MUMBAI: The Insurance Regulatory and Development Authority (Irda) will soon decide on whether to allow Life Insurance Corporation of India (LIC) to retain its holding in public sector banks where it has breached the 10% limit.
In the current quarter, LIC has invested over Rs 8,000 crore in state-run banks as the government was unable to meet the capital needs of these banks. In over half a dozen banks, LIC has crossed the limit of 10% prescribed by the insurance regulator. “We have asked for information from LIC on their investments in state-run banks. We will examine the data once we get,” said Irda chairman J Hari Narayan on the sidelines of a seminar by Insurance Institute of India.
LIC has increased stake in Punjab National Bank, Dena Bank and Central Bank of India. It is looking to hike stake in other banks such as Syndicate Bank, Indian Overseas Bank and Punjab & Sind Bank.
LIC’s investment philosophy has attracted criticism after it bailed out government’s disinvestment plan by buying out Rs 12,000-crore worth of shares in Oil & Natural Gas Corp. As per the present rules, insurance companies are required not to invest more than 10% of a company’s net worth.
Hari Narayan said that investment in ONGC is within the permissible limit. Irda on many occasions has reiterated its stance that LIC should follow investment regulations prescribed for life companies. But the regulator has not penalised LIC for breaching this limit in the past.
Though LIC’s argument is that it invests through various funds and from each of these funds namely — life, pension and unitlinked fund – it can invest 10%. Its life fund draws an inflow of Rs 1.5 lakh crore every year, from this it can use up to 20% for buying equity.
Unit-linked funds have an incremental income of Rs 10,000 crore and 80% of this is invested in equities. Its pension fund has an income of Rs 25,000 crore, of which 20% can be used for buying stocks. This year, the corporation has bought government securities worth Rs 80,000 crore and corporate bonds of both public and private companies worth Rs 30,000 crore.
CENTRE PUTS GST RIDER ON STATES
NEW DELHI: In a rebuttal of states’ allegations that the Centre did not keep its commitment on compensating loss of Central Sales Tax revenue, the finance ministry on Tuesday said it cannot go on dishing out money to states if they were not willing to move ahead with the introduction of the Goods and Services Tax (GST). “CST (Central Sales Tax) compensation is being taken as an excuse by the states (to delay GST). The government cannot keep on paying the compensation endlessly if the states don’t come on board for GST,” R S Gujral, secretary, finance, said on Tuesday at a post-Budget seminar organised by industry chamber Ficci. The compensation was originally planned only for three years and the period got over, he said. Ties have never been too harmonious between the Centre and the states on the issue of GST and CST compensation, but recent developments have made the matter worse. In the past, the two sides have always tried to resolve their issues through discussion. (For details log on to : http://www.business-standard.com/india/news/centre-puts-gst-riderstates/468481/)
NO IMMEDIATE STEPS FOR RUPEE CONVERTIBILITY ON CAPITAL ACCOUNT: RBI
NEW DELHI: Reserve Bank of India (RBI) on Tuesday said despite the high global crude oil prices, Budget proposals and moderating economic growth would help lower inflation. RBI deputy governor Subir Gokarn said full rupee convertibility could not be an immediate goal; it would be a gradual process. “On internationalisation of the rupee, I don’t really see it at this point of time an explicit, strategic objective…. I think the focus, at least in the short- to medium-term policy on capital account management, is gradual liberalisation, though with cognisance and action to mitigate the risks.” Speaking on the sidelines of an IMF-Icrier event, he said, “Food prices are going to play a role, as we have some stabilisation and even softening, either because of monsoon in the short term or because of government initiatives that were made quite explicit in the Budget. These would also help contain inflation.” (For details log on to : http://www.business-standard.com/india/news/no-immediate-steps-for-rupee-convertibilitycapital-account/468494/)
HIGHER SERVICE TAX RATE TO ADD TO BURDEN ON SMALL BORROWERS
MUMBAI: Microfinance loans are set to turn dearer, owing to the increase in the service tax rate. While the increase may not appear significant because of the small-ticket size of the loans, industry players fear it would hit demand, especially in markets outside Andhra Pradesh, which have been relatively immune to the microfinance crisis. There is a also a worry that it may lead to a backlash from poor borrowers, as micro-lenders are now being criticised for charging high interest rates from them. “It will be very difficult for us to make our clients understand why they would have to pay more even if the increase is only Rs 10. In the current environment, when the industry is being criticised for charging high interest rates to poor borrowers, even a small increase can be catastrophic. We will have to figure out how to deal with this increase in the service tax rate,” said a chief executive of a Hyderabad-based microfinance company. (For details log on to : http://www.business-standard.com/india/news/higher-service-tax-rate-to-add-to-burdensmall-borrowers/468487/)
TAX SOPS TO CHECK POWER GENERATION COST
NEW DELHI: Concessions on duty and tax proposed for the power sector will not only help attract investment but will also keep a check on rising electricity generation costs. That should help the government’s mission to boost competitiveness in the manufacturing sector, though in a limited way. The finance minister has tried to rein in power generation costs by exempting both coal and natural gas from import duty even as he reduced withholding tax rate on interest payment for ECB loans from 20% to 5%. “The finance minister has tried to reduce costs of fuels besides lowering borrowing costs for the power sector,” power secretary P Uma Shankar said. Experts agree that the manufacturing sector will get a boost as financially bankrupt power distribution companies pose a major hurdle to turning around the sector. (For details log on to : http://www.financialexpress.com/news/tax-sops-to-check-power-generation-cost/926283/)
SUBBARAO’S TRANSPARENCY UNDER INFLATION TEST
NEW DELHI: The Reserve Bank of India’s tomes on interest-rate policy made Subir Gokarn despair when he was a Standard & Poor’s economist. Now a deputy governor, he’s part of the biggest communication overhaul in the bank’s 77-year history. “That really wasn’t the best way to do it,” Gokarn, 52, who joined RBI in 2009, said in an interview last month. “Keep it short, keep it straightforward, so it takes five, 10 minutes to read and most people read it.” Snappier, more frequent reviews of rate decisions and the introduction of guidance on future direction are part of an effort by governor Duvvuri Subbarao to make monetary policy more predictable and credible in Asia’s third-largest economy. The campaign hasn’t been flawless: Gokarn wrong-footed analysts January 5 by signalling that a reduction in lenders’ cash-reserve ratios would be “premature,” only to cut them 19 days later. (For details log on to : http://www.financialexpress.com/news/subbaraos-transparency-under-inflation-test/926118/)
BUDGET PROPOSALS TO CHECK PRICES: RBI
NEW DELHI: The Reserve Bank India on Tuesday said that finance minister Pranab Mukherjee’s Budget proposals will help in moderating inflation which is hovering at 6-7%. “Food prices are going to play a role as we have some stabilisation and even softening, either because of monsoon in the short term or because of initiatives of the government made quite explicit in the Budget that would also help to contain inflation…,” RBI deputy governor Subir Gokarn said on the sidelines of an IMF-ICRIER event. He also said, “Higher oil prices clearly play a role as does the currency movement, but there is also the growth moderation which we are seeing, which might actually help contain inflation from demand side.” (For details log on to : http://www.financialexpress.com/news/budget-proposals-to-check-prices-rbi/926117/)
SMALL SAVINGS SET TO FETCH HIGHER RETURNS
NEW DELHI: There is finally some good news for individuals in a season of duty hikes and provident fund rate cut. The government is raising interest rate on small savings schemes such as National Savings Certificate (NSC) and post office deposits by 20-50 basis points. The new rates will, however, be applicable on investments that you make from April 1 and not on those that you park over the next 10 days to meet your tax saving requirements. As a result, NSC and public provident fund (PPF), which is a voluntary deposit as opposed to employee provident fund, will earn you 8.8-8.9% instead of 8.6% a year. The shorter tenure deposits, such as term deposits in post offices, are expected to fetch you more than the longer tenure products such as PPF or the 10-year NSC. Savings bank accounts in post offices will, however, not see any change as the 4% return is in line with what most banks pay at present. (For details log on to : http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/small-savings-set-to-fetch-higher-returns/articleshow/12348921.cms)
SBI OFFERS SWITCH TO NEW HOME LOAN RATES; 6 LAKH TO BENEFIT
MUMBAI: State Bank of Indiawill permit home loan borrowers to shift to lower interest rates. The move is aimed at strengthening customer bondage and can also lead to gains for millions with mortgages if rivals match the gesture. The decision will help a third of its home loan customers of more than 17 lakh in bringing down interest payments by as much as two percentage points, or a gain of about Rs 6,000 a month on a 20-year, Rs 50-lakh mortgage, a back-of-the-envelope calculation shows. Conversely, it could bring down the tenor by a few years. “It was a choice between retaining customers from walking to another bank, or forgoing interest income,” said an SBI official who did not want to be identified. “SBI chose the latter as it will also create some goodwill.” SBI is initiating steps to turn customer-friendly, including becoming the first to waive pre-payment penalty. It is on a customer-acquisition drive, even at the cost of sacrificing some profitability. (For details log on to : http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/home-loans-news/sbi-offers-switch-to-new-home-loan-rates-6-lakh-to-benefit/articleshow/12347807.cms)
ICICI BANK PICKS BANKS FOR UP TO $1 BILLION BOND ISSUE
MUMBAI: ICICI Bank plans to raise up to $1 billion through a 10-year overseas bond issue as early as this month, two sources with direct knowledge said, signalling a pick-up in overseas bond issuances on improved global liquidity. ICICI Bank, the country’s top private lender, has hired Citigroup, Bank of America Merrill Lynch, HSBC and Standard Chartered for the issue, said the sources, declining to be named as the process is not public yet. “We continously keep exploring various avenues of fund raising in form of public bond issuances and private placements under the GMTN, based on market conditions and pricing apart from loans and money markets,” the bank spokesman said. (For details log on to : http://www.business-standard.com/india/news/icici-bank-picks-banks-forto-1-bn-bond-issue/161026/on)
ING VYSYA HIKES SHORT-TERM DEPOSIT RATE BY 0.25 PER CENT
NEW DELHI: ING Vysya Bank today said it has hiked its short-term deposit rates by 0.25 per cent to 10 per cent to promote its Active Deposit Scheme. “The bank will now offer 10 per cent special rate to deposit holders (for 366 days) as against 9.75 per cent earlier, to promote its successful Active Deposit Scheme,” it said in press release. The customers will get higher returns under the Active Deposit Scheme, linked to their normal savings or current account, it said. ING Active Deposit scheme is useful for customers who have surplus funds, on which they would like to earn higher returns but at the same time need the security of instant liquidity, it said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/ing-vysya-hikes-short-term-deposit-rate-by-0-25-per-cent/articleshow/12346219.cms)
BRICS TO DISCUSS COMMON DEVELOPMENT BANK
SAO PAULO/NEW DELHI: The Brics group of fast-growing nations is expected to discuss the creation of a common development bank for the grouping at a meeting in New Delhinext week. Finance ministers from the Brics, which include Brazil, Russia, India, Chinaand South Africa, raised the idea at a Group of 20 meeting in Mexicoin late February, said a government official in Brazil. “It is still very much at the early stages of discussion,” he added. The idea comes as the Brics nations are looking potentially to formalise their grouping by building common institutions and exploring opportunities for lending. A disparate group of countries with sharply varying political systems and located at different corners of the globe, the Brics nonetheless share some common geopolitical, economic and trading interests. They are among the world’s largest economies and hold a large part of its foreign exchange reserves. (For details log on to : http://www.ft.com/intl/cms/s/0/99ed485e-7209-11e1-90b5-00144feab49a.html#axzz1pd7mig00)
HSBC PURSUING RBS’ RETAIL, SME ASSET ACQUISITION
Stuart A Davis took over as CEO, HSBC India, at a difficult time but has managed to clean up the retail loan mess and put the bank back on the growth track. Davistells Shobhana Subramanian that the recommendation of a 40% target for priority sector loans is somewhat stiff. He confirms that HSBC is pursuing the acquisition of RBS’s retail and SME assets but admits it’s taking time due to some complexities. (For details log on to : http://www.financialexpress.com/news/hsbc-pursuing-rbs-retail-sme-asset-acquisition/926121/)
PNB-METLIFE INDIA INSURANCE DEAL DOESN’T MEET ACCOUNTING STANDARDS: IRDA
MUMBAI: Metlife India Insurance may not be able to sell stake to the country’s secondlargest public sector lender, Punjab National Bank, as the structure of the deal does not meet the Indian accounting standards, according to Irda chief. “We are examining the deal. Under the accounting standards, selfgenerated assets can’t be valued. Brand is a self-generated asset, hence it cannot be valued,” said J Hari Nararyan, chairman, Irda. “It (PNB-Metlife deal) will create a bad precedence for the insurance industry.” He said nobody can acquire share in a company without paying some price. The deal is structured in a way that PNB would buy 30% stake in Metlife India Insurance for free. The insurer is believed to be paying an upfront commission of over Rs 500 crore to the bank. According to the report on bancassurance, upfront commission has to be amortised in three years. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/pnb-metlife-india-insurance-deal-doesnt-meet-accounting-standards-irda/articleshow/12348185.cms)
LIC SEES DEGROWTH ON ULIP THIS FISCAL, SAYS GOVERNMENT
NEW DELHI: The government today said Life Insurance Corporation of India (LIC) has seen a degrowth in sales of unit linked insurance plans ( ULIP) in the current financial year. “There is a degrowth on Unit Linked Insurance Plan (ULIP) which is a trend among the whole insurance industry,” Minister of State for Finance Namo Narain Meena said in a written reply to the Rajya Sabha. To a question on sales of various products of LIC, Meena said, “On the conventional plans there is growth rate of 11 per cent in policies and 22 per cent in premium till end of February 2012.” Dispelling the rumour that some of the agents have quit following cut in commission and strict guidelines set for them by LIC, Meena said, “The corporation has reported that there is no instance of quiting of agents in the LIC due to reduced commission or strict guidelines to agents set for them by LIC.” (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/lic-sees-degrowth-on-ulip-this-fiscal-says-government/articleshow/12342516.cms)
IFC TO INVEST $20 MILLION IN INDIA’S FIRST CLEAN ENERGY FUND NEREUS
CHENNAI: International Finance Corporation (IFC) will invest about $20 million in Nereus India Alternative Energy Fund, a $250-million fund that would focus on renewable and clean energy companies in India. It is the country’s first fund dedicated to renewable energy. IFC’s proposed investment comes with a cap of 20 per cent of the fund’s total commitment in companies engaged in the development, construction, and operation of renewable and clean energy power generation assets. The fund would be based in Mauritius. According to IFC, supporting India’s first renewable energy-dedicated fund would send a positive message to the fund investment community and the growing climate fund sector. Investment in this fund would help IFC mobilise investors and address the chronic power situation in India. IFC’s global expertise in renewable energy would enhance the quality of the deals in this space and having IFC as an investor and a potential co-investor would ensure strict adherence to European standards and guidelines for quality assurance at the fund and portfolio levels. (For details log on to : http://www.business-standard.com/india/news/ifc-to-invest-20-mn-in-indias-first-clean-energy-fund-nereus/468493/)
RBI OFFERS BREATHER TO MFIs
MUMBAI: Microfinance institutions (MFIs) in Andhra Pradesh can now breathe a sigh of relief. The deadline for new provisioning and asset classification norms, which threatened their existence, has been extended by a year. This allows non-banking finance company microfinance institutions (NBFC-MFIs) more time to get their act back together. “Taking into account the difficulties faced by the MFI sector and the representation received from these, it has been decided to defer the implementation of asset classification and provisioning norms for NBFC-MFIs to April 1, 2013,” the Reserve Bank of India (RBI) said. On December 2, 2011, the banking regulator had created a new category of finance companies — NBFC-MFIs — and released operational guidelines for these firms. These norms, RBI had said, would be effective from April 1, 2012. (For details log on to : http://www.business-standard.com/india/news/rbi-offers-breather-to-mfis/468486/)
DESPITE ONGC BLIP, SEBI MAY NOT TWEAK SHARE AUCTION ROUTE NORMS
MUMBAI: The Securities and Exchange Board of India (Sebi) is not planning to make any changes to the recently-introduced offer for sale (OFS) or the auction route. There was a perception it may tweak norms after the bumpy share auction of Oil and Natural Gas Corporation (ONGC) earlier this month. “We plan to continue with the existing guidelines,” said a senior Sebi official, when asked if the regulator would review rules after the ONGC auction. The state-owned firm was the first to use the OFS route, a separate window introduced by Sebi in February to facilitate promoters to offload holdings in listed companies. On March 1, the government had auctioned five per cent stake in ONGC, raising Rs 12,767 crore, or 98.3 per cent of the amount it desired. The auction, however, was marred by technical glitches and managed to get through only after the Life Insurance Corporation (LIC), another state-owned firm, picked up 95 per cent of the shares on offer. (For details log on to : http://www.business-standard.com/india/news/despite-ongc-blip-sebi-may-not-tweak-share-auction-route-norms/468463/)
MASSIVE CLOSURE IN MUTUAL FUND FOLIOS LAST MONTH
MUMBAI: Retail equity investors who access stock markets through mutual funds (MF) are making the best use of the current year’s rally. In February, when the markets touched a peak, half-a-million chose to book profits and exit. Sector officials say this has been the largest exodus of retail investors in a month. Last month, the benchmark stock indices gained 20 per cent at its peak since the beginning of the year. Investors who could not exit in 2011, when market had lost a fourth of its value, did not take chance and moved out. According to the latest statistics from the Securities and Exchange Board of India, as many as 514,000 equity folios were closed, further reducing the retail investors’ base for the struggling MF industry. Taking the latest exodus into account, the current financial year (2011-12) has so far seen the closure of 1.4 million equity folios. (For details log on to : http://www.business-standard.com/india/news/massive-closure-in-mf-folios-last-month/468470/)
SEBI SHORT-LISTS 19 COMPANIES IN 2011 IPO FRAUD CASE
MUMBAI: Capital market regulator Sebi has widened the scope of its investigation to probe misuse of fund or price manipulation by some of the companies that came out with IPOs last year. Sebi’s integrated surveillance department and investigation department have short-listed 19 companies that were listed in 2011, said a person familiar with the probe. This is in addition to seven companies and a few merchant bankers who were pulled up by the regulator in December 2011. “In the past few weeks, exchanges have been told to share bidding details, merchant bankers have been asked to provide due diligence details and some companies have been directed to give details on the utilisation of fund proceeds,” said the person. (For details log on to : http://economictimes.indiatimes.com/markets/regulation/sebi-short-lists-19-companies-in-2011-ipo-fraud-case/articleshow/12347532.cms)