NEW DELHI: Allaying fears of the industry, finance secretary R.S. Gujral on Sunday said budget tax proposals are not meant to cause undue harassment to companies and will not impact overseas investment into the country. But in an indication that the government plans to stick to its stand, Gujral defended its decision to introduce a clarification to the Income Tax Act, 1961 that will allow it to retrospectively tax cross-border transactions involving underlying assets in India, such as the $11.08 billion (around Rs.55,735 crore today) Vodafone-Hutchison deal. The clarification was a part of the Union budget presented on Friday. In a meeting with industry lobbies, Gujral said the clarification was only to explain the original intent of the law. (For details log on to : http://www.livemint.com/2012/03/18230537/New-tax-plan-won8217t-hurt.html?atype=tp)
BOND YIELDS MAY STAY FIRM AMID TIGHT LIQUIDITY
MUMBAI: Bond yields are expected to open firm on account of tight liquidity conditions and low probability of fund infusion through open market operations (OMOs) this week. Also, a higher government borrowing plan announced for 2012-13 may keep yields elevated. On Friday, yields on the 10-year benchmark government bond closed at 8.42 per cent, six basis points (bps) higher than the previous close. Bond yields jumped about 15 bps to touch an intraday high of 8.45 per cent following announcement of a higher-than-expected market borrowing plan for 2012-13. Traders said bond yields could march up to 8.5 per cent levels before the end of the current financial year. The government has pegged Rs 4.79 lakh crore of net borrowings from the debt market for next financial year. The gross borrowing increases to Rs 5.69 lakh crore, compared to Rs 5.1 lakh crore raised in 2011-12. The government aims to fund 93 per cent of the fiscal deficit through market borrowings. Reserve Bank of IndiaDeputy Governor H R Khan said the government’s market borrowing programme is a challenge for the central bank. However, RBI has tools like OMO, cash reserve ratio and liquidity adjustment facility (LAF) to manage liquidity-related issues. (For details log on to : http://www.business-standard.com/india/news/bond-yields-may-stay-firm-amid-tight-liquidity-/468211/)
TAX ON OFFSHORE SHARE TRANSFERS MAY HIT CROSS-BORDER M&A DEALS
MUMBAI: India Inc, which saw a declining number of mergers & acquisitions (M&As) in 2011, is set to face another blow in the form of a new tax proposal from the finance ministry in the Union Budget. The government has proposed to retrospectively tax offshore share transfers of foreign companies, the value of which is substantially derived from assets located in India, with effect from 1962. Finance Minister Pranab Mukherjee’s move to tax offshore share transfers will significantly increase tax costs for buyers and make planning of cross-border M&As and group restructurings difficult, industry says. Nitin Potdar, partner (M&A), J Sagar Associates, said: “The proposed amendment was extremely regressive and self-defeating. The amendment will certainly jeopardise the conducive environment created by the string of the government’s pro-investment policies. It would also impact cross border transactions negatively, and hence, India’s foreign investment prospects.” (For details log on to : http://www.business-standard.com/india/news/taxoffshore-share-transfers-may-hit-cross-border-ma-deals/468210/)
BUDGET 2012 PROPOSAL MAY MAKE PRIVATE EQUITY, VENTURE FUNDS INVESTMENT DIFFICULT
MUMBAI: Private equity firms and capital venture funds, eyeing stakes in companies, will find it tougher to make investments in the country if a Union Budget proposal becomes a law. The proposed rule requires firms to pay income tax on the premium they have charged over their fair market value while selling shares to unregistered investors, including private equity or venture funds. Though the government’s plan to introduce this clause is aimed at curbing money laundering, investors and tax consultants say the move could also hinder genuine deals. “The move effectively sounds the death-knell for the private equity industry as many of them are not registered as venture capital funds,” said UR Bhat, managing director, Dalton Capital India. The Union Budget memorandum says share sales to venture capital company and venture capital fund are exempt from the provision. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/budget-2012-proposal-may-make-private-equity-venture-funds-investment-difficult/articleshow/12321647.cms)
FINANCE MINISTRY TO KEEP A CHECK ON END USE OF CAPITALISATION SUPPORT TO PSU BANKS
NEW DELHI: The finance ministry will now monitor the end use of funds given to state-run banks for capitalisation to ensure its efficient utilisation towards increasing financial inclusion. According to government estimates, the state-run banks need about Rs 3.5 lakh crore capital support in the next ten years, an amount the government will find difficult to spare, therefore the emphasis will be on efficient utilization of capital. In the 2012-13 budget , the government reiterated its commitment to maintain 58% stake in state-run banks and announced Rs 15,888 crore capitalisation support. “Banks have been advised that the financial support is only meant to increase lending and extend banking spread,” said a finance ministry official. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/budget-2012-finance-ministry-to-keep-a-check-on-end-use-of-capitalisation-support-to-psu-banks/articleshow/12322001.cms)
PRANAB ‘CONFIDENT’ OF KEEPING SUBSIDIES LOW
NEW DELHI: The finance ministry on Sunday said it was serious about meeting the fiscal deficit target, and consultations to rein in oil subsidies would begin with the Opposition and state governments after the Budget session. In the customary post-Budget interaction with business chambers, Finance Minister Pranab Mukherjee also expressed hope that the Reserve Bank would reverse its monetary tightening in the coming months as core inflation came down, boosting sagging industrial sentiments. The comments come as critics find the Budget target of reining in fiscal deficit for the next financial year at 5.1 per cent of GDP ambitious, as subsidies seem inadequate. As the Budget came over a week after the dismal performance of the Congress in the Assembly polls, the finance minister was candid enough to admit that he was “extra-careful” because of political compulsions. (For details log on to : http://www.business-standard.com/india/news/pranab-confidentkeeping-subsidies-low/468238/)
CORPORATE FINANCE – LESS CAPEX, MORE FINANCIALISATION
Growth feedback effect and productivity gains emanating from a steady capex in the industrial sector provides a sustainable base for GDP growth trajectory. However, a comparative analysis of the Reserve Bank of India’s annual study of financials of non-government, non-financial public limited companies during the decade of 2000s over the decade of 1990s, reveal a disturbing trend. The annual average share of production catalysts such as gross and net fixed assets, plant and machinery, inventories, sundry debtors in total assets have declined appreciably during the second decade (2001-10) as compared to the first decade (1991-00). Gross capital formation to total uses of funds declined from 67 per cent to 52 per cent over the same period. Corporates’ gross savings to gross capital formation ratio, which increased to 1:1 during 2000s from 1:0.58, shows that corporate savings can meet their overall capex. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3010131.ece)
FM DEFENDS BACKDATING LAW ON OVERSEAS M&As
NEW DELHI: Retrospective lawmaking is neither new to Indianor contradicts global norms, finance minister Pranab Mukherjee said. And while BJP leader, former finance minister and chairman of the Parliamentary Standing Committee on Finance Yashwant Sinha agreed, both leaders have the support of independent analysts. “Indiais not a no-tax country,” Mukherjee said, two days after presenting his seventh Budget. “It is not a low-tax country. If someone says I will not pay tax, that will not be allowed.” Singed by accusations of ushering in a command-and-control regime, following a Budget 2012 proposal that classifies controlling interest in an Indian company by a foreign investor as an ‘asset’, Mukherjee said, “Retrospective lawmaking is not new.” In 1998, he cited, there were nine such cases; in 2008, eight cases; in 2009, five cases; in 2010, four cases and in 2011, two cases. Brushing aside fears of foreign investors retreating, Mukherjee cited Chinaas a case where despite retrospective lawmaking foreign direct investment rose. (For details log on to : http://www.hindustantimes.com/News-Feed/GautamChikermane/FM-defends-backdating-law-on-overseas-M-amp-As/Article1-827335.aspx)
SBT NRI BUSINESS GROWS 27 PER CENT
CHENNAI: State Bank of Travancore (SBT) has recorded a growth of 27.21 per cent in NRI business, up to February 2012 (growth of Rs 3,146 crore). Of this, Rs 442 crore is on account of the increase in interest rate due to deregulation of interest rates for NRE term deposits. The bank increased NRE TD rate from 3.82 per cent in December 2011 to 9.5 per cent from January 2012. SBT is the top recipient of inward remittances in Kerala. It has remittance arrangements with 34 exchange companies and one bank in the West Asia. (For details log on to : http://www.business-standard.com/india/news/sbt-nri-business-grows-27/468191/)
BANKS IN INDIA SHOULD AIM FOR 20 PC GROWTH: P CHIDAMBARAM
KARAIKUDI: Union Home Minister P Chidambaram today said banks in India should aim at a 20 per cent annual growth rate and that it was not enough to take small steps in that direction. “Banks needed to grow faster. They should grow by 20 per cent and officials should take efforts in that direction,” he said, addressing the 75th year celebrations of Indian Overseas Bank here. The Minister also stressed the need for banks to give more employment opportunities and open more branches in the country. Recalling the growth of IOB, he said the bank founder was a visionary and had opened a branch abroad at a time when no bank even thought of foreign trade. “He had a vision. He was prudent and had foresight,” he said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-in-india-should-aim-for-20-pc-growth-p-chidambaram/articleshow/12317075.cms)
MORE BANKS MAY BE ADDED TO FACILITATE INDIA-IRAN TRANSACTIONS
NEW DELHI: More banks may soon be added to facilitate India-Iran trade transactions to boost bilateral trade. The payment problem with Iranwas resolved earlier this month with the operationalisation of a rupee payment mechanism through UCO Bank. Currently, UCO Bank (from India) and Persian Bank are handling such transactions and these banks, along with the active involvement of the Federation of Indian Export Organisations (FIEO), are sorting out the rupee payment mechanism issues, Mr M. Rafeeque Ahmed, President, FIEO, said. “Few more banks will be added to facilitate banking transactions after Navroz holidays in Iran,” he said. (For details log onto : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3010130.ece)
ADITYA PURI HINGES LENDING RATE CUT TO MORE REDUCTION IN CRR
MUMBAI: The second largest private sector lender HDFC Bank is not mulling slashing of interest rates as of now, and will do so in future only if there are more CRR cuts. “As far as reduction in interest rate is concerned, if there is more CRR cuts, it will happen. Because, given the inflationary environment, we can’t reduce the deposit. Also, the call rates are high due to shortage of liquidity,” managing director and chief executive Aditya Puri told PTI. He also said if the RBI cuts the cash reserve ratio by another 100 basis points in next one month, banks will start slashing their base rates. “In my opinion, if the RBI cuts CRR by 100 bps…the banking system on its own will reduce interest rates. So, CRR is more important at this point of time than policy rate cuts.” On March 10, Reserve Bank had reduced CRR by an unexpectedly high 75 basis points. In the January policy too, the central bank had cut the ratio of cash balance that banks park with the RBI by 50 bps. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/aditya-puri-hinges-lending-rate-cut-to-more-reduction-in-crr/articleshow/12315048.cms)
HDFC BANK CROSSES 1 M IN RURAL LOAN INITIATIVE
HYDERABAD: HDFC Bank has disbursed loan to its 1.1 millionth customer under its ‘Grammen Mega Loan Mahotsva,’ a rural loan initiative. As part of its initiative to bring millions of unbanked into the banking fold, HDFC Bank conducted this loan mela for this financial year at Gudivada in Krishnadistrict of Andhra Pradesh on Friday. It disbursed a variety of loans such as financing for tractors, auto, two-wheelers, commercial vehicles and agriculture. Since the launch of the initiative in 2010, HDFC Bank had reached out to an estimated population of 62 lakh in 5,000 villages, with viable finance products to help them meet credit needs and move into mainstream banking. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-others/tp-states/article3010144.ece)
DEUTSCHE BANK PUMPS RS 455 CRORE INTO INDIA ARM FOR GROWTH PLANS
MUMBAI: The German banking leader Deutsche Bank has increased the capital base in its franchise here by Rs 455 crore to fund growth plans. “This Rs 455 crore capital infusion will take Deutsche Bank AG’s capital base in its operations here to over Rs 5,500 crore, reflecting the bank’s strong focus on this market,” Deutsche Bank India chief executive Gunit Chadha said in statement, adding that this increase is the fifth since 2007. The infusion pertains only to the branches and excludes all other Deutsche Bank entities such as equity broking, investment banking, primary dealership, asset-management and shared services. It comes after reports that the Frankfurt-based lender may nominate India-born Anshu Jain, who now heads the investment banking, as the next chief executive. On capital infusion, Chadha said that it was “continuing testimony of our commitment to this market and the consistent business growth momentum it has generated here” and “also underscores India’s significance in DB’s global plans”. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/deutsche-bank-pumps-rs-455-crore-into-india-arm-for-growth-plans/articleshow/12315021.cms)
INSURANCE FDI REFORMS MAY BE DROPPED
MEWDE;JO” A politically vulnerable Congress-led United Progressive Alliance (UPA) is likely to drop the proposal for easier foreign direct investment (FDI) norms in insurance and pension funds. Accordingly, the proposal to enhance FDI in insurance joint ventures to 49% is likely to be dropped, and the government, as demanded by the opposition, may cap the FDI ceiling in pension funds to 26% and guarantee assured returns, an official associated with the developments said, requesting anonymity. The political opposition to the liberalization sought by the UPA was threatening to derail a key and long pending insurance and pension fund reform initiative. The parliamentary standing committee, headed by former finance minister Yashwant Sinha, had recommended that FDI in pension be capped at 26% in the legislation itself and assured returns be given to those individuals who are willing to park their entire corpus in government securities. (For details log on to : http://www.livemint.com/2012/03/18222616/Insurance-FDI-reforms-may-be-d.html?atype=tp)
CHHATTISGARH LAUNCHES HEALTH INSURANCE SCHEME
KOLKATA/RAIPUR: From poor to the rich, everyone living in Chhattisgarh will now get a medical cover under a scheme announced by the state government. Chief Minister Raman Singh, who holds the additional portfolio of finance department, announced the launch of ‘Chief Minister Health Insurance Scheme’ while presenting the state budget 2012-13 in the Chhattisgarh Legislative Assembly on Sunday afternoon. A provision of Rs 60 crore had been made in the budget outlay for the next fiscal. “Chhattisgarh would be the first state in the country to launch such a health insurance scheme that would leave no one living in the state uncovered,” Singh said. The scheme will not have any disparity between rich and poor and anyone can avail the benefits. Singh said the insurance cover would be provided to each family. The members in the family would get a free health care upto Rs 30,000. In all 5.62 million families in Chhattisgarh would be benefited with the scheme. (For details log on to : http://www.business-standard.com/india/news/chhattisgarh-launches-health-insurance-scheme/468193/)
ECB FOR LOW-COST HOUSING MAY GO VIA NHB
NEW DELHI: A proposal has been mooted for all external commercial borrowing (ECB) for affordable housing to be routed through the National Housing Bank (NHB), mooted by the latter. Many in the real estate sector are sceptical about the practicality of the Budget proposal on ECB for this segment. The withholding tax on ECB has been reduced from 20 per cent to five per cent for three years. The argument is that external lenders may not find low income or affordable housing attractive, due to the low profit margins and high risk. Hence, NHB seems to have suggested itself as a mode for a solution. “It is a possibility we are looking at,” said R V Verma, chairman and managing director, explaining NHB could then channelise ECB for low income housing borrowers. “Since NHB is a recognised entity, external lenders will be comfortable lending to us and we could do aggregate borrowing and aggregate risk hedging,” he explained. (For details log on to : http://www.business-standard.com/india/news/ecb-for-low-cost-housing-may-go-via-nhb/468215/)
HDFC, PRAMERICA LEAD RACE FOR FIDELITY INDIA MUTUAL FUND
MUMBAI: India’s largest fund house, HDFC Asset Management Co. Ltd, and Pramerica Asset Managers Pvt. Ltd, an arm of US-headquartered Prudential Financial Inc, have emerged as the frontrunners to buy the assets of Fidelity’s mutual fund in India—FIL Fund Management Pvt. Ltd. Out of some 20 bidders, HDFC and Pramerica mutual funds have been shortlisted and their bids are in the range of `400-500 crore, said two people with direct knowledge of the deal, who spoke on condition of anonymity. “There is close competition between the two funds and one of them will enter the binding bid agreement with Fidelity,” said one of the two people. Fidelity MF has about `9,000 crore of assets under management. HDFC mutual fund manages `88,628.02 crore worth of assets. Pramerica mutual fund manages assets of `2,084.41 crore in India, mostly through debt-oriented schemes. (For details log on to : http://www.livemint.com/2012/03/18222606/HDFC-Pramerica-lead-race-for.html?atype=tp)
5 SEBI RULES THAT LIMIT RISKS IN MUTUAL FUND SCHEMES
Statutory warnings, such as the one that mutual funds (MF) issue (“mutual fund investments are subject to market risk, please read the offer document carefully”) get monotonous. After a while they stop registering and you move right now without paying much heed to them. But risk is the middle name of any MF scheme; you can neither avoid it, nor ignore it and it helps to know that beyond these words there is a strong regulatory grid. The capital market regulator, the Securities and Exchange Board of India (Sebi), has over the years strengthened the MF regulations to ensure that your risks get limited. Market risks are omnipresent in an MF, but strong regulations keep your fund manager in check. Here are five such rules. It’s essential that your fund diversifies across scrips so that one unusual fall in a single scrip doesn’t take your entire fund down. Sebi rules say that your MF scheme cannot invest more than 10% in a single scrip. Sectoral schemes and index funds are, however, exempted from this rule. Since sectoral schemes invest in a single sector, like an information technology fund, there are limited scrips to choose from. (For details log on to : http://www.livemint.com/2012/03/18203035/5-Sebi-rules-that-limit-risks.html?atype=tp)
START-UPS TO BE TAXED ON FUNDS FROM ANGEL INVESTORS
MUMBAI: Start-ups raising money from angel investors will have to pay income tax from April on the funds they receive after the national budget on Friday proposed to treat the capital received as income from other sources, if the consideration received for issue of shares exceeds the face value of such shares. For instance, consider an angel investor who plans to invest Rs.10 lakh in a start-up that has Rs.100,000 as paid-up capital, or 10,000 shares at a face value of Rs.10. To give the investor a 20% stake, the start-up will have to issue 2,000 shares. However, since the investor plans to infuse Rs.10 lakh, he acquires the shares at Rs.500 apiece, much more than the face value. In India, experts estimate that nearly 90% of start-ups fold up in the first two years of their inception for lack of funding support. (For details log on to : http://www.livemint.com/2012/03/18211651/Startups-to-be-taxed-on-funds.html?atype=tp)
TWO-WAY FUNGIBILITY MAY NOT BE ENOUGH TO DEVELOP IDR MARKET
MUMBAI: The market may have reacted positively to the government’s decision to allow two-way fungibility in Indian depository receipts (IDRs) but that may not be enough to help develop the market for this instrument. With a view to deepening the capital markets, Finance Minister Pranab Mukherjee in Budget 2012-13, proposed allowing two-way fungibility for IDRs, subject to a ceiling. The fresh guidelines on IDRs are expected from the stock market regulator Securities and Exchange Board of India (Sebi) in due course. Although two-way fungibility is a step in the right direction, market experts believe. But the ceiling on convertibility and other unfavourable regulations will act against the development of the Indian IDR market, they point out. (For details log on to : http://www.business-standard.com/india/news/two-way-fungibility-may-not-be-enough-to-develop-idr-market/468209/)