MUMBAI: The rupee slumped to an all-time low on Wednesday amid weak macroeconomic fundamentals and global uncertainty. The Reserve Bank of India’s (RBI’s) limited intervention was not enough to lift the rupee, the worst performing Asian currency since March.
The rupee touched all-time low levels in early trade when the RBI sold dollars to arrest the fall but it fell further on the back of strong dollar demand by importers. According to Bloomberg data, the rupee closed at 54.49 a dollar, 1.3 per cent lower than yesterday’s close after having touched a lifetime low of 54.52 a dollar. The previous all time low (intra-day) was 54.30 a dollar attained on December 15. On Wednesday’s closing level is also a lifetime low. In this month alone, the rupee has depreciated 3.33 per cent against the greenback.
The RBI tried to soothe nerves by saying it would take more steps when necessary. “The RBI is aware of the situation. We have taken steps and will take further steps, if necessary,” said RBI Deputy Governor H R Khan. He added the rupee fall was partly because of global factors.
Foreign fund outflows from the equity markets, to the tune of Rs 546 crore, also put pressure on the domestic currency. The Bombay Stock Exchange (BSE) benchmark, Sensex, on Wednesday slumped 1.83 per cent, or 298.16 points, to 16,030.09, its lowest close since January 9.
According to dealers, public sector banks sold dollars to the tune of $500 million in the spot market on behalf of the RBI in early trade. Dealers said the RBI also sold $100 million in the forward market. During the September-March period, the RBI sold a little over $20 billion to arrest the rupee fall.
“Both material and verbal intervention from the central bank was not helpful during the day as a weakening euro continued to weigh,” said a treasury dealer with a domestic consultancy firm.
Reflecting the global risk-off mode, the dollar index against six major currencies was trading close to a two-month high of 81.35 levels, up 0.7 per cent. “The dollar gained on account of global risk-aversion, as concerns over Greek sustainability forced investors to move towards safe haven currencies,” said India Forex Advisors in a note.
“Apart from weak domestic economic fundamentals, the global conditions are not strong either. The downside to the rupee from here essentially depends on the strength of the measures taken by the RBI and the government. Clearly, only intervention in the foreign exchange market is not enough to arrest the fall,” said Priyanka Kishore, FX strategist, Standard Chartered Bank.
Market participants expect the RBI to announce a direct dollar window for oil companies, which may provide a breather to the rupee. “But it can still trade towards 55/$ if global risk-aversion persists and additional measures to encourage capital inflows are not announced,” Kishore said. The RBI had opened such a dollar window during the global financial crisis of 2008.
The software industry, among the largest exporters, is set to gain from the weakening rupee. “For the IT industry, every one per cent movement (rupee depreciation) will have an impact of 40-50 bps on our margins,” said V Balakrishnan, chief financial officer, Infosys. He, however, said the rupee would be range-bound around the 53-54 a dollar levels. “But, I think the RBI is trying to predict it at a certain level and within a range,” he said.
According to Shikha Sharma, managing director and CEO of Axis Bank, though a weaker rupee will make exports more competitive, yet too much weakness will adversely impact consumer confidence and increase import costs.
“You have to let the rupee slide to its natural level, but you don’t want too much of a fall. It is not good for anybody,” Sharma said.
Meanwhile, in a scathing report, Citi warned the rupee could hit 60 to a dollar and addedIndia’s four deficits —current account, fiscal, governance and liquidity — were mainly of its own doing, television channels reported. Citi said investors agreedIndia’s growth would remain shackled at a modest six-seven per cent and added, “The unfortunate part is that the problems appear self-inflicted, withIndianow seen to be specialising in scoring self goals.”
GOVT WANTS BUREAUCRATS TO NUDGE LISTING OF PSUs
NEW DELHI: The Finance Ministry has sought the help of Financial Advisers — senior bureaucrats posted in various ministries — to get Central Public Sector Enterprises (CPSEs) listed on bourses. The Ministry has sent an office memorandum (OM) to all the Financial Advisers in this regard. Many Financial Advisers are also placed on the boards of the CPSEs belonging to their ministries. The OMsays, “The Financial Advisers, who are on the Board of CPSEs, are requested to emphasise the benefits of listing and get the CPSEs listed in compliance with the disinvestment policy. Financial Advisers are requested to advise the CPSEs that consequent to listing such companies would be better able to tap the capital market for capital expenditure requirements instead of depending on Government Finances.” (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-markets/article3426740.ece)
GST: STATES TO BARGAIN HARD WITH INDIVIDUAL RATES
As talks on the implementation of the Goods & Services Tax (GST) pick up steam, states are set to drive a hard bargain on compensation from the Centre for any loss of revenue to these in the new regime. A revenue-neutral rate is being worked out by the National Institute of Public Finance and Policy (NIPFP) to estimate how much each state could lose by shifting to a uniform rate in the GST regime. A revenue-neutral rate is one at which a state would not record any gain or loss after switching to the GST. The higher a state’s revenue-neutral rate, the more would be the compensation it would seek from the Centre. For instance, if the revenue-neutral rate of a state is 15 per cent tax on the sale of goods, but the prescribed uniform rate to be levied by states under GST is 10 per cent, the state could ask the Centre to compensate it for the loss of five per cent revenue. (For details log onto : http://www.business-standard.com/india/news/gst-states-to-bargain-hardindividual-rates/474580/)
RBI SEEKS FOREX CONVERSION DATA
MUMBAI: Even a week after the Reserve Bank of India (RBI) asked Exchange Earners Foreign Currency (EEFC) account holders to convert half their dollar funds into rupees, the measure has not yielded the desired results. This has prompted the central bank to seek data from banks on how much individual companies have converted till now. Such account holders had been given 15 days to meet the requirement. The move was expected to bring in about $2.5 billion worth of foreign currency which would help bridge the dollar shortfall in the spot currency market. “No large flows have been seen from these accounts in the market as yet. Probably, people are waiting on the sidelines for better rates,” said a senior treasury official of a private sector bank. In the circular dated May 10, EEFC account holders have a week more to follow the mandate. “We may see flows now if 54 per dollar levels are lucrative enough,” added the official. On Wednesday, the rupee closed at an all-time low of 54.5 against the dollar, two per cent lower since the notification by RBI. It is expected to fall further due to fresh developments in the euro zone area. “The outlook for the rupee is for gradual weakness to 55.35-55.65, not ruling out extended run into 56.30-56.75 before sharp reversal into 52-51,” said Moses Harding, head, economic & market research at IndusInd Bank. (For details log on to : http://www.business-standard.com/india/news/rbi-seeks-forex-conversion-data/474576/)
NON-FOOD CREDIT GROWS 16.5 PER CENT, SHOW RBI DATA
MUMBAI: Non-food credit grew at a fairly strong 16.5% y-o-y in the fortnight ended May 4, taking the outstanding credit in the Indian banking system to R45,45,186 crore, data from the Reserve Bank of India (RBI) showed. Over past 10 fortnights, credit growth has been trending around 16%, except for the last fortnight of 2011-12 when it shot up to 18% y-o-y reflecting the aggressive lending by banks to show bigger balance sheets. However, outstanding credit has contracted by around R69,000 crore between early and now reflecting seasonal factors and repayments of the short-term loans disbursed in March. Meanwhile, deposits grew at a very sluggish 13.9% y-o-y in the fortnight to May 4, leaving outstanding deposits at R6,060,426 crore. The trend could continue since most banks have trimmed interest rates on deposits by about 25 bps for short-term maturities even as they cut their lending rates. Standard Chartered Securities believes deposits could be hard to come by and remains an area of concern pointing out that the overall retail deposit growth (both savings and term) is slowing down due to higher consumption and lower savings by Indian households partly driven by higher inflation and partly by changing preferences. RBI has projected loan growth at 17% in 2012-13 while the growth in deposits is projected at 16%. (For details log on to : http://www.financialexpress.com/news/nonfood-credit-grows-16.5-show-rbi-data/950384/0)
ALLAHABAD BANK PLANS TO OPEN FOUR FOREIGN, 250 DOMESTIC BRANCHES
BANGALORE: Allahabad Bank plans to open 250 branches across the country, besides four foreign branches this year. “We have applied for four licences to the Reserve Bank of India, and we hope to get them shortly,” Mr J.P. Dua, Chairman and Managing Director, Allahabad Bank, said here on Wednesday. The four foreign branches will be located in Shanghai, Singapore, Dhaka and an additional branch in Hong Kong at Kowloon. The bank currently has a branch in Hong Kong and a representative office in Shanghai. Allahabad Bank, which currently has over 2,500 branches across the country, plans to add 250 branches to its network this fiscal. The bank also plans to add 1,000 more ATMs to the current network of 350. “We have already floated tenders for the machines,” said Mr Dua. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3426749.ece)
MOODY’S DOWNGRADE WILL NOT HIT FUND-RAISING: AXIS BANK
NEW DELHI: Managing Director and chief executive officer of Axis Bank Shikha Sharma on Wednesday said Moody’s downgrade will have no material impact on the bank’s fundraising. Speaking to reporters on the sidelines of a conference, Sharma said “You have to talk to them (Moody’s) about the reasons for the downgrade. However, they recognise our balance sheet is strong. Sharma also said that the cost of borrowings would depend more on global factors. Rating agency Moody’s recently downgraded four financial institutions, Life Insurance Corporation, ICICI Bank, HDFC Bank and Axis Bank. This was in context of an ongoing global review affecting all banks whose standalone ratings are higher than the rating of the government where they are domiciled. (For details log on to : http://www.financialexpress.com/news/moodys-downgrade-will-not-hit-fundraising-axis-bank/950390/)
FEDERAL BANK LAUNCHES DEBIT CARDS FOR HNIs
MUMBAI: The fourth largest private sector lender by network Federal Bank today launched two premium debit cards exclusively targeted at its HNI customers, apart from a premium travel card. While the two cards, namely Premium Master Debit Card and Maestro Card are in debit card segment, the bank also launched a travel card under the brand name of Cash passport. “There is tremendous scope in the transaction space as the domestic economy grows. With these offerings, we hope to cash in on this growing segment,” Executive Director Abraham Chacko told reporters here. Both the Premium Master Debit Card, with an everyday transaction limit of Rs 2,00,000, and the Maestro Card with a daily transaction limit of Rs 1,25,000, are targeted at the HNIS and come with pin-based authentication. (For details log on to : http://economictimes.indiatimes.com/personal-finance/credit-cards/federal-bank-launches-debit-cards-for-hnis/articleshow/13167361.cms)
LIC LAUNCHES ONLINE IMMEDIATE ANNUITY PLAN ‘JEEVAN AKSHAY VI’
MUMBAI: The Life Insurance Corporation of Indiatoday launched immediate annuity plan Jeevan Akshay VI- for the online medium. The immediate annuity plan based on the traditionla platform- Jeevan Akshay- is a single premium product and the minimum premium for the product is Rs 1.5 lakh. The product will offer annuity payments of a stated amount till 85 years. The entry age for the online product has been reduced to 30 years from 40 years. The product offers 7% guarantee for the term. LIC sells 95% of annuities in the country. Recently, insurance regulator had specified that the annuity phase should be from the same insurance company that sells the pension product. Pension plans are not available on the unit-linked platform. Insurers have filed products with the regulator but are yet to be approval. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/lic-launches-online-immediate-annuity-plan-jeevan-akshay-vi/articleshow/13164420.cms)
CCI APPROVES NIPPON LIFE’S PROPOSAL TO BUY STAKE IN RCAML
NEW DELHI: Competition watchdog CCI has approved the proposal of Japanese major Nippon Life to acquire 26% stake in Reliance Capital’s mutual fund arm RCAML. The deal, which is valued at an aggregate amount of R1,450 crore, is the largest foreign direct investment (FDI) deal in any Indian asset management company till date. “Considering the facts on record and the details provided in the notice…and the assessment of the proposed combination, the Commission is of the opinion that the proposed combination is not likely to have any appreciable adverse effect on competition in Indiaand therefore… approves the proposed combination,” CCI said. The Competition Commission of India (CCI) noted that Nippon Life, which is a global player in providing asset management and portfolio management services, has no direct operations or presence in India in the same space, except for a 26% equity participation in Reliance Life Insurance Company Limited, a subsidiary of RCap. (For details log on to : http://www.financialexpress.com/news/cci-approves-nippon-lifes-proposal-to-buy-stake-in-rcaml/950387/)
MD & CEO APPOINTED FOR SUD LIFE
MUMBAI: Star Union Dai-ichi Life Insurance Co. Ltd. (SUD Life) today announced the appointment of Mr Girish Kulkarni as Managing Director and Chief Executive Officer of the Company. SUD Life is a Joint Venture of Bank of India, Union Bank of India, and Dai-ichi Life Insurance Co. Ltd., Japan. Mr Kulkarni was most recently the General Manager of United Arab Emirates Generali. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3426750.ece)
INDIAFIRST LIFE TO EXPAND ‘AUTOLIFE’ SCHEME
HYDERABAD: IndiaFirst Life Insurance Company is planning to expand its pilot life insurance scheme for vehicle buyers. The pilot, called ‘Autolife’, was launched in association with Varun Motors in Andhra Pradesh in January. “The response has been good. We sold 2,000 policies within 100 days of launch and we will expand this to about six States,” Mr P. Nandagopal, Chief Executive Officer, IndiaFirst Life Insurance, told Business Line here. The product will offer life insurance cover up to Rs 20 lakh in four different options as pure protection plan for vehicle buyers at the time purchase. The product would soon be sold in Maharashtra, Delhi, Kerala and Karnataka, he said adding: “We want to have about one lakh members under this product by this year end.” (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3426755.ece)
LIFELINE FOR INSURANCE
The Centre has decided to defer an increase in foreign direct investment (FDI) limits for insurance companies from 26 to 49 per cent. In doing so, it appears to have given in to the arguments made by the Parliamentary Standing Committee on Finance. On closer examination, these lack merit, for the simple reason that the insurance sector desperately requires fresh infusion of capital, estimated at about $12 billion over the next five years. Although 12 years have passed since insurance was opened up to private competition, a majority of players continue to make losses. In life insurance, this is partly due to the long gestation nature of the business and partly owing to the skewed strategies of the companies. They have relied excessively on low margin single premium products with market-linked plans bolstering profits. Regulatory intervention to curb costs is also pressuring margins. With inflows into the latter drying up, profits are now under pressure. In general insurance, the high incidence of claims — not fully compensated by premiums — has hurt profitability. According to a recent McKinsey study, the Indian life insurance market is the least profitable in Asia, with well over half of the $7.5 billion invested by private players in the last decade going to simply fund accumulated losses. This is a serious matter. A thriving insurance industry is essential for a country where social security coverage — particularly healthcare and pension payments — is minuscule. Insurers are, moreover, a key source of money for the capital and bond markets to finance long-term infrastructure investments. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-opinion/article3426683.ece)
PFC RELAXES LOAN NORMS TO BOOST SECTOR
NEW DELHI: Power Finance Corporation has eased certain eligibility conditions for loan disbursals to power projects in an effort to revive a sector starved of funds as developers are finding it tough to meet some stringent loan conditions. In view of the challenges faced by the sector, PFC had set strict pre-conditions for loan disbursals to reduce its risks on loans that were already sanctioned. Since April 2011, the state-run lender had been disbursing loans to only those power projects that had signed power purchase agreements with procurers and also had assured fuel supply for the plant in place. “In the last three months, we have started disbursing loans based on the real development at the project. Instead of demanding for both fuel supply agreements and power purchase agreement, we are now considering their request even if they fulfil one condition,” PFC’s chairman Satnam Singh told ET. (For details log on to : http://economictimes.indiatimes.com/articleshow/13183801.cms)
BAJAJ FINANCE, FINSERV TO RAISE R1,750 CRORE IN FY13
PUNE: Bajaj Finserv and Bajaj Finance finalised their fund raising plans and will raise R1,750 crore in the current financial year. Sanjiv Bajaj, MD of Bajaj Finserv said these funds would be raised separately — Bajaj Finserv will raise R1,000 crore while the lending arm, Bajaj Finance would raise R750 crore to fund growth during the current financial year. Bajaj Finserv is the holding company in the financial services arm of the Bajaj Group with interest in life and general insurance, lending, financial advisory and wealth management. While 2011-12 was challenging, Bajaj expected the current financial year also to be difficult and they would be cautious this year, Bajaj told The Financial Express. About the entry of Bajaj Finserv and its partner, Allianz’s, into the mutual fund business, Bajaj said they were not yet ready with their plans and were looking at various alternatives but had not zeroed in on to anything. Bajaj Finserv has got regulatory approval to start the mutual fund business but hey wanted to do something different from the existing models. About the banking foray, Bajaj said they were waiting and watching to see what the RBI guidelines would be. (For details log on to : http://www.financialexpress.com/news/bajaj-finance-finserv-to-raise-r1-750-crore-in-fy13/950389/)
MUTHOOT FINANCE LTD. DECLARES MAIDEN DIVIDEND OF 40%
KOCHI: Encouraged by the good performance, Muthoot Finance Ltd. the largest gold loan company, has recommended a maiden dividend of 40 % for the year ended March 2012. The company clocked 80 % rise in the net profit at Rs 892 crore for the fiscal 2011-12. The total income zoomed up by 96 % to Rs 4549 crore. The total gold loan outstanding grew by 55 % to Rs 24,673 crore. The total weight of gold jewellery pledged went up by 22% to 137 tonnes and the average gold loan per branch showed 15 % rise to 6.63 crore. The number of loan accounts shot up by 27 % to 60 lakh. The company added 945 branches during the year taking the total number of outlets to 3678. The gross NPA of the company moved up to 0.56% from 0.29 %. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/muthoot-finance-ltd-declares-maiden-dividend-of-40/articleshow/13165301.cms)
PEs & VCs EYE EXIT VIA OFFER FOR SALE AFTER STT RULING
MUMBAI: Private equity (PE) and venture capital (VC) players are exploring options to exit their investments through the offer for sale (OFS) route, following the recent changes in tax rules governing such sales. The amendments to the Finance Bill made last week, brought offer for sale transactions under the Securities Transaction Tax (STT) net. The seller in these offers is liable to pay STT of 0.2 per cent, beginning July 1. This means such transactions would be exempt from the capital gains tax of 10 per cent, which these funds were otherwise liable to pay. Senior officials said several players are looking at this as a viable option and have even approached the newly-formed Small and Medium Enterprises (SME) exchanges to understand the finer details. “The move to exempt OFS from capital gains is a positive development for SME exchanges. This makes the listing route a much better exit option. Some PE funds have already evinced interest and are keen to know the modalities of listing,” said a senior official with an SME Exchange. (For details log onto : http://www.business-standard.com/india/news/pesvcs-eye-exit-via-offer-for-sale-after-stt-ruling/474548/)
MUTUAL FUNDS WITNESS CLOSURE OF 1.1 MILLION EQUITY FOLIOS IN 2012
MUMBAI: Indian retail investors, who access equities through the mutual fund (MF) route, continue to eschew investments in stock markets. The closure of 300,000 folios in one month at the beginning of the current financial year (April) has further shrunk the equity investors’ base of the MF sector. A worsening global market situation impacting Indian stocks is proving a big deterrent for investors. Between January and April 2012, 1.1 million retail equity folios have been closed. Data from the Securities and Exchange Board of India show the total number of equity folios was 3,73,47,567 on April 30, down three per cent from December last year, at 3,84,96,253. The pace at which the equity folios are being closed is a worrying signal for the industry. In FY12 and FY11, it had lost 1.6 million and 1.8 million folios, respectively. There are more redemptions than fresh purchases. (For details log on to : http://www.business-standard.com/india/news/mutual-funds-witness-closure11-mn-equity-folios-in-2012/474550/)
WEAK RUPEE TO ADD PRESSURE ON CORPORATE RATING CUTS
MUMBAI: The sharp fall in the rupee, tight liquidity conditions and uptick in inflation have added to the woes of companies that are already reeling under credit rating issues. The pressure on credit quality would intensify and the pace of downgrades would continue. The prospects for a turnaround to support upgrades may be postponed in the current financial year, according to rating agencies Icra and CARE. It is not the just higher-than-expected fall in the value of dollar, which is working as a bug bear. The very tight liquidity conditions are making interest rates sticky. Naresh Takkar, chief executive and managing director of Icra, said the rupee’s weakness, along with the rise in its volatility, were not good for companies. Also, liquidity was quite tight now, an odd situation compared to the months of April and May in other years. The woes, therefore, were likely to continue for a while. (For details log on to : http://www.business-standard.com/india/news/weak-rupee-to-add-pressurecorporate-rating-cuts/474577/)
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