NO PASS-THROUGH STATUS FOR ALTERNATIVE INVESTMENT FUNDS New Delhi: The income tax department might turn down the demand of alternative investment funds (AIF) such as hedge funds, private equity funds and infrastructure funds to exempt them from tax and impose it at the hands of investors. Such an exemption is currently enjoyed only by venture capital (VC) funds, also an AIF, through a “pass-through” status. The tax department is likely to issue a circular to clarify that AIFs, other than VC funds, may not get pass-through status as investors in most of them are not known at the time of setting up of these funds. “Since the share of beneficiaries is not known in other AIFs set up as noncharitable trusts, they would be taxed at maximum marginal rate,” said an official. Unlike VC funds, which are recognised and tax-exempt under the IT Act, income of all other funds, including small and medium enterprise, social venture, infrastructure, private equity, debt, and hedge funds, is liable to tax. Their taxation depends on legal status of the fund; that is, company, limited liability partnership, or trust. More than 90 AIFs are registered with market regulator Securities and Exchange Board of India (Sebi) as on date. Most of these AIFs are set up as noncharitable trusts and the identity of their investors is not known at the date of creation of the trust. Under the law, if the name of the beneficiary is not specified in the trust deed, then the trust is subject to tax and not the investor. http://www.business-standard.com/article/economy-policy/no-pass-through-status-for-alternative-investment-funds-114070300119_1.html
MARKETS SCALE NEW HIGHS ON BUDGET HOPES Mumbai: The Indian stock indices touched fresh all-time highs on Wednesday, mainly driven by foreign investors who went for robust buying on hopes the new government would announce steps to strengthen the economy in the coming Union Budget. Finance Minister Arun Jaitley’s recent comments – “mindless populism” in policy making needs to be checked and high fiscal deficit and inflation pose major challenges to the country – sparked hopes among investors that the government was ready to take difficult measures to bring the economy back on track. In what appeared to be a strong endorsement of Jaitley’s views ahead of next week’s Budget presentation, the BSE Sensex on Wednesday rallied 324.86 points, or 1.27 per cent over its previous close, to end the day at 25,841.2, topping the previous all-time high of 25,583.7 on June 10. The National Stock Exchange’s Nifty also closed at a record high. It rose 90 points, or 1.18 per cent, to close at 7,725.15. http://www.business-standard.com/article/markets/markets-scale-new-highs-on-budget-hopes-114070300105_1.html POVERTY DEFINITION IMMATERIAL FOR FINANCIAL INCLUSION: RAJAN Mumbai: Amid the controversy over the definition of poverty, Reserve Bank of India (RBI) Governor Raghuram Rajan on Wednesday said it did not matter whether there was a precise definition, but what mattered was extending financial services to the poor. “It doesn’t matter that we have a precise definition. There’s so much demand for financial services in the country that we don’t need to delineate ‘you get it, you don’t’. Everybody needs it,” Rajan said. The governor spoke after meeting Queen Maxima of the Netherlands, who is the UN Secretary-General’s Special Advocate for Inclusive Finance for Development, at the RBI headquarters here. “Just creating an environment in which it can expand is enough. We have to work on creating that environment. But we don’t need to choose between people. Whoever can benefit, they should get it,” Rajan said. http://www.business-standard.com/article/finance/poverty-definition-immaterial-for-financial-inclusion-rajan-114070201117_1.html RRBs, CO-OP BANKS GET NEW GOLD LOAN NORMS Mumbai: The Reserve Bank of India said loans sanctioned by Regional Rural Banks and State/Central Co-operative Banks for the purpose of medical expenses and meeting unforeseen liabilities should not exceed 75 per cent of the value of gold ornaments and jewellery. Further, in order to standardise the valuation and make it more transparent to the borrower, the RBI said gold jewellery accepted as security/collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd. If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/rrbs-coop-banks-get-new-gold-loan-norms/article6171599.ece RBI PLANS TO SWAP OLD GOLD IN NAGPUR VAULT WITH PURER VARIETY MUMBAI: Old isn’t always gold — at least, not for the Reserve Bank of India (RBI). There is a plan to swap some of the old gold lying in RBI’s Nagpur vault since pre-Independence times — and whose quality is not exactly top grade — with purer gold. The country’s monetary authority has sounded out large lenders and international bullion banks to strike ‘location swap’ deals. While the primary aim is to improve the quality of India’s foreign exchange reserves, the move would ease the supply of gold, even if temporarily, in the local market where duty barriers have given rise to smuggling. http://articles.economictimes.indiatimes.com/2014-07-02/news/51030718_1_yellow-metal-gold-international-bullion-banks RUPEE POSTS BIGGEST GAIN SINCE MAY Mumbai: The rupee on Wednesday posted its biggest single-day gain since mid-May and rose to its highest level in more than two weeks on the back of heavy dollar sales by custodian banks along with some corporate dollar inflows. The partially convertible rupee closed at 59.69 to a dollar compared with 60.08 on Tuesday. The unit rose to 59.62, its strongest since June 13, while the day’s low was 60.07. Government bond (G-sec) yields surged further on sustained buying support from banks and corporates. The 8.83 per cent 10-year benchmark bond maturing in 2023 shot-up to Rs 101.08 from Rs 100.5675, while its yield held declined at 8.66 per cent from 8.74 per cent. The overnight call money rates finished lower at seven per cent from 8.70 per cent on Tuesday. It moved in a range of 8.60 per cent and 6.90 per cent. It moved in a wide range of 8.60 per cent and 6.90 per cent. http://www.business-standard.com/article/finance/rupee-posts-biggest-gain-since-may-114070300096_1.html FIIs SHOP BUT WON’T DROP Mumbai: Foreign institutional investors (FIIs) continue to bet big on the India story, with their net investment in Indian equities so far this year already surpassing the $10-billion mark. According to the Securities and Exchange Board of India (Sebi), FIIs have invested $10.34 billion (Rs 62,053 crore) so far this year. On Wednesday, they invested an additional $216 million (Rs 1,291 crore), according to provisional data with stock exchanges. With this, FIIs’ net investment in Indian equities has exceeded $10 billion for the third consecutive year. In 2012, they made net inflow of $24.4 billion, while their inflows last year stood at $20.1 billion. Their cumulative investment since November 1992 stands at $156 billion (Rs 747,937 crore), data show. FIIs’ assets under custody, or the value of the investments they currently hold, including gains on their initial investments, stand at Rs 6.59 lakh crore, according to Sebi data. The country with the highest assets under custody is the US, with US-based FIIs accounting for Rs 1.57 lakh crore of assets. With Rs 1.34 lakh crore, Mauritius is second, while Singapore is third (Rs 1.16 lakh crore). FIIs from the United Arab Emirates, Luxembourg, the UK and the Netherlands account for Rs 25,000 crore-Rs 55,000 crore each, according to Sebi data. http://www.business-standard.com/article/markets/fiis-shop-but-won-t-drop-114070200431_1.html CREDIT RATING MODEL PLANNED FOR RESIDENTIAL PROJECTS Mumbai: Can the price of the home you want to buy come down if the real estate developer gets a bank loan based on the credit rating of his residential project? If the recommendations of a committee appointed by the Finance Ministry to devise rating mechanism for builders are anything to go by, this could be within the realms of possibility. The National Housing Bank (NHB), in association with credit rating agencies Crisil and Care Ratings, plans to develop a credit rating model for housing projects based on the track record of the developer, his project execution capability, and transparency in legal approvals. As access to bank finance is hard to come by, real estate project developers depend on high-cost informal sources of financing, according to Revati Kasture, Chief General Manager & Head of Research and Grading Services, Care Ratings. If the proposal to grade housing projects on a scale of 1 (lowest rating) to 7 (highest rating) is accepted by the banking regulator and the Finance Ministry, then banks will have more comfort in taking exposure to such projects, she said. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/credit-rating-model-planned-for-residential-projects/article6171598.ece
PROPOSED RESOLUTIONS FOR FINANCIAL ENTITIES WILL TEST POLITICAL WILL: S&P Mumbai: Rating agency Standard & Poor’s (S&P) on Wednesday said effecting the proposed resolutions to address distressed financial institutions would test political will, as these steps needed drastic changes in laws and regulations. Key legislative changes in this regard include forming a new, independent financial resolution authority and empowering it to use resolution tools. One these tools was ‘bail-in’—allowing creditor-financed recapitalisation of distressed banks, S&P said in a statement, adding it would take political will to allow the bail-in of creditors of large banks. A bail-in of creditors of a large systemic bank could have a contagion impact, it said. Garnering political commitment for sweeping changes would be difficult, S&P said. These changes would take a while to be implemented, making it difficult for India to resolve concerns regarding financial institutions by the end of 2015, S&P said. The presence of a large number of government-owned banks complicated the matter, the rating agency said. As a shareholder, the government had been providing them support in the form of regular capital infusion. It remains committed to ensuring appropriate capital, not just for existing business but also for growth to promote financial inclusion in the country, S&P said, adding it was difficult to fathom the unavailability of government support for a distressed government-owned bank. http://www.business-standard.com/article/finance/india-s-proposed-bank-resolution-regime-faces-test-of-political-will-s-p-114070201090_1.html UNION BANK TO FOCUS ON LENDING TO FARM, RETAIL SECTORS Bhubaneswar: With demand for credit from the industrial sector on the wane, public sector lender Union Bank of India said, it will focus on strengthening its loan portfolio under retail, agriculture and MSME (micro, small & medium enterprises) sectors in 2014-15. “Our focus for this year will be on the RAM (retail, agriculture and MSME) sectors. Most of the large projects are stalled and these projects do not need money now,” said Arun Tiwari, chairman and managing director (CMD), Union Bank of India. Tiwari, who had come on an official visit to the state, was talking to the media persons here. The bank CMD, however, hoped the projects cleared by the last Union government to go on stream by Q3 (October-December), reviving demand for industrial credit. Presently, there are three sectors- retail, agriculture and MSME where growth on advances is consistent, he added. The PSU bank has registered a year-on-year growth of 21 per cent in priority sector advances including 23.52 per cent growth in the agriculture sector and 21.55 per cent growth in MSME advances. The bank has clocked a growth of 27.61 per cent in retail sector advances. The bank’s total business stood at Rs 5.32 lakh crore (as on March 31, 2014) with deposits of Rs 2.97 lakh crore and advances worth Rs 2.34 lakh crore. The PSU bank plans to set up a branch in Sydney (Australia) and an overseas subsidiary at London (UK) to strengthen its global foot print. http://www.business-standard.com/article/finance/union-bank-to-focus-on-lending-to-farm-retail-sectors-114070201384_1.html
- Private Sector Banks
KARNATAKA BANK TARGETS RS 5,515 CR AGRI LOANS IN FY15 Bangalore: Mangalore-based private sector lender Karnataka Bank is aiming at an agriculture advances portfolio of Rs 5,515 crore in 2014-15, which will make up more than 18 per cent of the total advances of the bank. In 2013-14, its share of agriculture loans stood at 14.6 per cent of the total advances of Rs 28,345 crore. Presently, the bank has 10 agriculture development branches, 142 green branches and 51 agriculture field officers as dedicated resources for agriculture advances. During the present year, it plans to open 75 new branches across the country. Of this, 29 branches will be opened in rural areas so as to give further thrust to agriculture advances, said P Jayarama Bhat, managing director and CEO. Speaking at the all India agri-business conference, organised by the bank, he said the bank would continue to organise Farmers’ Meet at potential centres and focus on agriculture subvention scheme to ensure agri credit at affordable rates. The bank involves Nabard and lead banks to conduct agri meets. The bank is presently implementing “Business Process Re-engineering” (BPR) recommendations, which aims at high growth with superior quality across assets and liabilities, portfolio, and products and services. http://www.business-standard.com/article/companies/karnataka-bank-targets-rs-5-515-cr-agri-loans-in-fy15-114070201082_1.html IS TIME RUNNING OUT FOR DHANLAXMI BANK? Mumbai/Kolkata: The warning signs of an imminent crisis at Dhanlaxmi Bank were first noticed in October 2011 when a section of its employees’ union accused the top management of window dressing the financial accounts to show inflated profits. Amitabh Chaturvedi, who was then the managing director and chief executive officer, dismissed the allegation, but resigned four months later over disagreement with board members on issues relating to business strategy. The Thrissur-based bank has been struggling since then. While it made a small profit in 2012-13, it logged a loss of Rs 252 crore in 2013-14. The gross non-performing asset ratio and net bad loan ratio deteriorated to 6 per cent and 3.8 per cent, respectively, while the cost-to-income ratio increased to a whopping 98.3 per cent. At the same time, the share of low-cost current account savings account (CASA) deposits declined to 22 per cent. The capital adequacy ratio, as per Basel III norms, remained low at 8.67 per cent at the end of March 2014 Incumbent managing director and CEO, P G Jayakumar, who took charge in 2012, blames the previous management’s unbridled expansion programmes for the lender’s present situation. “We have high levels of non-performing assets because of the old loan sanctions,” he says. “We have been making provisions for the last two years, and this has affected our profitability.” http://www.business-standard.com/article/finance/is-time-running-out-for-dhanlaxmi-bank-114070201413_1.html INDUSIND BANK LAUNCHES EXCLUSIVE ONLINE STORE Coimbatore: As banks compete with each other, they come out with innovative reward schemes to retain customers. One such scheme is the exchange of reward points that enables the purchase of merchandise of customers’ choice from partner outlets. Private sector IndusInd Bank has gone a step forward by launching an online store — www.themorestore.in; where its customers can now redeem their reward points for purchase of merchandise from an online catalogue. It has also tied up with Onemi — a catalogue-based retailer and retail e-commerce company — for this purpose. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/indusind-bank-launches-exclusive-online-store/article6171602.ece
- Foreign Banks
WORLD BANK PROJECT WORTH RS 1,000 CR TO BOOST HIMACHAL HORTICULTURE Shimla: A nod is awaited from the World Bank for an ambitious Rs 1000 crore project to boost horticulture sector in Himachal Pradesh. This is expected to add Rs 1,500 crore to the GSDP of the state , a top state government official said Wednesday. The project aims to double fruit production in five years and check the erratic production parttern. Rs 800 crore will be funded by the World Bank and the remaining Rs 200 crore will be shared by the state and central governments. Sources said a World Bank team would visit the state later this month for preparing an appraisal mission and would meet a cross section of people involved with the project. The HP Horticulture Produce , Marketing & Processing Corporation (HPMC) will be the coordinating agency along with concerned departments and agencies. http://www.business-standard.com/article/economy-policy/world-bank-project-worth-rs-1-000-cr-to-boost-himachal-horticulture-114070201339_1.html
- Banking Notes
VIJAYA BANK CUTS DOMESTIC TERM DEPOSIT RATES Bangalore: With a view to bringing down the cost of deposits, Vijaya Bank, the Bangalore-headquartered public sector bank, has reduced interest rates on its domestic term deposits. The reduction of 5 basis points to 50 basis points is in six slabs of different maturity periods starting from 46 days to one year for deposits of Rs. 1 crore and above with effect from July 3, the bank said in a statement. The Vijaya Bank scrip gained 2.57 per cent to close higher at Rs. 55.85 on the BSE on Wednesday. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/vijaya-bank-cuts-domestic-term-deposit-rates/article6171607.ece FOREIGN DEBT ISSUANCES DROP IN FIRST HALF OF 2014 Mumbai: Foreign debt issuances from India have seen a drop in the first half of 2014, as most of the re-financing activities took place last year due to which the need to raise funds was not much this year, said experts. According to data from RBS, from India, $9 billion was raised in the January-June period compared with about $11 billion in the corresponding period in 2013. Among various currencies available to issuers, most of the fund-raising continues to be in dollars. However, issue arrangers do not see this as a big drop as they are betting on the second half of 2014. For the full year of 2013, Indian corporates had raised $15 billion through foreign debt. “We expect to see significant refinancing transactions from Indian corporates. The same will help in reducing overall cost and adding tenure thereby further balance sheet strengthening,” said Manmohan Singh, head, debt capital markets (India and south east Asia) at RBS. According to Singh, from the financial institution space, there could be Basel-III compliant capital issuances in international markets. http://www.business-standard.com/article/finance/foreign-debt-issuances-drop-in-first-half-of-2014-114070201089_1.html FDI INCREASE IN INSURANCE SHOULD BE WITHOUT RIDERS At a time when the life insurance industry is struggling with growth, the Anil Ambani Group-promoted Reliance Life Insurance has recorded a 40 per cent surge in its new business premium income in the financial year ended March 31, 2014. Anup Rau, Chief Executive Officer, says growth of the company, in which Nippon Life Insurance has a 26 per cent stake, has been driven by a significant improvement in agent productivity and average ticket size per policy sold. Excerpts from an interview: If the FDI cap is raised to 49 per cent in the life insurance sector, what immediate impact do you see? Nothing much will change materially as most of the large players are well capitalised, but FDI is critical for the long-term growth of the life insurance industry. In my view, if the FDI cap is raised, it should come without riders such as an artificial cap on voting rights. The regulator has come out with tough norms on replacement of life insurance policies (by surrendering one policy and buying another) to ensure that there is no mis-selling. What are your views on this? While the regulator has brought out these norms, the industry has been working on reducing mis-selling by implementing the claw-back commission clause and other measures. At Reliance Life, over the last one year, we have been adopting strict policy verification measures such as verification calls after every policy is sold to reduce mis-sale. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/fdi-increase-in-insurance-should-be-without-riders/article6171597.ece IDFC PLANS RS 2,000-CRORE ISSUE TO CUT FOREIGN HOLDING TO BELOW 50% Mumbai: Infrastructure financing firm IDFC on Wednesday said that it is looking to raise R2,000 crore by issue of equity shares through a qualified institutional placement (QIP) or a further public offering (FPO), to reduce foreign shareholding below 50% to comply with RBI bank licence guidelines. “As on March 31, 2014, the aggregate foreign shareholding in IDFC was approximately 53.69%. To achieve reduction of the foreign shareholding below 50%, the company proposes to offer, issue and allot, in one or more tranches, securities, through one or more domestic offering(s), including through further public offering (FPO) and/or qualified institutional placement (QIP), to qualified institutional buyers (QIBs) and/or other Indian persons for an amount not exceeding R2,000 crore,” IDFC said in its filing with the Bombay Stock Exchange. Earlier in June, Sunil Kakkar, chief financial officer of the company, had told FE that IDFC is looking to raise equity capital worth 8% of the total shares. Kakkar also said that IDFC is looking at insurance companies and mutual fund houses to pick up the stake. The total number of shares of IDFC as on March 31 stands at 151 crore and IDFC’s share price was up 0.04% to R135.45 on Wednesday’s close. IDFC also said it is looking to raise R80,000 crore through issue of non-convertible debentures and commercial papers through the private placement route. IDFC has historically been one of the largest issuers of NCDs via private placements and, according to Prime Database, it was one of the top 10 mobilisers of debt and issued bonds worth R11,329.20 crore in 2012-13. http://www.financialexpress.com/news/idfc-plans-rs-2000crore-issue-to-cut-foreign-holding-to-below-50-/1266215 7 OF 10 MF SCHEMES BEAT BENCHMARKS OVER 5 YRS Mumbai: Over two-thirds of equity mutual fund schemes have outperformed their benchmark indices in the last five-year period. Of the 280-odd equity schemes that have been in existence for five years or more, 190 funds or about 70 per cent of those funds have outperformed their respective benchmark indices. The outperformance percentage remains the same across the three-year and one-year period with seven of 10 funds outperforming their benchmarks. Analysts believe the fund-outperformance ratio is impressive when seen in the backdrop of volatile markets, poor equity returns and heavy redemptions by investors since 2008-09. “The market has been very challenging in the last five years, with two major economic downturns between 2008-11 and 2011-12. There has been no secular growth in the industry,” said Niranjan Risbood, director – fund research, Morningstar India, a global investment research firm. According to data from online mutual fund tracker, Value Research, equity mutual funds have outperformed their benchmarks by a margin as wide as 17 per cent in the three- and five-year periods while for the one-year period it is as high as 65 per cent. http://www.business-standard.com/article/markets/7-of-10-mf-schemes-beat-benchmarks-over-5-yrs-114070200928_1.html FUND MANAGERS’ STOCK BUYING HITS 6-YEAR HIGH Mumbai: Equity fund managers are on a stock-buying spree. Ahead of the Union Budget, in June, net investment in shares by mutual funds (MFs) stood at Rs 2,763 crore, the most since June 2008. Though the sum was nowhere close to the big-ticket monthly purchases seen during the 2004-2008 bull run, it is significant, as it confirms the reversal of a selling spree that began in September 2013. Last month, net buying by MFs stood at a marginal Rs 105 crore. Till May, most investments were made by large investors, primarily high net worth individuals. Sources said retail money, too, had started coming in. “Investors are more hopeful than earlier and this is reflected in their choice of investment. The number of transactions has increased twofold, favouring equities. It’s a turning point and the trend should continue,” said Kalpen Parekh, chief executive of IDFC Mutual Fund. During 2009-10, fund managers sold stocks worth a whopping Rs 75,000 crore, as investors kept redeeming investments. However, the tide appears to be turning for the industry. http://www.business-standard.com/article/markets/fund-managers-stock-buying-hits-6-year-high-114070201372_1.html
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