions. The Insurance Regulatory and Development Authority (IRDA) had until now allowed insurers to hedge using over-the-counter (OTC) derivatives such as interest-rate swaps and forward-rate agreements (FRAs) up to one year. Under the new norms, the regulator has not placed any limit on the tenure that can be hedged. With this insurers will be in a position to cover risks arising out of softening interest rates. “The overriding principle of any use of the above listed derivatives is that they must be used for hedging purposes only to reduce the interest rate risk in the company,” IRDA said. “The company must be able to demonstrate that this principle is adhered to,” it added. IRDA bans interest-rate swaps having explicit or implicit option features. The move to liberalise hedging may not directly benefit customers but it will allow insurance companies to guarantee regular premium products, according to Sandeep Batra, executive director of ICICI Prudential Life Insurance. “The move will help insurers to better manage their asset-liability mismatches,” he said. IRDA has said that exposure limits pertaining to single issuer, group and industry will be applicable for the exposure through FRA and interest-rate swap IRS contracts.
RBI CONDUCTS OPEN MARKET OPERATIONS TO SUCK OUT EXCESS RUPEE FROM THE SYSTEM
MUMBAI: The Reserve Bank of India sold Rs 2,255 crore of government bonds between June 2 and 6 to suck out excess rupee liquidity it has injected into the system through dollar buying. According to some market players, the central bank may have also been trying to check volatility in government securities through these unusually large open-market sales. Bond prices may fall if the RBI extends the practice, some traders fear. Since the current financial year began on April 1, these were the RBI’s largest sale of government bonds through outright open-market operations, a platform where the central bank anonymously sells or buys government securities in the secondary market. On May 29 and 30, the last two working days of the previous month, the RBI cumulatively sold bonds worth Rs 4.25 billion. Other than these, there were no such standalone open-market operations in fiscal 2015. According to Ajay Manglunia, head of fixed income at Edelweiss Securities, the RBI may carry on with such sales if the benchmark bond yield remains highly volatile. The benchmark government bond yielded 8.80-8.55% over the past one-and-a-half months. But, the primary reason for the RBI’s move was likely the excess rupee liquidity. To stem the rupee’s sharp appreciation against the US dollar in recent months, the central bank net bought $5.87 billion in April and $7.78 billion in March in the currency market. So far in 2014, the rupee rose 2.81% against the greenback, after dropping about 13% in 2013.
RBI REVIEWING REGULATORY FRAMEWORK FOR UNREGULATED NON-BANKING FINANCE COMPANIES
CHENNAI: The Reserve Bank today said it is in the process of reviewing the regulatory framework for unregulated non-banking finance companies with a view to check financial frauds. Observing that a number of companies were registered as finance companies, but were “not” regulated by the Reserve Bank, RBI Deputy Governor R Gandhi said, “There are unincorporated bodies who undertake financial activities and remain unregulated”. “There are entities who camouflage deposits in some other names and thus illegally accepting deposits. The law as it stands today is inadequate to deal with these issues. In order to correct these and initiate actions against violations, we need to bring in suitable amendments to the statutory provisions. Reserve Bank is working with the government for such improvements in the law,” he said.
ABOLISH REVENUE SECRETARY POST, SAYS SHOME PANEL
NEW DELHI: The Parthasarathi Shome-led Tax Administrative Reforms Commission (TARC) has suggested a raft of measures, including avoidance of retrospective amendments in tax laws, the abolition of the post of revenue secretary, setting up of a tax council and granting functional independence to tax dispute bodies, among others. TARC was set up by former finance minister P Chidambaram in August 2013 to review tax laws and suggest ways for a stable and non-adversarial tax administration. The panel submitted its first report on May 30 this year. The report was put up on the finance ministry website on Monday to seek comments from public. In terms of administrative structure and governance, TARC recommended that the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) should be merged within the next five years to form a common central board of direct and indirect taxes. “The post of revenue secretary should be abolished. The present functions of the department of revenue should be allocated to the two boards. This would empower the tax departments to carry out their assigned responsibilities efficiently,” TARC’s report stated.
SHAKTIKANTA DAS TAKES CHARGE AS REVENUE SECRETARY
NEW DELHI: Shaktikanta Das, a 1980-batch IAS officer, took charge on Monday as the new revenue secretary, succeeding Rajiv Takru, who held the post for three months. Takru has been appointed secretary of the ministry of development of northeastern region, a government statement said. Das was the fertilizer secretary before being give the post which oversees the central bureau of direct taxes (CBDT) and central board of excise and customs (CBEC). Das, who has held posts of joint secretary and additional secretary in the expenditure and economic affairs departments of the finance ministry, takes over just weeks before finance minister Arun Jaitley’s maiden Budget. The task before the new revenue secretary is quite challenging as revenue buoyancy has been severely hit. The gross tax receipt estimates were revised downwards from the budgeted estimates in the past three fiscal years. Jaitley is unlikely to revise downwards the FY15 budgeted gross tax revenue target of Rs 13.79 lakh crore set in the interim Budget, even though it already looks ambitious. Das will have to meet high expectations for his department at a time when the slowdown across sectors will continue to impact revenue collections and devise ways to improve collections without seeming to be adversarial to taxpayers.
LIQUIDITY COVERAGE RATIO NORM CREDIT-POSITIVE: MOODY’S
MUMBAI: The Reserve Bank of India’s recent guidelines on liquidity risk management is credit positive for banks, says a report. The central bank last week issued the final Basel III framework on liquidity standards, which included guidelines on the minimum liquidity coverage ratio (LCR), liquidity risk monitoring tools and LCR disclosure standards. The RBI said the liquidity coverage ratio (LCR) will be introduced in a phased manner with a requirement of 60% from January 2015. The requirement would rise in equal steps to reach the minimum required level of 100% on January 1, 2019, it added. “These guidelines are credit positive for Indian banks,” global rating agency Moody’s said in a report here on Monday. The LCR is designed to address short-term liquidity risk by ensuring that banks hold sufficient cash and other liquid assets to meet obligations in a 30-day market stress scenario.
RBI TO SELL GOVT SECURITIES WORTH RS 15,000 CRORE
MUMBAI: The Reserve Bank will sell dated government securities worth Rs 15,000 crore in four tranches on Friday, it said on Monday. Dated government securities are long-term securities carrying a fixed or floating coupon or interest rate paid on the face value. It is payable at fixed time periods, usually half-yearly. The tenure of dated securities can be up to 30 years. In a price-based auction to be held on June 20, RBI will sell 8.35% government stock 2022 for R3,000 crore, 8.6% government stock 2028 for R7,000 crore, 9.20% government stock 2030 for R3,000 crore and 9.23% government stock 2043 for R2,000 crore. “Up to 5% of the notified amount of the sale of the stocks will be allotted to eligible individuals and institutions as per the scheme for non-competitive bidding facility in the auction of government securities,” RBI said. RBI said both the competitive and non-competitive bids for the auction should be submitted in electronic format on on the RBI’s Core Banking Solution (E-Kuber) system on June 20, 2014. The non-competitive bids should be submitted between 10.30 am and 11.30 am and the competitive bids should be submitted between 10.30 am and 12 noon, it said.
AVOID RETRO TAX LAW AS A PRINCIPLE: SHOME PANEL
NEW DELHI: Retrospective amendment to tax laws should be avoided as a principle, the Parthasarathi Shome commission on tax reforms has suggested. The Commission’s view on retrospective tax amendment comes at a time when efforts are on to restart conciliation between the Government and Vodafone over the Rs. 20,000-crore tax dispute. The UPA Government, while presenting the Budget for 2012-13, had brought in a retrospective amendment to the Income Tax Act in order to nullify the verdict of the Supreme Court which was in favour of Vodafone. The BJP manifesto also promises to provide a non-adversarial, conducive tax environment. In its report, the Tax Administration Reform Commission (TARC) also endorsed the recommendations given by the 1992 committee on tax reforms headed by Raja J Chelliah for abolishing the post of Revenue Secretary in the Ministry of Finance. It feels that the functions of the Revenue Department should be allocated to the Central Board of Direct Taxes and the Central Board of Excise and Customs. The commission has submitted its first report to Finance Minister Arun Jaitley. It further said that the administrative decisions and tax policy are neither based on any analysis nor have any international standards. “Pre-budget discussions are usually back-of-the-envelope calculations of revenue impact. The impact on a taxpayer is considered in a cursory manner, if at all. Retrospective amendments clustered during 2009-12 may reflect this lackadaisical approach. In turn, this reflects complete lack of accountability at any level except on grounds of lagging behind in revenue collection,” the report said.
FINANCE COMMISSION TO FACE TOUGH TIME IN DETERMINING ALLOCATIONS
The 14th Finance Commission is expected to face a tough time in determining the financial allocations to Telangana and residual Andhra in the midst of several uncertainties. “This is the first time new states are formed when the Finance Commission is in the process of formulating its recommendations. They have to work out the allocations without a separate data available for the 13th Finance Commission period pertaining to these just born states,” a senior finance department official said. The secretary and members of the commission today held a preparatory meeting with the officials of Telangana ahead of its chairman YV Reddy’s visit to the state in August. They are holding a similar meeting with the officials of the residual Andhra Pradesh on Tuesday. The commission is scheduled to give its recommendations in October and these would come into effect for the next five-year period from April, 2014. It has to decide the allocations for Telangana and Andhra even though it is unlikely to get the real picture of the finances and the priorities of the two states in this short span, officials feel.
CENTRAL BANK OF INDIA IN IMAGE MAKEOVER
COIMBATORE: Central Bank of India has undertaken an image makeover exercise to give its customers the feel of a NextGen bank. The bank refurbished 480 branches in the last fiscal and plans to renovate another 500 branches this financial year. The bank’s Executive Director, BK Divakara, was in the city to inaugurate the renovated premises of the bank’s Mid-Corporate Finance Branch and Main Branch on Friday. Speaking to Business Line on the sidelines of this function, he said the bank’s Board has set aside a sizeable budget for the refurbishment exercise. “This main branch commenced operations from this premises in March 1935,” he said, bringing to mind the rich tradition and history of the bank. The total outlay for refurbishment of branches has been estimated at Rs. 650 crore. Asked the need for taking up this mammoth exercise after all these years, he said, “We not only believe in customer satisfaction, but in their delight as well to sustain and survive in this competitive environment.”
ITZ CASH SCOUTING TO RAISE RS 120 CR TO EXPAND BUSINESS
MUMBAI: Pre-paid card firm Itz Cash Card is scouting for additional funding as it looks to expand its business of providing plastic money for the under-banked. The Mumbai-based company is expected to start discussions to raise over $20 million (Rs 120 crore) in its next round of funding. Apart from private equity investors, it could also evaluate strategic investors for funding, according to sources familiar with the development. The company, which is majority owned by the Essel Group, has raised over Rs 100 crore in funding from Matrix Partners India, Lightspeed Venture Partners and Intel Capital over two rounds of funding, so far. “Given that the VCs have been holding the stake for 5-7 years, they will see if there is a right exit opportunity,” said one of the sources. The Itz Cash management confirmed its fund-raising plans. Avendus Capital is working with Itz Cash on the transaction. Started in 2005, Itz Cash was conceptualised as payment option for the customers of Essel Group companies like DISH TV. It targeted customers who did not have a bank account but were looking to use e-commerce services like train and bus ticketing, phone recharge and bill payments.
YES BANK SHAREHOLDERS OKAY RANA AS MD & CEO
MUMBAI: Private-sector lender Yes Bank on Monday said it has received shareholders’ nod for re-appointment of Rana Kapoor as MD & CEO of the bank. “The shareholders approved the re-appointment of Rana Kapoor as managing director and CEO,” the bank said in a statement. The approval was given at the 10th annual general meeting held last week. The appointment of Lt Gen (retd) Mukesh Sabharwal, Brahm Dutt, Radha Singh, Saurabh Srivastava and Vasant V Gujarathi as independent directors was also approved during the meeting. “We are extremely satisfied with the trust and faith shown by the institutional and retail shareholders on the board of directors, bank’s performance, growth plans and decisions to maintain the highest professional standards of the bank’s management team,” bank’s non-executive chairman, MR Srinivasan, said.
IRDA ALLOWS INSURERS TO DEAL IN DERIVATIVES
MUMBAI: The Insurance Regulatory and Development Authority (Irda) has allowed insurers to deal in rupee interest rate derivatives, including forward rate agreements (FRAs), interest rate swaps (IRS) and exchange traded interest rate futures (IRF). Sandeep Batra, executive director, ICICI Prudential Life Insurance, said the guidelines on dealing in interest rate derivatives were a welcome step, as these would enable life insurers to hedge the interest rate risks on the future premiums to be collected by them. “Earlier, the risk was borne by insurers. We believe this could also popularise regular premium traditional products with in-built guarantees,” he added. The regulator said participants could undertake different types of plain vanilla FRAs/IRS. IRS having explicit/implicit option features are prohibited. The permitted purpose of dealing in interest rate derivatives include reinvestment of maturity proceeds of existing fixed income investments, investment of interest income receivable and expected policy premium income receivable on insurance contracts, which are already underwritten in life and pension and annuity business in case of life insurers and general insurance business in case of general insurers.
PFRDA RELEASES DRAFT NORMS FOR DEVELOPMENT OF PENSION MARKET
MUMBAI: Pension funds regulator PFRDA today came out with a new set of draft regulations for intermediary institutions to ensure orderly development of the pension market and invited public comments on them. These norms deal with regulation for custodians, trustee bank, enquiry investigation appeal and adjudication, and regulation for centralised record keeping agencies. “Four regulations have been posted today,” PFRDA officiating Chairman R V Verma told PTI. “We are putting the regulatory framework to govern and regulate the pension industry under the new architecture of the New Pension System (NPS). These regulations are aimed at ensuring sound growth and orderly development of the pension market in India, he added. The watchdog has invited public comments on the draft regulations by July 15. “Under the new architecture based on contributory system, PFRDA will explore market-based solutions for securing and protecting the old-age pension for citizens of the country,” Verma said.
PFRDA TARGETS 10 MILLION NPS SUBSCRIBERS FOR FY15
MUMBAI: The Pension Fund Regulatory and Development Authority (PFRDA) is planning to have 10 million subscribers of National Pension System (NPS) in the current financial year. R V Verma, officiating chairman and whole-time member (finance) of PFRDA, said the focus would be on NPS for the private-sector and the Swavalamban Scheme, which made pension viable for small investors. “We are looking at having more market participants for distribution of NPS. Increasing penetration of NPS in the market will be the thrust area,” said Verma. He explained that they had a total of 6.84 million subscribers as of June 7, 2014. The total assets under management (AUM) stood at Rs 56,000 crore, which was seeing month-on-month growth of eight or nine per cent. In May 2014, AUM stood at Rs 51,000 crore. NPS is the contributory pension scheme launched by the Union government in January 2004. It was made compulsory for all new government employees. Those in all non-governmental livelihoods, including those not in any organised sector, were invited to join from 2009. To be eligible to manage private-sector NPS, the entity must be in a registered financial services business, monitored by the PFRDA, the Reserve Bank of India, the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority. It also must have positive net worth (profit) and be engaged in financial business for the preceding five years.
INSURERS NEED TAX SOPS TO PLAY THEIR PART IN NATION-BUILDING
With a majority mandate, the new government has evoked a lot of positive sentiment among investors. Going ahead, the sustenance of this initial euphoria will depend on the government’s ability to take effective steps for growth and development. The roaring mandate has put significant onus on the government to bring in reforms, set in motion the wheels of effective governance and reverse negative economic trends, such as slowing GDP growth and high inflation. Life insurance, one of the most important segments of financial services, has contributed immensely to various sectors through its ability to make long-term investments and provide employment opportunities. Currently, however, it is reeling under a slowing economy and adverse regulatory changes instituted in the last couple of years. At such a time, the industry needs government support to help it further contribute to nation-building.
LIC STAKES IN PSUS TURN INTO GOLD MINE AS STOCKS SOAR 400%
MUMBAI: Life Insurance Corporation of India (LIC) is seeing profits of over Rs 1,000 crore in its FY13 and FY14 investments in government’s stake sale as PSU stocks have rallied up to 396% since Narendra Modi was named BJP’s PM candidate on September 13, 2013. Before the start of the Narendra Modi rally, LIC’s disinvestment portfolio was showing losses of R681 crore. LIC has contributed over R4,000 crore in eight offers for sale (OFS) launched in FY13 and FY14. Till September 12, all these companies were giving negative returns. But during the Narendra Modi rally, these scrips rallied 10-100%. LIC’s total investments in these companies are now showing mark-to-market (MTM) gains of 23%, from MTM losses of 15.31% before the rally. Rashtriya Chemical Fertilizers (101.29%), Nalco (63.25%), NMDC Ltd (44.93%), SAIL (99.70%), NTPC (10.96%) and NMDC (44.93%) have been major gainers during the rally. Shares of NTPC, MMTC, NMDC, Nalco, SAIL, Rashtriya Chemical Fertilizers and Hindustan Copper, which were trading 4-57% below the floor price of their OFS till September 12, are now trading 5-56% above the floor price.
FUTURE GENERALI BACK IN BLACK, CLOCKS PROFIT OF RS 39.62 CRORE
Future Generali India Insurance posted a profit of Rd 39.62 crore in the financial year 2013-14. The company, a joint venture between India’s leading retailer Future Group and Italy based insurance major Generali, had posted a loss of R19.70 crore in 2012-13. This is a landmark result for the company being the first year of break-even in just six years of operations, a statement of the insurance company said. The gross written premium for the year saw a 13 per cent surge to R1,303 crore as against R1,151 crore last year. The total direct premium of the company grew by 14% to R1,263 crore as against R1,105 crore in FY’13. In FY’14, Future Generali India Insurance sold more than 9.5 lakh policies, a growth of 11% from last fiscal and settled over 1.66 lakh claims. The investment funds under management as on March 31, 2014 stood at Rs 1, 494 crore.
LENDERS EXPLORING DEBT RECAST FOR REI AGRO
MUMBAI: The lenders of debt-stricken REI Agro, who have exposure of Rs 4,000 crore to the company, are considering taking the agro processing firm to the corporate debt restructuring (CDR) cell. Banks have already classified REI Agro as a special mention account (an account for which payment is due for 30-90 days), under the Reserve Bank of India’s norms for early detection and resolution of stressed loans. REI Agro’s payment is due for 60 days. A senior public sector bank executive involved in CDR cases said talks related to CDR for the rice-processing company were in early stages. Further discussions among members of the consortium of banks were needed to take a decision on the matter, he added. United Bank of India has already filed a winding-up petition against REI Agro Ltd in the Calcutta High Court. UCO Bank is another lender to the company. On Monday, the REI Agro stock closed at Rs 3.8 on BSE, down 4.7 per cent. For 2013-14, the company posted a net loss of Rs 38.35 crore on a standalone basis, on net sales of Rs 4,523.2 crore. For 2012-13, it had recorded a net profit of Rs 211.01 crore on net sales of Rs 5,089.9 crore.
PE FIRM CREADOR CAPITAL TO CLOSE ITS SECOND FUND IN AUGUST
MUMBAI: Creador Capital, an India and Southeast Asia focused private equity fund, is set to close its second fund this August. The new fund with a target corpus of up to $250 million (about Rs 1,500 crore) will see the entry of new investors, including a Bostonbased university endowment fund. As of now the fund has attracted about $220 million (Rs 1,320 crore) from several investors who have backed Creador’s first fund. The firm, which invests in India, Indonesia and Malaysia, had raised a first fund of $132 million (Rs 762 crore) last year. “A lot of our LPs (limited partners) did not want us to invest in India when we started out in 2011,” said Brahmal Vasudevan, founder & CEO of Creador, who was earlier a managing director at Indiabased private equity firm ChrysCapital. While Creador was initially looking to invest around a fifth of the corpus from new fund in India, this could increase going ahead. “Given the new era with the Modi government, we are contemplating increasing our exposure. But it will be opportunity based,” said Vasudevan.
SEBI MAY RELAX RULES FOR SALE OF BONUS SHARES IN OPEN OFFER
NEW DELHI: As part of its efforts to revive primary markets, Sebi may relax restrictions on sale of bonus shares held by promoters or other investors during an initial public offer (IPO) of a company, even if these shares have been held for less than a year. As per the existing regulations, shares that have been held for a period of less than a year are not eligible to be offered for sale in an IPO. This restriction applies to all classes of shares, including bonus shares or equity granted to existing shareholders on the basis of their prevailing stake. According to officials, the board of Securities and Exchange Board of India (Sebi) will consider this reform measure in the primary markets this week which has finalised after taking into account suggestions made by the regulator’s Primary Market Advisory Committee and representations from market participants. Currently, many companies undertake a bonus issue before filing draft offer documents on account of expanding the capital base and, thereby, providing better liquidity in the scrip post-listing and presently such firms plan an IPO after a year from such bonus issues.
SEBI ASKS DEPOSITORY PARTICIPANTS TO SHARE FPI INFO WITH BANKS
MUMBAI: Market regulator Sebi on Monday asked designated depository participants to share information about foreign portfolio investors with banks, as part of efforts to harmonise KYC (know your client) norms. KYC documents of Foreign Portfolio Investors (FPIs) can be shared only after getting authorisation from them. The latest move is part of Sebi’s efforts to harmonise KYC norms with that of the Reserve Bank of India (RBI). Sebi-approved depository participants are responsible for granting registration to FPIs under the new framework. “DDPs (designated depository participants) are advised to share the relevant KYC documents with the banks concerned based on written authorisation from the FPIs,” Sebi said in a circular.
BONDS SEE BIGGEST FALL IN A MONTH ON HIGHER WPI
MUMBAI: Government bonds saw their biggest single-day fall in a month on Monday after data showed wholesale price-based inflation climbed more than expected, raising concerns the central bank may not be as forthright in cutting interest rates. Wholesale price inflation rose to a five-month high in May, adding to worries that disappointing rains could lead to higher food prices and turmoil in Iraq could cause a spike in global oil prices. Wholesale prices in May rose a faster-than-expected 6.01%, driven mainly by higher food and fuel costs, government data showed on Monday. The data comes days after the release of figures showing consumer price inflation hit a three-month low of 8.28% in May. The central bank closely tracks consumer inflation when setting interest rate policy. “I don’t think the RBI will change its stance based on just one data point. It’s just the market which was factoring in a rate cut sooner than next year and now the views have shifted back to the rate cut next year,” said Harish Agarwal, a fixed-income trader with First Rand Bank.
MF EXPOSURE TO BANK STOCKS HITS RECORD HIGH AT RS 48,000 CR
NEW DELHI: Mutual Fund managers raised their exposure in bank stocks to an all-time high of over R48,419 crore in May this year amid soaring equity market. According to the latest data available with market regulator Sebi, Mutual Fund (MF) investments in banking stocks reached R48,419 crore as on May 31, 2014, accounting for 21.59% of their total equity assets under management (AUM) of R2.24 lakh crore. This was also the fourth consecutive monthly rise in exposure. After banking, software is the second most preferred sector with MFs having exposure of R22,986 crore, followed by pharmaceuticals (R15,027 crore) and finance (R12,152 crore). At current levels, the MF industry has the highest exposure to banking sector since at least August 2009. Data is not available for sector-wise exposure before August 2009, when the equity funds had deployed R22,587 crore (12.73%) in banking shares. The previous high was in December 2012, when investment in the sector had risen to R43,659 crore. MFs are investment vehicles made up of a pool of funds collected from a large number of investors. MFs invest in stocks, bonds, money market instruments and similar assets. Funds had pumped in R41,104 crore in the banking shares at the end of April, while their exposure in the sector was at 20.13% of the equity AUM.