MUMBAI/NEW DELHI: Facing huge redemption pressure on funds raised via foreign currency convertible bonds (FCCBs), India Inc has requested the Reserve Bank of India (RBI) to allow companies to offer higher interest rates on fresh foreign currency loans or bonds, the proceeds of which will be used to pre-pay existing FCCBs.
The current norms mandate if a company wants to pre-pay FCCBs via fresh foreign loans or bonds, the new paper must be of longer maturity and carry a lower interest rate than the existing.
“Many of us don’t want to leave it till the last moment, as the situation may get out of hand. We plan things in advance, depending on the market conditions. Hence, pre-payment is often necessary. We have requested the RBI to relax the rules on lower cost. Our understanding is the RBI is taking a benign view on this request,” said a person familiar with the developments. He requested anonymity due to the sensitivity of the issue.
Industry players said in the past the banking regulator had allowed such waivers on a case-to-case basis. “Our view is the RBI should not hide behind the guidelines. The regulator must give the leeway, considering the current market conditions. Unless a higher rate is offered, no new investor will be willing to put in money,” said a senior executive of a private bank.
The regulator had recently allowed companies to raise funds through external commercial borrowings (ECBs) to refinance an existing ECB at a higher cost under the approval route.
On the refinancing of existing FCCBs via external commercial borrowings, companies have asked the central bank to reduce caps on pricing and maturity.
“If you see the ECB guidelines, depending on the size of the issue there are caps on pricing and maturity. The rules may prescribe the maturity must be of at least five years, but the company may have found investors willing to invest only for three years. Hence, we have requested companies not be constrained by regulations and some leeway be offered,” said a person working with a large corporate house.
Also, demands have been raised to allow a reduction in the conversion price because the share prices of many companies have plunged in recent months. Industry players said while the RBI had allowed that in 2010, it was withdrawn later after the Securities and Exchange Board of India had reservations.
“We have requested that at least part of the bonds be allowed to be converted at a reduced price,” said a source. According to a latest report by rating agency Fitch, 59 Indian companies will face redemption worth $7 billion in 2012.
A senior finance ministry official confirmed that discussions were on to address problems faced by companies in servicing FCCB obligations. “We are aware of the issue. The government is not averse to addressing the problems faced by companies in making FCCB payments due to the adverse systemic scenario,” he said.
Adding that the companies were facing a tough situation they could not have perceived while taking the FCCBs, the official indicated the government might also allow them to utilise financing from domestic financial institutions in managing the obligations. He, however, pointed out the measures would be aimed at supporting companies across the board to handle the situation and not at helping individual companies.
BASEL-III TO PUSH UP CAPITAL NEEDS BY RS 1.5 LAKH CRORE
MUMBAI: The Reserve Bank of Indiahas laid out a six-year road map to make Indian banks safer and avoid recurrence of the 2008 crisis, but it will need an estimated Rs 1.5 lakh crore in capital at a time it is scarce. The central bank has raised the equity component in overall capital and restricted dividend or bonus payouts when capital ratios fall close to mandated levels. It has also addressed banks’ leverage ratios, which will shrink off-balance sheet businesses and investments in subsidiaries, to reduce risk. The banking regulator also aims to reduce systemic risk by eliminating some dodgy entries in the books of accounts and explaining the cross-holdings of capital instruments among banks, which exposed many of them during the credit crisis. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-lays-down-road-map-to-make-banks-safer-avoid-crisis-repeat-under-basel-committee-recommendations/articleshow/12972758.cms)
GOVERNMENT MAY WAIVE PENALTY ON PAST VODA-LIKE DEALS
NEW DELHI: The government is considering waiving penalties on past cross-border deals that will come under the scanner of tax authorities once a contentious proposal allowing it to tax transactions retrospectively is cleared by Parliament. The proposal will pare the tax dues of British mobile giant Vodafone Plc to about Rs 7,900 crore from Rs 20,000 crore, paving the way for a possible settlement of the five-year-old tax dispute, said an official with knowledge of the matter. The person emphasised that no decision had been taken as opinion was divided within the finance ministry. The nation’s top leadership will take a final decision, he said. Finance Secretary RS Gujral said there was hardly any scope for a compromise at this stage. But a senior official at the Central Board of Direct Taxes argued during internal discussions that scrapping penalties was the most pragmatic course of action, officials familiar with the matter said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/telecom/govt-may-waive-penalty-on-past-cross-border-deals-vodafones-tax-dues-may-be-brought-down-to-rs-7900-cr/articleshow/12972192.cms)
RBI INTERVENTION TALKS KEEP FOREX MARKET ON TENTERHOOKS
MUMBAI: After a gap of four months, the rupee fell below 53 to the dollar in early trade on Wednesday, triggering hope of possible intervention by the central bank. Traders said there was modest supply from public sector banks on behalf of the Reserve Bank of India (RBI), setting off dollar selling by exporters. However, this was not sufficient to meet the demand in the market, and the rupee slipped back to close near the day’s lows. The closure was at 52.96 after trading between 53.01 and 52.60 per dollar. It had closed at 52.73 on Monday. According to market participants, the mere presence of the central bank helped the rupee regain 15 paise intraday, though intervention was only $100-150 million. “Dollar supplies from exporters come in snippets whenever RBI is seen active to arrest further depreciation. With every uptick, there is fear of intervention,” said a forex dealer with a private sector bank. The central bank was seen issuing one-year forwards as the premium in the segment fell after the rupee hit 53-levels in the spot market. (For details log on to : http://www.business-standard.com/india/news/rbi-intervention-talks-keep-forex-markettenterhooks/473250/)
BANK DEPOSITS, ADVANCES FALL THROUGH APRIL
MUMBAI: Bank deposits and advances fell through April, after rising sharply towards the end of the previous financial year. The growth in deposits over the year was 13.3 per cent while loans grew 17.6 per cent, as on April 20, showed data released by the Reserve Bank of India (RBI) on Wednesday. Banks had clocked deposit growth of 17.4 per cent and credit growth of 19.4 per cent at the end of March. Deposits have since shrunk by Rs 80,000 crore and advances by Rs 87,000 crore. “The demand for bulk deposits has reduced and, hence, there are no rollovers now,” said a treasury official of a large public sector bank. As a result, the rates on short-term bulk deposits have reduced by a little over 100 basis points. (For details log on to : http://www.business-standard.com/india/news/bank-deposits-advances-fall-through-april/473252/)
INDIAN BANK REVISES INTEREST RATES
CHENNAI: Indian Bank has revised interest rates on FCNR (B) term deposits with effect from May 1, 2012. For FCNR (B) deposits, in US dollar, the revised interest rate has been fixed at 2.30 per cent for deposits of one year and above, but less than two years (2.30 per cent existing); at 1.81per cent for deposits of two years and above but less than three years (1.85 per cent existing); at 1.92 per cent for deposits of three years and above but less than four years (two per cent existing); at 2.13 per cent for deposits of four years and above but less than five years (2.23 per cent existing) and at 2.36 per cent for deposits of five years only (2.49 per cent existing). (For details log on to : http://www.business-standard.com/india/news/indian-bank-revises-interest-rates-/473292/)
ING VYSYA BANK ENTERS GOLD COIN RETAILING
MUMBAI: Private sector lender ING Vysya Bank today entered the gold coin retailing segment, announcing its plans to sell 24-carat coins of up to 10 grams. The coins will be imported from Switzerlandand be sold at the Bangalore-headquartered bank’s 149 branches nationally, it said in a statement issued here. The coins will be offered in denominations of five grams, 8 grams and 10 grams and will be sold based on international bullion rates, it said. Outlining the bank’s rationale for entering the fray, which already has a majority of lenders operating, the bank’s country head for retail banking Uday Sareen said, “Gold as an asset class is a key alternate investment avenue for individual investors and also acts as a natural hedge against other asset classes. We have been seeing tremendous demand for this product.” (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/ing-vysya-bank-enters-gold-coin-retailing/articleshow/12965924.cms)
KARNATAKA BANK TO ADD ONE MILLION NEW CLIENTS
BANGALORE: Karnataka Bank will add one million new clients during the current fiscal. Mr P. Jayarama Bhat, Managing Director of the bank, said this at the annual business conference of the regional heads of the bank in Mangalore on Wednesday. He said the bank’s priority will be on retail segment with focus on CASA (current account savings account) deposits by adding one million new clients. It will also focus on retail lending by concentrating on agriculture advances, MSME (micro, small, medium enterprises) advances, etc. He advised the regional heads to closely monitor the credit portfolio in view of volatility in the market to maintain the health of advances and to avoid any slippage to NPA. Mr Bhat said the bank has envisaged business growth of 25 per cent during 2012-13, and aims to reach a business turnover of Rs 65,000 crore. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3378016.ece)
STANCHART’S INDIA BIZ SUBDUED AMID OVERALL POSITIVE GROWTH
LONDON: There appears to be no let-up yet for Standard Chartered’s Indiabusiness, as the company said in an otherwise optimistic trading update on Wednesday that the market there remained subdued. While Standard Chartered experienced double-digit income growth in Hong Kong, Malaysia, Indonesia, China, the Americasand in Europe in the first quarter of the year, its business in Indiaremained impacted by “subdued domestic sentiment”. While there was no deterioration in the Indian market, income for the quarter was flat year on year, a spokesperson said. In February, Standard Chartered’s Indian operations reported a pre-tax profit of $804 million for the full year 2011, a 33 per cent drop against the same period the year before, as income fell by 11 per cent and loan impairment rose by 42 per cent. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3378013.ece)
INSURERS MAY PROVIDE RS 6,500 CRORE MORE FOR TP MOTOR POOL
MUMBAI: Insurers in the third-party (TP) motor segment may have to provision Rs 6,500 crore more to comply with insurance regulator IRDA’s directive, a CRISIL report today said. “We estimate the additional provisioning at Rs 65 billion this time, which is more than twice the provisioning increase that followed IRDA’s rate hike of March 2011,” Director of CRISIL Ratings, Rupali Shanker said. Insurance Regulatory and Development Authority (IRDA) has increased the provisioning requirements in the third party motor pool recently. The report said that the additional provisioning in the motor TP pool coupled with high claims in the motor TP (third party) and health insurance would impact the underwriting performance in the interim. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/insurers-may-provide-rs-6500-crore-more-for-tp-motor-pool/articleshow/12965926.cms)
HDFC LIFE TO GO FOR IPO IN FY14
MUMBAI: HDFC Life plans to raise funds through an initial public offering (IPO) of 10 per cent of the capital base. The private-sector life insurer has already started the process internally, and is expected to hit the market in the next financial year. The company has posted a net profit of Rs 271 crore, for the first time since its inception. Its total premiums collected grew 13 per cent during that financial year to Rs 10,202 crore. The company’s embedded value stood at Rs 4,800 crore as on March 31. The company is looking at a margin of 15 per cent before going to public. Currently, HDFC Life has reported a margin of 10.25 per cent. HDFC Life is a joint venture between Housing Development Finance Corporation (HDFC) Ltd and UK-based insurer, Standard Life. While HDFC holds a stake of 74 per cent, the British insurer holds the remaining 26 per cent — the maximum permitted under Indian laws. (For details log on to : http://www.business-standard.com/india/news/hdfc-life-to-go-for-ipo-in-fy14/473251/)
HEALTH INSURANCE FORUM TO SUGGEST SWEEPING CHANGES
In a radical change, the recently-constituted Health Insurance Forum is set to recommend that fees charged by hospitals from patients with mediclaim policies might be capped. The forum, constituted by the insurance regulator to help evolve policies and processes for the health insurance sector, is set to bring sweeping changes. For instance, it is also thinking of capping the rate of increase in premiums during renewals of claims. Besides, life insurance companies should issue policies with a minimum tenure of five years. On portability, the industry is talking about standardising the wording, along with a data-exchange mechanism to control frauds. “These are the basic points being discussed in the initial meetings. We would like to see that these recommendations are in place by the next financial year. However, these are broad points, and it would take some time before new forming new regulations,” said a source privy to the discussion. (For details log on to : http://www.business-standard.com/india/news/health-insurance-forum-to-suggest-sweeping-changes/473272/)
SBI LIFE FY12 NET UP 52% TO RS 556 CRORE
MUMBAI: SBI Life on Wednesday reported a 52 per cent rise in net profit to Rs 556 crore for the financial year ended march 31, 2012, as against Rs 366 crore reported in the corresponding a year ago. Total premium collected by the largest private life insurer in the country, during 2011-12 grew by one per cent to Rs 13,133 crore. This is largely due to new business premium, which was down by 13 per cent to Rs 6,531 crore. (For details log on to : http://www.business-standard.com/india/news/sbi-life-fy12-net52-to-rs-556-crore/473293/
MAX BUPA TO LAUNCH TRAVEL INSURANCE THIS YEAR
NEW DELHI: Max Bupa Health Insurance Company Ltd (Max Bupa) plans to launch a travel insurance product by the end of this year, its Chief Executive, Dr Damien Marmion, has said. Travel insurance is a natural fit for a health insurer such as Max Bupa, as a significant share (60 per cent) of the claims in such products the world over comes for health reasons, Dr Marmion pointed out. Max Bupa is looking to offer only an international travel insurance product and not one for domestic travel. It will sell its travel insurance online, he said. The company currently has six products in its portfolio and at least six more are in the pipeline, including one for critical illness. This standalone health insurer, which has just completed two years of business operations, is looking to break even by 2015, he added. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3378017.ece)
DAIWA CAPITAL MARKET TO SCALE UP INDIA OPERATIONS
MUMBAI: Daiwa Capital Markets, the Japanese securities firm that cut staff by a third in India to reduce costs, aims to revive its fortunes in takeover advisory and brokerage by targeting the elusive Japanese savings that runs at more than $2 trillion. Indiais a difficult market. There are complexity in taxation and regulations, lack of infrastructure and policy lapses is affecting Japanese investments,” said IndiaPresident and CEO Hiroaki Kato. There is no change in our mindset over the past two years. We have become more cost conscious and are focusing on sustainable growth,” said Kato. The Japanese firm that reduced its employee strength in the last two years from 90 to 60 in the past two years is now looking to cash in on the Indo-Japanese trade ties. We are looking to focus on cross border mergers and acquisitions and private equity deals. Once you invite foreign companies then you need to incentivise them. Logistics, simple taxation, infrastructure and political leadership is very important,” said Kato. For instance the state of Gujarat. You need to have many states like Gujarat in India,” he said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/daiwa-capital-market-to-scale-up-india-operations/articleshow/12963594.cms)
SLIDING RUPEE KNOCKS OFF $9 BILLION FROM FIIs’ INDIA HOLDINGS
MUMBAI: Foreign institutional investors (FIIs) battling uncertainty about tax liabilities are facing troubles on yet another front – the sliding Indian currency. The value of international investors’ holdings in the Indian market has eroded by $9 billion in the past month when the rupee slid 4% against the US dollar, a calculation by ET shows. This is in contrast to a near $40-billion notional gain in the first quarter when the Indian rupee was the best performing currency in the region. Experts are indicating that the rupee is likely to remain under pressure in the next few months. “Foreign investors are somewhat worried about their Indian holdings because the weakness in the rupee does not appear to be just a short-term concern. The huge trade deficits and high inflation differentials with our trading partners, in addition to the potential consequences of GAAR, could result in the rupee dropping further in the foreseeable future,” said UR Bhat, managing director, Dalton Capital India. (For details log on to : http://economictimes.indiatimes.com/markets/stocks/market-news/gaar-effect-sliding-rupee-knocks-off-9-bn-from-fiis-india-holdings/articleshow/12973055.cms)
IN LEAN TIMES, DIVIDEND PAYOUTS PLAY BIG ROLE
MUMBAI: It is true that investors put their money in equities for capital appreciation and dividend is not the decision driver. Still, when the market is in a consolidation mode, dividends have a crucial role in the investment portfolio. Corporate dividends have assumed an important part of the total returns from stock market investment. Over a long term, dividends account for higher weight in total returns; during a slowdown, it consoles investors when stocks give negative returns. Nilesh Shah, president, corporate banking, Axis Bank, said, “When investors compare returns from equities, they should look at total returns, inclusive of dividend payout.” Total return is calculated after reinvesting dividends. The Business Standard Research Bureau studied the role of dividends in total returns during the economic slowdown period between March 2008 and March 2012. It showed dividends added 6.65 per cent to the total return of 17.9 per cent from Bombay Stock Exchange Sensex companies over these years. While the Sensex was up 1,759 points or 11.25 per cent between March 2008 and 2012, cumulative dividends of Rs 87,304 crore (free-float) for the period by these companies added 6.65 per cent or 1,041 points. We added the cumulative free-float dividends in the free-float market capitalisation of the Sensex companies and used the current base weight factor to work the new index. (For details log on to : http://www.business-standard.com/india/news/in-lean-times-dividend-payouts-play-big-role/473230/)
MARKET PLAYERS SEEK INCENTIVES FOR SME SEGMENT PARTICIPANTS
MUMBAI: Market intermediaries have asked the Securities and Exchange Board of India and the government to announce incentives for potential participants in the small and medium enterprises (SME) segment. They say that the current regulatory framework has made it difficult to get entities like venture funds, private equity (PE) players and even merchant bankers to participate on the SME platform. Market players, involved in the developments, say SME segment needs tax incentives for investors, more categories of ‘nominated investors’ to support market-making activities and rationalisation of merchant banker obligations to generate sufficient liquidity. “All that we want is some tweaking in the regulatory framework so that more VC and PE-backed companies look at listing on the SME platform,” says a senior industry player involved in the discussions. “We have made policymakers aware of the problems and are hoping for some positive action,” the industry player added. (For details log on to : http://www.financialexpress.com/news/market-players-seek-incentives-for-sme-segment-participants/944610/)