MUMBAI: Life Insurance Corp invested more than half its equity portfolio last fiscal in state-run companies, raising fears that returns may lag rivals as price controls eat into the profitability of some public sector undertakings (PSUs).
The state-run insurer invested around Rs 22,000 crore, or 55% of the total permitted equity investment of Rs 40,000 crore, in companies such as Oil and Natural Gas Corp and Punjab National Bank, said two people familiar with the investments.
These are provisional numbers which may be revised, they said. A final number and the investment target for this fiscal will be finalised in a few days.
Some of these investments, which exceed the limit stipulated by the insurance regulator to avoid concentration risk, could drag overall returns for LIC’s 29-crore policyholders, say investment experts.
“Time and again LIC has been violating prudent investment norms,” said Arun Kejriwal, an investment advisor whose public interest litigation against LIC’s investment practices was rejected by a court recently. “LIC has a different mandate and follows a different diktat. Since there is no shareholder involved, there is no shareholder activism.”
LIC’s investments, including a Rs 12,000-crore bet on state-run ONGC when few investors turned up for the Centre’s share sale, have raised questions about governance as the insurance giant is being used by the government to fill its depleting coffers.
LIC bought shares worth 8,000 crore in various state-run banks. Investors are questioning governance in state-run companies, including in Coal India and oil marketing companies such as IOC, which face price controls.
But LIC says these investment practices are in line with its objectives. “These investments are in line with the objectives set up by the corporation and are done with a long-term view,” said an LIC spokesperson.
“We have tried to maintain a healthy balance considering the weightage of public sector in the index.” An ET study of the Sensex shows PSUs have a weightage of 14.28% with the rest accounted for by the private sector.
The BSE’s PSU index had underperformed the broader market – falling 18.4% – in fiscal 2012 when the benchmark Sensex declined 10%. “On a single company basis there could be some problem, but on portfolio basis they would make 12-15% return on a long-term basis,” said Abhijit Gulanikar, chief investment officer, SBI Life.
The public sector insurer, which is mandated to invest 50% of its funds in government bonds, bought gilts worth 95,000 crore last fiscal when it had an investment corpus of 2 lakh crore. Other corporate bonds bought totalled 45,000 crore, said the people quoted above, who did not want to be identified. Other assets, including loans, accounted for 20,000 crore.
“As long as LIC is investing within the norms laid down by the regulator there is nothing to worry about,” said Shashwat Sharma, partner, KPMG. But the insurer has breached the investment norms laid down by the regulator in some companies.
Its demand to raise the 10% ceiling on holding in a particular company was rejected recently by the regulator.
LOW-COST BANK BRANCHES UNDER LENS
NEW DELHI: To ensure its financial inclusion drive is not restricted to meeting branch opening targets, the Union finance ministry is to ask banks for a performance report of the ‘ultra small’ branches set up in the past two years in about 73,000 villages. The performance would be examined on opening of new accounts, deposits and advances, as well as recovery of loans. “We will ask banks to give a report on how these branches have performed as on March 31, 2012. Banks will have to provide details with regard to various parameters,” said a ministry official. Customers at such branches are supposed to be serviced by banking correspondents (BCs), doing cash transactions where the population lives. The model has not picked up as hoped. A parliamentary standing committee had criticised the government for not taking any action on its recommendation of conducting a study on the model’s effectiveness. (For details log on to : http://www.business-standard.com/india/news/low-cost-bank-branches-under-lens/471047/)
POLICY UNCERTAINTY HURT FDI FLOWS IN FY11: RBI STUDY
MUMBAI: After the global financial turmoil, the Indian economy recovered to grow at 8.4 per cent in 2010-11. But in the same year, foreign direct investment (FDI) flows fell to $20.3 billion from $27.1 bn a year ago due to policy uncertainty, according to a Reserve Bank of Indiastudy. A comparison of FDI flows to Indiavis-à-vis the potential showed investments tracked the potential level till 2009-10, before falling by about 25 per cent during 2010-11. The quality of policy implementation had a role in slowing the flow of investments despite the robust nature of the Indian economy. Growth prospects, openness, labour costs and policy environment significantly impacted the FDI flows, the RBI study said. (For details log on to : http://www.business-standard.com/india/news/policy-uncertainty-hurt-fdi-flows-in-fy11-rbi-study/471029/)
CRR: A MONETARY POLICY OR LIQUIDITY TOOL?
MUMBAI: The Reserve Bank of India (RBI), which has reduced the cash reserve ratio (CRR) by 125 basis points since January, has flared up the debate whether the central bank is now interpreting the tool in a different way. CRR — the proportion of deposits that banks have to keep with RBI — is a regressive tax on the lenders, as the CRR balance with the central bank does not earn any interest. In recent times, RBI has used CRR as a monetary policy tool, that is, a reduction in the ratio is seen as infusing liquidity into the system to boost growth. However, in January, when CRR was reduced by 50 basis points amid inflation staying above the central bank’s comfort zone, and RBI saying its stance remains anti-inflationary, the question was asked whether CRR is now seen as merely a liquidity tool. (For details log on to : http://www.business-standard.com/india/news/crrmonetary-policy-or-liquidity-tool/471056/)
SECTORAL CAPS ON FDI NEED A RELOOK: RBI
MUMBAI: Inordinate delays in approving investment proposals and prolonged inertia on lifting the ceiling on investment by foreigners have resulted in a slowdown in foreign direct investment. This is in stark contrast to the situation in other emerging markets, which have pulled in funds, a research paper by RBI says. As “the economy integrates further with the global economy and if domestic economic and political conditions permit, there may be a need to relook at the sectoral caps (especially in insurance) and restrictions on FDI flows (especially in multibrand retail),” says the RBI paper. “Given the international experience , it is argued that FDI in retail would help in reaping the benefits of organised supply chains and reduction in wastage in terms of better prices to both farmers and consumers.” FDI inflows have been slowing as the government has been dithering over lifting the FDI limit in insurance, retail and other sectors such as media. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/sectoral-caps-on-fdi-need-a-relook-rbi/articleshow/12633625.cms)
CABINET TO TAKE UP GST-NETWORK PROPOSAL
NEW DELHI: The union cabinet is on Thursday likely to take up a proposal for creation of an IT platform to integrate central and state indirect taxes regime and set the stage for goods and services tax (GST). The cabinet is also expected to take up a proposal to extend government’s support for pension scheme for unorganised sector to five years from three years. States had given their in-principle nod to launch the IT framework called GST- Network in August last year. A common IT framework will allow traders all over the country to use their permanent account number, or PAN, as the tax identification number for payment of all direct and indirect taxes. The move will not only benefit taxpayers but also allow tax authorities to keep a tab on transactions more effectively by linking it with other tax payments. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/cabinet-to-take-up-gst-network-proposal/articleshow/12629384.cms)
RBI MAY CONSIDER EASING FOREX TRADING CURBS: DEPUTY GOVERNOR
The Reserve Bank of India will consider gradually relaxing curbs on intra-day position limits in the forex market that were imposed in December to curb speculative bets on the rupee, a deputy governor said. The central bank will consider such measures “within the overarching prerequisite of facilitating genuine hedging needs of the customers,” H.R. Khan said in a speech at a foreign exchange dealers’ conference in Zurich, which was put up on the RBI website on Wednesday. In December, the central bank had imposed restrictions on intra-day trading limits to stem a sharp fall in the rupee. The move led to a drop in trading volumes and the rupee, which had touched an all-time low of 54.30 to the dollar in December, subsequently recovered. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/rbi-may-consider-easing-forex-trading-curbs-deputy-governor/articleshow/12624802.cms)
INDIAN OVERSEAS BANK EYES 16 TO 18% CREDIT GROWTH IN FY13
MUMBAI: Public sector lender Indian Overseas Bank (IOB) Wednesday said it is aiming a credit growth rate of 16-18% and a deposit growth rate of 18-20 per cent in the current financial year. “Currently, we aim 18-20% deposit growth and 16-18% credit growth in FY13,” IOB chairman and managing director M Narendra said. He added deposit growth for the bank stood at 18-19% for the last fiscal against 13-14% witnessed by the banking system. “Luckily, for us, even though CASA (current account, savings account) has not given us much growth, we had a good retail growth. Our deposit growth is around 18-19% against the systemic growth of 13-14%,” he added. Total deposit of banks grew by 13.4% to R60.72 trillion as of March 23, which is below the RBI’s projection of 17% for the last fiscal. Referring to expectation from the upcoming credit policy, Narendra said the central bank would take a view after considering inflation number along with current tight liquidity situation. (For details log on to : http://www.financialexpress.com/news/indian-overseas-bank-eyes-16-to-18-credit-growth-in-fy13/935575/)
SLOW GROWTH IN PRIORITY SECTOR LOANS DRAGS FY12 CREDIT EXPANSION
MUMBAI: Slow growth in disbursement of loans to the priority sector has been a drag on the overall credit expansion of banks in the just concluded financial year. The year-on-year growth in priority sector advances was 5.5 per cent till February 2012, compared with 20.1 per cent a year ago. This seemed to be the primary cause for the slump in banks’ loan growth, which fell to a two-year low of 15.6 per cent in February, bankers said. While reduced investment activities and uncertain economic environment had a cascading impact on banks’ credit expansion in 2011-12 (April-March), economists and industry analysts felt a slow growth in priority sector loans intensified the brunt. (For details log on to : http://www.business-standard.com/india/news/slow-growth-in-priority-sector-loans-drags-fy12-credit-expansion/471028/)
MAHESH BANK TO EXPAND OPERATIONS IN WEST
CHENNAI/HYDERABAD: City-based AP Mahesh Cooperative Urban Bank Limited (Mahesh Bank) is looking at further expanding its footprint in Maharashtra and Rajasthan, besides covering new markets like Gujaratduring the present financial year, according to Umesh Chand Asawa, managing director and chief executive officer. “We have already obtained approval from the Reserve Bank of India (RBI) to expand our area of operation to the entire states of Maharashtra, Rajasthan and Gujarat. We will be opening a branch each at Suratin Gujarat and Bhilwara in Rajasthan and two in the twin cities of Hyderabadand Secunderabad this year,” he told Business Standard. The multi-state scheduled bank presently has a network of 38 branches — 30 in the twin cities, six in other districts of Andhra Pradesh, and one each in Jaipur and Mumbai. (For details log on to: http://www.business-standard.com/india/news/mahesh-bank-to-expand-operations-in-west/470950/)
ADB DASHES BUDGET HOPES OF 7.6% GROWTH IN 2012-13
NEW DELHI: The Asian Development Bank (ADB) does not expect India’s economy to grow at 7.6 per cent this financial year, as was assumed by the finance ministry in the Budget. The bank has pegged growth at just seven per cent, slightly above the estimated 6.9 per cent in the previous financial year and only 0.3 percentage points higher than growth in the crisis period of 2008-09. In its Asian Development Outlook 2012 report, released on Wednesday, the Manila-based multilateral agency said investments were likely to remain lacklustre for some time in India. And, fiscal slippages, along with continued policy logjams on long-standing issues, would prove detrimental to the economy. Finance ministry officials described ADB estimates as cautious and made in the context of an uncertain global environment. They stuck to the growth projection of 7.6 per cent for this financial year, subject to implementation of decisions like reforms in the petroleum sector, besides a normal monsoon. (For details log on to : http://www.business-standard.com/india/news/adb-dashes-budget-hopes76-growth-in-2012-13/471033/)
SWISS COURT BLOCKS HANDOUT OF BANK DATA TO US
ZURICH: A top Swiss court ruled Switzerlandmay not hand over the bank details of a Credit Suisse client to UStax authorities, in a potential setback to solving a dispute between the two countries. Switzerlandand the United Stateshave for years been locked in a conflict over the fact that wealthy Americans are dodging taxes by hiding money in Swiss accounts. Washingtonis pressuring banks in Switzerlandto divulge their names and financial details. In a ruling published on Wednesday that cannot be appealed, Switzerland’s Federal Administrative Court said the tax office was not allowed to hand over information on a Credit Suisse client to the US Internal Revenue Service because its request was based solely on a suspicion of tax evasion and did not include the bank account holder’s name. (For details log on to : http://www.business-standard.com/india/news/swiss-court-blocks-handoutbank-data-to-us/471055/)
INVESTORS SCARED OF SPAIN’S BATTERED BANKS
LONDON: Spain’s banks are fast joining the ranks of the most unloved in Europe, just as many need to raise capital urgently, deserted by investors who believe the country is on the brink of a recession that many lenders will not survive. The government has ruled out more state aid for a sector that comprises a motley mix of international lenders and heavily-indebted local savings banks. That leaves two options – raising private capital or turning to the EU for bailout funds. Prospects for a private sector solution are poor. Nothing on the horizon looks likely to persuade foreign fund managers to invest, such is the fear of the banks’ growing bad loans, their holdings of shaky sovereign debt and the worsening economy. (For details log on to : http://www.business-standard.com/india/news/investors-scaredspains-battered-banks/471057/)
LEHMAN CREDITORS TO GET $22.5 BN, 53% OVER TOP ESTIMATE
NEW YORK: Lehman Brothers Holdings Inc, which is preparing its first payment to creditors after more than three years in bankruptcy, said the initial distribution will be $22.5 billion, or 53 per cent more than it previously estimated was possible. Lehman, which filed the biggest bankruptcy in UShistory in September 2008, had said it could give creditors $12 billion to $14.7 billion initially on April 17, depending on how much cash it needs to keep in reserve for disputed claims. Senior bondholders of the parent company will get about 6 cents on the dollar of their allowed claims in the first payment, while unsecured creditors of some Lehman affiliates will get 16 cents or more, according to a bankruptcy court filing in Manhattan on Wednesday. A second distribution is planned for September 30, said Lehman, which officially exited from bankruptcy last month, in a statement. (For details log on to : http://www.business-standard.com/india/news/lehman-creditors-to-get-225-bn-53-over-top-estimate/471058/)
LIFE INSURANCE SECTOR DECLINES MARGINALLY IN 2011-12: IRDA
HYDERABAD: The life insurance industry has declined only marginally in 2011-12 compared to the year-ago period, according to IRDA. “The overall business during last financial year may decline only by about one per cent,” Mr J. Hari Narayan, Chairman, Insurance Regulatory and Development Authority, told Business Line here on Wednesday. The first-year premium, however, has declined by about 14 per cent, he added. “About 75 per cent of the income of companies comes from renewal premiums and group sales. So, some decline in new business cannot impact the overall growth of the industry significantly,” the IRDA chief said. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3304806.ece)
LIC CAN ADHERE TO 10% STAKE NORM AT ‘ITS OWN PACE’
HYDERABAD: The Life Insurance Corporation of Indianeed not rush to bring down its current stake in various companies to below 10 per cent. “I advise LIC to bring down the stake to below 10 per cent in a company. But, I don’t want to put any timeframe for this. It can do so at its own pace,” Mr J Hari Narayan, Chairman, IRDA, told Business Line here on Wednesday. As per the current norms of the regulator, no insurance company is allowed to have more than 10 per cent stake in a company. The regulator did not want to pressure LIC to adhere to existing norms by bringing down its stake in various companies in view of the likely adverse impact on market/investors, he added. However, the state insurer has over 10 per cent stake in many companies, including State Bank of India, MTNL, ITC and Tata Steel. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3304805.ece)
INDONESIAN EARTHQUAKE AFTERSHOCKS: INSURERS MAY IMPOSE NEW RESTRICTIONS
MUMBAI: The Indonesian earthquake may force reinsurers to impose new restrictions and lead to increase in premium and deductibles. Reinsurance rates in Indiahave gone up 5-15%, depending on treaty experience. Also, reinsurance firms have imposed limit on maximum liability that non-life insurers can claim for a catastrophe, called event loss limit in insurance parlance. “Going by trend of claims, insurers will use this incident to impose new restrictions like per event limit and increase premium and deductibles,” said Dinayar Manekshaw Jivaasha, head of group and global health insurance, Essar Group. He said the extent and impact of the earthquake on insurance would be known after insured losses are calculated. “Till now reinsurers have not been tested in the Asian market with such magnitude of claim.” According to a Swiss Re report, total insured losses have doubled in 2011 compared with previous year. The insurance industry worldwide saw a hit of $108 billion from natural catastrophes and man-made disasters in 2011 against $48 billion in 2010. Claims from natural catastrophes alone reached $103 billion in 2011 compared with $43 billion a year ago. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/indonesian-earthquake-aftershocks-insurers-may-impose-new-restrictions/articleshow/12631558.cms)
IFFCO TOKIO INFUSES R125-CRORE CAPITAL
NEW DELHI: Private sector general insurer Iffco Tokio said on Wednesday it has made fresh capital infusion of R125 crore to fund expansion. With this, the total capital infusion by promoters stands at R526.2 crore at March 2012, Iffco Tokio General Insurance said in a statement. “At a time when the insurance market is both competitive and growing, we have plans to increase market share and sustain profitable growth,” Iffco Tokio managing director S Narayanansaid. The infusion has come from Indian and foreign promoters in respective proportion of their share holding, it said, adding that Iffco and its associates hold 74% stake in the general insurance venture while the remaining 26% is with Japan-based Tokio Marine Asia Private Ltd. (For details log on to : http://www.financialexpress.com/news/iffco-tokio-infuses-r125crore-capital/935561/)
APEX COURT BREAKS THE ICE, PAVES WAY FOR MCX-SX
NEW DELHI/MUMBAI: The dispute between the Securities and Exchange Board of India (Sebi) and MCX-SX has been resolved for the time being. Sebi agreed in the Supreme Court on Wednesday to amend its rules and dispose of MCX-SX’s application for recognition as a stock exchange within three months. Attorney General G E Vahanvati, representing Sebi, said its board had already met and taken certain decisions regarding the amendment to rules following a Bombayhigh court judgment last month. The high court, on a petition moved by MCX-SX, had asked Sebi to consider the company’s application within a month. Sebi appealed to the Supreme Court against the high court order. The Attorney General submitted before a bench headed by Justice Aftab Alam that a month was not enough for the process of amendment to the Sebi (Manner of Increasing & Maintaining Public Holding in Recognised Stock Exchanges) Regulations 2006 (MIMPS Regulations) and sought three months for the process. All parties agreed to it. (For details log on to : http://www.business-standard.com/india/news/apex-court-breaksice-paves-way-for-mcx-sx/471050/)
MARCH AUM OF MUTUAL FUNDS DROPS BY OVER 13%, LOWEST LEVEL SINCE JUNE 2009
MUMBAI: The mutual fund industry’s month-end assets under management (AUM) dipped by over 13%, or R88,000 crore, to R5.87 lakh crore in March 2012, the lowest AUM since June 2009, according to the latest numbers released by the industry body Association of Mutual Funds in India (Amfi). The month-on-month decline in assets was the worst in 12 months. The decline in assets comes at a time when a large number of players are struggling to survive in the current environment and posting losses. In the past year, at least 21 players saw an erosion in their average assets under management (AAUM). Fund houses are struggling to attract investors into equity markets, which have remained volatile for all of the past year. (For details log on to : http://www.financialexpress.com/news/march-aum-of-mfs-drops-by-over-13-lowest-level-since-june-2009/935705/)
GAAR EFFECT: FALLING PARTICIPATION BY FIIS IMPACTS DERIVATIVES VOLUME IN APRIL SERIES
MUMBAI: With the foreign institutional investors (FIIs) staying away from the futures, volume of derivatives in the April series has taken a hit. Volume in the segment has come off since the start of the series. While not unusual at the beginning of a new series, the concurrent fall in the open interest of the index points to historical lows and may be a part of the GAAR effect. The open interest in the Nifty futures had dropped to five-year low of 1.93 crore shares on Tuesday. Traders say the falling FII participation in the segment following concerns over the tax treatment to FIIs under the proposed GAAR (General Anti-Avoidance Rule) is also spoiling the party. (For details log on to : http://www.financialexpress.com/news/gaar-effect-falling-participation-by-fiis-impacts-derivatives-volume-in-april-series/935713/)