NEW DELHI: The advisory committee headed by former Reserve Bank of India (RBI) governor Bimal Jalan, which is screening the 25 bank licence applications, is expected to give its report by this weekend, Financial Services Secretary Rajiv Takru said on Monday.
The committee will meet on Tuesday. This might be its final meeting before it gives its recommendations to the central bank.
“I expect the Jalan committee to finish its work by this week, after which RBI can get down to the job of looking at what it has said and deciding what to do about it,” Takru told Business Standard. He added the new licences will be awarded by March-end.
Takru ruled out speculation the Election Commission’s code of conduct will have any bearing on the process. “Bank licensing is an ongoing process. We will inform the Election Commission we started the process of bank licensing last July. The standard operating procedure is whatever is in process is not interfered,” he said, adding only issues that pointed to political patronage could be affected by the code of conduct.
India will go to the polls in April-May, though the dates for this are yet to be announced.
RBI had constituted the Jalan committee to examine the fit-and-proper criteria, business plans, corporate governance practices, etc, of applicants. Other members of the committee are former RBI deputy governor Usha Thorat, former Securities and Exchange Board of India Chairman C B Bhave and Nachiket M Mor, director of RBI’s central board of directors.
The committee, which held its first meeting in early November, had aimed to complete the screening process in three months.
On September 4, the day Raghuram Rajan had taken charge as RBI governor, he had announced the process to award new bank licences would be finalised in January, around the time Anand Sinha retired as deputy governor of RBI. Sinha was looking after the process to award new bank licences.
However, as the scope of the work increased considerably, it was planned the licences would be awarded by March-end.
After securing RBI’s in-principle approval for a bank licence, an entity will a year and a half to set up banks, failing which their licences will be cancelled.
Initially, 26 entities had evinced interest in foraying into banking. Subsequently, Tata Sons, the holding company of the Tata group, and Videocon group’s Value Industries withdrew their applications. However, RBI later added KC Land & Finance to the list of applicants, bringing the total number to 25.
A host of entities—from business conglomerates to micro-lenders—have applied for bank licences. The list of applicants includes public sector undertakings India Post and IFCI, private entities Reliance Group and Aditya Birla group. Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital have also applied for licences.
(Source: Business Standard, February 25, 2014)
GOING AFTER THE NON-FILERS: PERSONAL I-T MOP-UP SURGES
NEW DELHI: While the economic slowdown hit corporation tax collection this year, personal income tax helped the government get the much-needed revenue. The growth in the latter category was aided by the massive exercise in sending notices to persons who’d high-value transactions but did not file their I-T returns. Corporation tax collections rose only about 10 per cent this year. That from personal income tax is up by about 20 per cent, show the Revised Estimates (RE) in the interim Budget documents. In 2014-15, personal income tax receipts are projected to grow 27 per cent, against 14.5 per cent growth expected in corporate tax collection. “For the past two-three years, personal income tax is showing a better growth. The drive against stop-filers and non-filers this year has helped further. It is being scaled up and that will help improve tax revenue,” a department official told Business Standard. Last year, the finance ministry sent notices to 1.2 million Permanent Account Number (PAN) holders who’d not filed their returns. The exercise resulted in 536,220 people filing returns and paying self-assessment tax of Rs 1,018 crore and advance tax of Rs 898 crore. The department has now identified another 2.17 million potential non-filers. It has sent letters to 50,000 of these in the first batch and more will be sent during the year. Another official said a reason corporate collections took a beating was battered manufacturing, which shrank the profit margins of India Inc. Personal income tax, on the other hand, mainly comprises salary income and as wages increased because of high inflation, so did the collections from this category. According to the RE, corporate tax receipts will be Rs 393,667 crore this year, a shortfall of Rs 25,843 from the Budget Estimate (BE). Personal income tax receipts will fall short of the target by only Rs 5,948 crore, at Rs 241,691 crore. The gap will narrow further next year. The 2014-15 BE for corporate tax collection and personal income tax collection is Rs 451,005 crore and Rs 306,466 crore, respectively.
GOVT GETS MOVING ON UNITED BANK OF INDIA
NEW DELHI: The finance ministry has begun quick action to get troubled United Bank of India (UBI) to again stand on its feet as soon as possible. It has said capital infusion will come only after the lender shows improvement in asset quality. The ministry has asked the top UBI executives to furnish a bad loan recovery status on a daily basis. According to Rajiv Takru, secretary, financial services, UBI has reduced its non-performing loans by Rs 1,842 crore this financial year; in the first one and half months of the current quarter, there was a sharp reduction of Rs 600 crore. “I told them (UBI management) I want a daily report. That shows how serious we are…we don’t do it for other banks,” Takru told Business Standard. UBI’s losses more than doubled in the third quarter, to Rs 1,238 crore on the back of a 500 per cent increase in provisioning to Rs 1,783 crore. The chairperson and managing director sought voluntary retirement last week, almost a year before she was scheduled to superannuate, citing health reasons. The government is yet to appoint a new chief executive; Takru said it would be done in about two weeks. The ministry says it expects UBI to show a profit in the fourth quarter if recovery continues to be strong. On capital infusion, Takru said the bank has to show the will, before expecting any funds from the government.
INFLATION VIEWS IN SYNC WITH GOVT, SAYS RAJAN
MUMBAI: RBI governor Raghuram Rajan said the government and the central bank shared similar views on inflation management, while reiterating a call for the US Federal Reserve to be more sensitive to emerging economies. Rajan’s comments, in an interview, come after finance minister P Chidambaram last week chided the central bank over its focus on fighting inflation, saying the RBI needed to abide by government policy to promote economic growth. An RBI panel last month proposed the introduction of inflation targeting into monetary policy, with the specific aim of a consumer price index (CPI) of 4 percent, with a 2% band on either side. The RBI has raised interest rates by three-quarters of a percentage point since September to bring down consumer inflation, which fell to 8.79% last month from double digits in November, even as the government has traditionally preferred to focus on bolstering growth. “It’s not as if the government is on a different page on what we’ve been doing on inflation thus far. They may have different views on what they would like to see done, but there is a process, there is a conversation,” Rajan said in a TV interview on Monday.
RAGHURAM RAJAN WINS IN SYDNEY BUT INDIAN MARKETS DON’T CARE
MUMBAI: In some ways, Raghuram Rajan is still fighting the same battle that he faced when he took charge in September. The rupee is comparatively stronger and the RBI has managed to keep it stable amidst turbulent seas. As ET reported a couple of weeks ago, the central bank, for much of January, was engaged in a mammoth effort to keep the currency from crashing when the emerging market crisis got out of hand after the Fed’s decision to cut bond purchases. As much of the developing world currencies tumbled, the rupee was remarkably resilient, a sea change from June-August 2013 when the merest hint of a taper was enough to send it hurtling to new lows. How Rajan and his team did it is another story. So, it was not really much of a surprise to hear the savvy central bank governor complaining about the need for coordination and deriding western central banks for not keeping emerging market economies in mind when deciding monetary policy. In a now-famous interview to Bloomberg television on January 31, Rajan said that international monetary cooperation has now broken down and that industrial countries have to play a part in restoring the cooperation. Coming from a world famous economist, this was strong stuff. The world’s central bankers, gathered in Sydney for the G20 finance chiefs meet, had no choice but to counter criticism from the man who predicted the end of the US financial crisis way back in 2005. Wolfgang Schaeuble, the German finance minister, was blunt but others were more circumspect.
RBI ISSUES NEW REPORTING NORMS FOR OVER-THE-COUNTER TRADES
MUMBAI: All entities regulated by the Reserve Bank of India should report their secondary market over-the-counter trades in corporate bonds and securitised debt instruments within 15 minutes of the trade on any of the stock exchanges (NSE, BSE and MCX-SX). These trades may be cleared and settled through any of the clearing corporations, according to a notification issued by the central bank. “To expect the corporate bond market to be fully quote-driven will take some time,” said S Gopalakrishnan, CIO, ICICI Lombard General Insurance Company. “There is no market-making here.” Stock exchanges are mostly now ready with their respective trading platforms. It may be recalled that Sebi had permitted FIMMDA to set up its reporting platform for corporate bonds. It has also been mandated to aggregate the trades reported on its platform as well as those reported on the BSE and the National Stock Exchange with appropriate value addition.
CBEC TO FILL UP VACANCIES THROUGH PROMOTIONS BY JUNE
NEW DELHI: The Central Board of Excise and Customs (CBEC) aims to fill up vacancies through promotions by mid-2014 as well as expedite the process of direct recruitment. This is a part of its cadre restructuring programme, as approved by the Cabinet in December, which envisages creation of 18,067 additional posts to be filled up through internal promotions and direct recruitment. CBEC Chairperson JM Shanti Sundharam said the board had shortened the time line for internal promotions. It is now expected that all six Departmental Promotion Committees (DPC) will complete their exercise by June 30, she said while addressing Central Excise Day and Investiture Ceremony here on Monday. Under the proposal, 989 additional posts will be for Group ‘A’ officials, such as Chief Commissioner, Commissioner and Assistant Commissioners. The remaining will be for Group B, C and the other category consisting of superintendents, inspectors, havaldars and field staffs. Currently, the sanctioned strength of CBEC is 66,808. After restructuring, it will reach 84,875.
LENDING RATE FOR FRESH LOANS RISE FASTER THAN FOR EXISTING ONES: RBI
MUMBAI: The weighted average lending rate (WALR) for fresh loans rose 57 basis points from 11.46 per cent (in the April-June period) to 12.03 per cent (in the July-September period), according to RBI’s quarterly data on WALR. The WALR for existing loans nudged up 11 basis points from 12.20 per cent to 12.31 per cent. The second quarter was marked by a 25-basis point hike in key policy rates in September. More importantly, in July, in a bid to curb speculation in the foreign exchange market and protect the rupee, the RBI announced several restrictions on banks’ borrowing from it. Effectively, this raised the cost of funds for banks. The WALR differential between old and fresh loans for scheduled commercial banks compressed from 74 basis points in the June quarter to 28 basis points in the September quarter. Besides rising interest rates, another reason why the WALR for fresh loans moved up more than that for existing loans could be due to the increasing burden of bad loans and banks having to set aside more funds to cover loan losses. Public sector banks, as a group, saw the least increase (up 38 basis points) in WALR for fresh loans to 11.91 per cent. Foreign banks saw the highest increase (jump of 158 basis points) in WALR for fresh loans to 12.18 per cent.
LENDING CAP WON’T HURT AS FOCUS IS NOW ON RETAIL LOANS: SANJAY ARYA
United Bank of India (UBI) is under stress with mounting losses, deteriorating credit quality and a low capital adequacy ratio. But the bank’s senior management remains confident of emerging out of this crisis sooner than later. The lender has stepped up its loan recovery efforts, set an ambitious target of reducing non-performing assets by at least Rs 2,000 crore and is keeping tight control on expenses. The government has put the two executive directors – Sanjay Arya and Deepak Narang – in charge of the bank, following the resignation of its chairperson Archana Bhargava earlier this month. In an interview with Somasroy Chakraborty, Arya shares details on the bank’s strategy to improve earnings and cut bad loans. Edited excerpts: There has been a sharp increase in bad loans, which has affected UBI’s earnings in recent quarters. What went wrong? The situation is not as grave as is being portrayed. The bank continues to remain profitable at the operating level. We are confident that, even in the current (January-March) quarter, we will make operating profit in line with past performance. To me, operating profit mirrors the health of a bank, since it reflects the operating efficiencies. Our earnings were affected because of high loan loss provisions. We are making efforts to improve our loan recovery, which will result in better earnings performance.
UNITED BANK DISMISSES TALK OF RS 800-CRORE DEFAULT
KOLKATA: United Bank of India (UBI) on Monday dismissed a report that claimed the lender faces risk of default in the Rs 800-crore credit lines sanctioned by one of its branches in New Delhi. “The bank wants to clarify that bills discounting against letters of credit (LC), issued by reputed banks, is an accepted practice in the banking industry. Such type of credit line extended, is regarded as exposure on counter-party banks…As the exposure is on the counter-party banks, the bank does not foresee any problem in realisation on due dates,” UBI said in a statement. A newspaper report had claimed that one of UBI’s branches had sanctioned lines of credit worth Rs 800 crore to around 150 accounts against bills that were discounted without verifying the underlying physical goods. The state-run lender, however, said it had already started receiving payments against these credit lines. “The said credit lines were extended against letters of credit, issued primarily by public sector banks and duly accepted for payment on due dates, by the LC-issuing banks. The present outstanding dues has come down to about Rs 163 crore after receiving payments from LC-issuing banks,” the Kolkata-based lender said. UBI also said a media report suggesting it would be merged with rival Union Bank of India was untrue. “There is no information with us of the bank getting merged with any other public sector or private bank, including Union Bank of India. The reports appearing in the media are baseless. The bank continues to focus on its resolve to reduction of non-performing assets and turnaround in the near future. The bank does not have any clarification to offer on the share price movement on the exchanges,” the bank said in a notice to BSE.
UNITED BANK RISES 6% AS RS 800-CR PREFERENTIAL SHARE ISSUE GETS NOD
MUMBAI: The beleaguered United Bank of India is hoping to get R800 crore of capital from the government with the board of the Kolkata-headquartered bank on Monday approving the issue of 80,000 preferential shares of R1 lakh each. The government is expected to subscribe to these shares of R10 each. The crisis-hit lender had said earlier this month it was looking for R1,000 crore of tier-1 capital either in the form of equity shares or Basel-III compliant bonds. The bank’s tier-I capital adequacy ratio (CAR), as at the end of December, was 5.59%. News of the share issuance, which was announced in a filing to the Bombay Stock Exchange, pushed up the bank’s stock by 5.95% to R25.80 at the close of Monday’s session. The chairperson of the bank, Archana Bhargava, stepped down on Friday. The bank’s board, in a meeting on Saturday, approved the creation, offer, issue and allotment, by conversion, of up to 80,000 preferential shares of R1 lakh each into such equity shares of R10 and issue them to the government of India in one or more tranches. The bank’s executive director, Sanjay Arya, told FE turnaround strategies had been discussed at the meeting. “We believe the bank would be able to post a net profit in the March quarter,” Arya said.
UNITED BANK TO CLOSE SOME LOSS-MAKING BRANCHES
NEW DELHI: Crisis-ridden United Bank of India will soon close down a sizeable number of its loss-making branches, especially those in urban locations and possibly even some in rural areas where other banks have a branch. United Bank currently has around 2,000 branches in the country, with a higher concentration of them in the Northeastern states. Sources said the bank has begun a process to identify the worst-performing branches among the loss-making ones and also those of them with little hope for a turnaround. The sources were non-committal on the number of branches that could be closed down, but indicated that the exercise would help the bank consolidate its balance sheet. As per RBI norms, banks cannot close down loss-making branches in rural areas where only one bank is operating as it would result in the area being “unbanked.” However, banks can close down such branches with the permission of RBI and the district authority concerned if there are more than one bank branches in the area. In metros, urban and semi-urban areas, banks are free to close any branch.
ABSENCE OF BIDDERS HIT CARE STAKE SALE: IDBI BANK
NEW DELHI: The IDBI Bank-led consortium had to opt out of the stake sale process in CARE Ratings as there was only one bidder and the bid price was below the target price, MS Raghavan, Chairman and Managing Director, IDBI Bank, has said. There was only one bidder (for the entire block of about 35 per cent stake that was sought to be sold) as the time extension requested by other aspirants could not be given, Raghavan told Business Line here on Monday. The consortium could not go ahead as the stake sale was being done through competitive bidding, which required multiple bidders, he pointed out. The sole bidder for the entire block was reportedly Barings Asia. IDBI Bank, which has 17 per cent stake in CARE Ratings, was looking for over Rs. 900 a share, sources said. The IDBI-led consortium included State Bank of India, Canara Bank and Federal Bank, besides IDBI Bank. Raghavan said it was entirely left to the respective banks to decide on the way they want to proceed on this issue of stake sale. He, however, did not rule out mutual consultations in the months ahead and the possibility of banks coming together again. “Now, there will be no re-bid this fiscal, as it will not meet our need of bolstering capital by end-March this year. As for next fiscal, we could still go ahead and do the transaction, if the valuations are satisfactory,” Raghavan said.
TRANSFORMATION OF AN INVESTMENT-BANKER INTO AN INVESTOR
MUMBAI: It was 2006 and S Sriniwasan was bored with life as an investment banker after 15 years of selling, buying and raising money for Indian companies. He walked up to Uday Kotak and said he wanted to take a shot at real estate but as an investor. Kotak, knowing how driven Sriniwasan was, offered him a chance to do so while staying with the group. All he told him was: “Keep the reputation of the brand intact and build a business.” Kotak also allowed him to keep his secretary Cheryl, “who controls my life,” said Sriniwasan, 49, only half-joking. The real estate fund, which started at $102 million in 2006, is now at $1 billion and has given an average 22 per cent return to investors. And global marquee funds have been queuing up to invest, industry experts said. Sovereign wealth fund Abu Dhabi Investment Authority invested $200 million (Rs1,200 crore) in December. “For me, a real estate fund was a very different challenge. As an investment banker you are used to hunting alone,” said Sriniwasan, known as Srini to colleagues and clients. “Here, I had to build a team, learn how to manage people, build systems and processes and raise money from investors.” Kotak was clear about why he gave Sriniwasan the opportunity.”
HSBC INDIA PRE-TAX PROFIT FALLS 19% IN 2013
KOLKATA: HSBC Holdings on Monday said its pre-tax profit in India declined by 19.3 per cent from a year earlier to $653 million in calendar year 2013 on account of losses in retail banking and wealth management business, and lower earnings in global banking and markets operations. The retail banking and wealth management business of HSBC India incurred a loss of $21 million last year compared with its $41 million profit before tax in 2012. “In India, we revised our wealth management product offering to ensure customers’ needs were being met and to improve customer satisfaction levels,” HSBC said. The revision in product offerings led to lower wealth management sales, the bank added. The global banking and markets business’ pre-tax India profit fell to $418 million from $497 million during this period. Earnings from commercial banking operations here, however, improved to $113 million in 2013 from $89 million a year earlier. HSBC is the second largest foreign bank in the country in terms of network with 50 branches across India. Increased use of service centres also led to the bank incurring more expenses in India. HSBC employs 31,000 employees in India, which remains one of its priority growth markets. The bank also said it was co-operating with the relevant US authorities, who are probing tax reporting requirements of some of the US-based clients of HSBC India.
CANADA PENSION PLAN MAY INVEST RS 2,000 CRORE IN L&T’S INFRASTRUCTURE ARM
MUMBAI: Canadian pension fund Canada Pension Plan Investment Board (CPPIB) will invest Rs 1000 crore in the wholly owned infrastructure development arm of engineering major Larsen & Toubro, L&T Infrastructure Development Projects (L&T IDPL). L&T is also looking at a second tranche of Rs 1000 crore capital infusion into the company which is also expected to come from CPPIB 12-18 months after the first round but sources in the know said there are at least two more entitities willing to come on board. They include another Canadian pension fund entity Caisse de depot et placement du Quebec (CDPQ) and Omani sovereign wealth fund State General Reserve Fund (SGRF). Even though details of the deal are still are still not disclosed as the negotiations are ongoing, sources said, the Rs 2000 crore capital infusion will lead to a 10-15 per cent stake dilution in the company . The equity valuation of the company is around Rs 8500 -Rs 9000 crore.
POLICYHOLDERS WILL BE ABLE TO GET DETAILS OF UNCLAIMED INSURANCE ONLINE
Insurance customers and their nominees don’t have to suffer inordinate delays in claim settlement anymore. A new circular from Insurance Regulatory and Development Authority (Irda) is going to change the current opaque scenario from April 1. “While unclaimed amount is not uncommon in insurance sector, a steep increase in unclaimed amount is a cause of concern,” the regulator said in the circular that put out the figures of unclaimed insurance proceeds in the public domain for the first time. The unclaimed amount swelled from Rs3,037 crore in 2011-12 to Rs4,865 crore in 2012-13 — an increase of over 60 per cent. The unclaimed money is the result of insurance proceeds that have failed to reach policyholders or their nominees in time for various reasons. Needless to say, it completely defeats the entire purpose of buying an insurance cover. Transparency in Procedure From April, a policyholder or nominee will be able to access information about the policy. Irda has asked insurance companies to display details like policyholders’ names and address, maturity proceeds, death benefit and premium due for refund, among other things, unclaimed for over six months, on their websites.
THIRD PARTY MOTOR INSURANCE RATES LIKELY TO BE MARKET DRIVEN BY YEAR-END
MUMBAI: But, first, the rates are likely to go up from April this year, consequent to an IRDA proposal for rate hikes of between 25 per cent and 137 per cent. “We have taken a policy on freeing pricing and are working on a roadmap for de-tariffing third party premium rates,” said M Ramprasad, Member, Non-Life, IRDA. Currently, third party motor insurance is the only segment where premium rates are fixed by the insurance regulator. Third party liability premium rates have been going up for the last two years. Motor insurance in India has two components: own damage cover and third-party cover. The latter is compulsory, to cover third-party damage in terms of property or life. While own damage is a profitable portfolio for insurance companies, third-party insurance is highly unprofitable as the liability for insurers is unlimited. So, at present, due to the high claims ratio of around 140 per cent from commercial vehicles, insurance companies provide them cover from a common declined pool and not from their own books. Ramprasad said that since the declined pool has completed two years, the regulator will be able to study loss trends and the kind of vehicles that come into the pool. IRDA fixes tariffs for third party motor insurance premiums to ensure that there are no supply-side constraints, that is, vehicles considered high risk are not denied cover.
LIC CALLS UNITECH A WILFUL DEFAULTER
MUMBAI: Life Insurance Corporation (LIC) of India has reported Unitech to the Reserve Bank of India (RBI) as a wilful defaulter, a senior official at India’s largest life insurance confirmed. Unitech, India’s fourth largest real estate developer, has defaulted on a Rs 200-crore loan it took from the insurance behemoth in 2007. News regarding the developer’s loan default first came out in December, when it claimed that it had agreed to pay Rs 70-80 crore to LIC. When contacted by FE, Unitech stated that it stands by the statement it had issued to all stakeholders last week. “…requisite steps have been taken by the Company to ensure no pendency with the Life Insurance Corporation of India that will be reflected in the financial results and/or financial statements, which are due at the end of this financial year,” Unitech had stated in a notification to the Bombay Stock Exchange on Friday. Unitech has now joined the list of Indian corporates which have been identified as wilful defaulters by Indian banks due to delays in repaying loans. One way the RBI defines a wilful default is when the unit has delayed on its repayment obligations even though it has the ability to pay the lenders. A wilful default is also declared when the unit has delayed repayment but has not used the funds for the specified purposes for which the loans were taken. Moreover, if funds have been siphoned off or if the moveable fixed assets or immoveable property underlying the loan have been disposed off by the promoter, without the knowledge of the lenders, it’s considered a wilful default.
PUBLIC SECTOR BANKS NEED TO PLAY GREATER ROLE IN MF SALE: SEBI
NEW DELHI: Drawing from the successful use of the banking network as a distribution channel by insurers, capital markets regulator Securities and Exchange Board of India (Sebi) has pitched for public sector banks (PSBs) to play a greater role in the sale of mutual fund (MF) products. Apart from the traditional banking products, PSBs have been very successful in distributing third-party insurance products. However, this is not reflected in MFs. Sebi has suggested all PSBs be encouraged to distribute schemes of all MFs. PSBs would need active support from asset management companies (AMCs) to enable the distribution of MF, Sebi said. Sebi has sought to make MFs more appealing as a long-term investment product by proposing tax and other benefits. These proposals were approved by Sebi’s board and would be notified soon. Recently, a Sebi study had noted banking channels were underutilised for MF distribution and suggested AMCs focus on their bank distribution networks and build robust information systems to take advantage of the coming opportunities from new banking licences.
POWER GRID DROPPED FROM PSU ETF ON SEBI NORM
MUMBAI: The Centre has dropped Power Grid Corporation from the proposed public sector undertaking (PSU) exchange-traded fund (ETF) basket following capital markets regulator Securities and Exchange Board of India (Sebi)’s refusal to relax a norm, two people said. Sources added the offer document for the Central Public Sector Enterprises (CPSE) ETF had been filed to Sebi and the government was launching the product before the end of this financial year. The CPSE ETF will have 10 stocks, instead of the 11 cleared by a panel headed by Finance Minister P Chidambaram in January. The government aims to raise Rs 3,000 crore from the ETF and to launch a new fund offer in early March. “Most criteria, discussed in principle with Sebi, have been met and, therefore, the approvals should come soon,” said a source. Typically, Sebi processes an offer document in less than 30 days.