NEW DELHI: India plans to strip the Reserve Bank of India’s (RBI) of its powers to regulate government bonds, but leave the central bank in charge of other money market instruments, three government sources with direct knowledge of the matter said on Wednesday. The move is part of a major overhaul of the financial system that aims to deepen bond markets by increasing the participation of retail investors and improve the transmission of monetary policy, the sources told Reuters. “The objective is to push financial sector reforms,” said one of the sources, who declined to be identified because he was not authorised to speak to the media. “You need a bond market that is well functioning where retail and corporate investors can participate.” Changes proposed by Finance Minister Arun Jaitley in his Budget last month triggered speculation that the government was also looking to transfer money market regulation from the RBI to the Securities and Exchange Board of India (Sebi), India’s stock market regulator.
PREPARED TO DEAL WITH MARKET VOLATILITY DUE TO FED MOVE: RAJAN
NEW DELHI: Ahead of a decision by the US Federal Reserve on interest rates, Reserve Bank of India (RBI) Governor Raghuram Rajan on Wednesday said India was prepared to deal with any volatility in the market. He added RBI would take cues from a statement by the Fed. “There could be volatility in (stock and currency) markets if the Fed moves on rate…(but) normalcy will be restored in the market even if there is volatility,” he said after meeting Finance Minister Arun Jaitley in Parliament House here. The meeting comes days ahead of the finance minister’s post-Budget interaction with the RBI board, scheduled for Sunday. The interaction is significant in the wake of the Finance Bill, 2015, proposing dilution of RBI’s powers in the money market. The Federal Reserve on Wednesday opened the door further for an interest rate hike as early as June, ending its pledge to be “patient” in normalising monetary policy. But the US central bank signalled a more cautious outlook for US economic growth and slashed its projected interest rate path, in a sign that it remained concerned about the health of the recovery. Any rate increase by the Fed might have made it difficult for RBI to cut the repo rate.
MAHARASHTRA SCRAPS LOCAL BODY TAX, IMPOSES VAT SURCHARGE
PUNE: Presenting the maiden Budget of the BJP-led government in Maharashtra, finance minister Sudhir Mungantiwar on Wednesday announced the scrapping of local body tax (LBT). The Budget provides for a revenue deficit of R13,883 crore against R4,103 crore in the last fiscal. The government announced that the LBT will be abolished from August 1, instead of the initial proposal of April 1. To compensate for the losses, the government will impose surcharge on value added tax (VAT) across the state. “A revenue neutral rate has been recommended considering the share of increased tax collection will be given to the areas where LBT is not levied. A decision in this regard will be taken after due consultation and, thereafter, LBT will be abolished from August 1, he said. The government admitted there were limited options to increase tax, considering the present state of the economy. The state bears a debt burden of R3 lakh crore and interest burden of R24,000 crore annually. The minister said he will tap some unconventional revenue sources, such as charging premium fee linked to the market value of land for change in purpose of the land, additional FSI, and mobilise R643 crore through various tax proposals, including entry tax on import of long steel in state, increase in tax rate to 12.5% from 5% on plain and pre-laminated particle boards, among others.
CREDIT GROWTH DIPS TO 10.4%, DEPOSITS FALL TOO
MUMBAI: Non-food credit growth fell to 10.4% y-o-y in the fortnight ended March 6 to R64.26 lakh crore, down from 10.64% in the previous fortnight, RBI data show. Deposits grew at a slower pace on a year-on-year basis when compared with the last fortnight. Deposits saw an increase of 11.77% y-o-y to R84.62 lakh crore in the fortnight ended March 6 from 11.85% in the previous fortnight. While time deposits grew 11.79% y-o-y to R77.04 lakh crore, demand deposits were up 11.69% at R7.58 lakh crore. Credit growth, which had plummeted to a decade low of 9.8% in the fortnight ended September 5, picked up in subsequent fortnights thereafter, only to fall again for the last three consecutive fortnights. The pick-up was largely due to working capital loan disbursals, as project loan sanctions as well as disbursals remained weak, bankers said.
CREDIT GROWTH REVIVAL TO TAKE TIME, SAYS S&P
MUMBAI: Private sector investment revival, growth in credit and a reversal in the trend of rising non-performing loan ratios for Indian banks would likely take time despite improving operating conditions for banks and more room for the Reserve Bank of India (RBI) to cut rates, said a Standard and Poor’s report on Wednesday. “We expect the pace of growth of stressed assets to fall because a substantial part of the stress has already been recognised,” said Standard & Poor’s credit analyst Amit Pandey, adding that any material recovery of corporate loan quality would require improvement in demand in India, de-leveraging of corporate balance sheets and resolution of problems in the infrastructure and metal and mining sectors, all of which would take a while. The report identified capitalisation as a key constraint for some public sector banks (PSBs) in India, stating that due to the budgetary allocation of just Rs7,940 crore for infusion into banks in FY16, PSBs would have to raise additional capital through additional tier-I hybrid instruments, equity markets and state-owned Life Insurance Corporation.
BANK DEPOSITS IN KERALA UP 53 PER CENT AT RS 407,000 CR
KOCHI: The total bank deposits in Kerala increased 52.53 per cent during 2014, when compared with the last year. During January-December 2014, total deposits increased by Rs 140,322 crore to touch Rs 407,455 crore. Domestic deposits grew 71.31 per cent to Rs 302,882 crore during the calendar year 2014, as against Rs 176,802 crore as on 31st December, 2013, according to the State Level Bankers’ Committee (SLBC). Domestic deposits constitute 74.34 per cent of the total deposits of the state. The planned efforts of various banks under the financial inclusion programme had helped achieve this, the SLBC said. Non-resident Indian (NRI) deposits grew 15.77 per cent to cross Rs 100,000 crore for the first time in the state. NRI deposits rose to Rs 104,573 crore as on December 31, 2014.
NABARD STRESSES ON PROFESSIONAL MANAGEMENTS FOR STATE CO-OP BANKS
HYDERABAD: National Bank for Agriculture and Rural Development (Nabard) chairman Harsh Kumar Bhanwala has asked the governments of Telangana and Andhra Pradesh to bring in professional managements for the respective state co-operative banks that will come into existence from April 2. The present AP Cooperative Bank (Apcob) is to be split into two post bifurcation. “They need professional managements. Only professional managements can implement the business process re-engineering required to sustain in the current environment. Both the banks should adopt more technologies,” Bhanwala said here today. Yesterday Nabard chairman met the chief ministers of both the states to review the ongoing projects besides discussing the new financial assistance. While the Telangana government has asked for Rs 1,000 crore funds mostly for the development of small irrigation tanks in the state, the AP government has sought around Rs 1,300 crore for developing food parks and other infrastructure in rural areas in the next financial year.
LIC, SBI LEAD ADVANCE TAX-PAYERS’ LIST
MUMBAI: Reflecting the strain in the economy, advance tax paid by top companies headquartered in Mumbai has increased by less than one per cent in the March quarter to Rs. 20,970 crore against Rs. 20,890 crore in the same period last year. High interest rate and slowing demand hit most corporates leading to lower payout during the quarter. Corporate houses pay advance tax based on their capital spend and future earning prospects. A lower remittance reflects their weak sentiment. For the financial year ending March, tax payout by these 100 companies was up 11 per cent at Rs. 85,470 crore against Rs. 76,980 crore, sources said. State-owned insurance behemoth LIC and State Bank of India retained their top slot as largest tax payers by paying Rs. 1,470 crore and Rs. 1750 crore respectively in the March quarter against Rs. 1,280 crore and Rs. 1,450 crore paid in the same period last year.
TPG TO SELL 20% STAKE IN SHRIRAM CITY UNION, IN TALKS WITH PE FUNDS
This could well be the last of the large equity transactions at the Shriram Group in the last couple of years. Sources with direct knowledge share that private equity firm, TPG Capital has put its 20% stake in Shriram City Union Finance on the block. TPG is in talks with several private equity players like KKR, Apax, GAAP, Warburg Pincus, to name a few, sources shared. As per the current market price, the deal could be valued at around Rs 2,500 crores. Shriram City Union Finance ended the day at Rs 1,947.40; up 2.20%, on the BSE. TPG bought 22% stake in Shriram City Union Finance in August 2013 for Rs 1,207 crores and could be making a hefty profit on its investments with the stock now trading at over Rs 1,960/share levels. Piramal Enterprises which had bought 9.9% stake in Shriram City in June 2014 for Rs 790 crores is not picking up the TPG stake but may have a role to play given its huge holding in the parent company, Shriram Capital. Sources share that the new buyer will be interested in the protective rights of a shareholder and the Shriram Capital owners, Shriram Group, Sanlam and Piramal Enterprises will define these for the new financial investor in Shriram City Union Finance.
KEDAARA CAPITAL INVESTS RS 700 CRORE IN THREE DEALS
MUMBAI: Private equity firm Kedaara Capital is investing about Rs 700 crore, or $110 million, across three control-type deals as the India-focused fund steps up action on the buoyant deal street. Kedaara Capital, whose maiden fund is managing assets worth nearly $600 million, is set to scoop up a 24% stake in Manjushree Technopack, a packaging materials company which is delisting from the stock exchanges. Kedaara has issued a term sheet, or entered into a preliminary agreement, and will seal the deal once Manjushree promoters complete the buyback and delisting process currently underway. This is one of the rare instances of a private equity investor backing the promoter to take the company private in India, though it is not uncommon in the matured global markets. Manjushree makes PET and plastic containers as well as blow and injection-moulded containers for pharma and food processing sectors. Kedaara will acquire the shares from the promoter at the delisting offer price. Kedaara was co-founded by former Temasek India senior managing director Manish Kejriwal and General Atlantic managing directors Sunish Sharma and Nishant Sharma.
PUBLIC ISSUE OF NCDs FALLS 78% ON LACK OF TAX-FREE BONDS IN FY15
MUMBAI: The public issue of non-convertible debentures (NCDs) fell more than 78% in FY15 compared with FY14, according to Sebi data till Wednesday. The total public issue of NCDs in FY15 stood at R9,049.05 crore against R42,382.97 crore in FY14. Bond market experts attribute this fall to the absence of tax-free bonds in FY15. In FY14, many state-owned PSUs had issued tax-free bonds, the overall limit on which stood at R50,000 crore. Companies raised close to R49,000 crore through these bonds, out of which a major portion was raised through public issue of NCDs. “In FY14, out of the R49,000 crore issuance of tax-free bonds, around R37,000 crore was raised through public issue of NCDs. Since tax-free bonds were absent from the market this fiscal, public issue of NCDs witnessed a drop compared to the previous fiscal,” said Ajay Manglunia, senior vice-president-fixed income, Edelweiss Securities.
SEBI UNLIKELY TO HALT TRADING OF PSU STOCKS ON AUCTION DAY
NEW DELHI: The Securities and Exchange Board of India (Sebi) is likely to turn down the department of disinvestment’s request to halt trading of shares of public sector companies on the day the government auctions stocks of such companies, as the market regulator is afraid of investor sentiment getting hurt, sources told FE. The department had also written to the Sebi requesting cutting down the notice period for the offer for sale (OFS) to one day from two and put circuit breaker on the previous day of the share sale to prevent hammering of stocks that derail the government’s share sale programme. While the Sebi is reluctant to make any changes to the existing OFS mechanism, officials are still hopeful that the regulator will cut the notice period. Sebi is of the view that suspension of trading does not augur well for the image of the country as an investment destination at a time when India is courting foreign investors to put their money on India growth story, sources said. The market regulator has also pointed out that at any point of time, investors should not be deprived of the exit option, sources said.
LESS WARMTH FOR TAX-FREE BONDS IN FY16
MUMBAI: Tax-free bonds, seen hitting the Street in financial year 2015-16, might not be able to get the same attention as when interest rates were higher. The coupon rates on these bonds are expected to be much lower than what was offered earlier. Last month, the Union Budget had announced tax-free bonds for infrastructure projects. These are popular with wealthy individuals. If the holding period is more than a year, investors have to pay long-term capital gains tax at 20 per cent with indexation or 10 per cent without indexation. “Since the interest rate cycle is heading down, the coupon rate on these bonds might not be so high. These could still get subscribed but the enthusiasm of investors might not be as good as in past years. Investors might continue to have higher interest in equity investments,” said Arvind Konar, head of fixed income, Almondz Global Securities. The bonds offer a high degree of safety, being issued by top-rated public sector companies. In the past, issuers such as Rural Electrification Corporation, Power Finance Corporation and National Highways Authority of India have hit the market with such bonds. Since the interest rates were higher at the time, these had got subscribed quickly.
BANKS BOOKING PROFITS IN BONDS
MUMBAI: Ahead of the end of this financial year, banks are booking profits in bonds. Due to this, bond yields continue to remain elevated, despite two rate cuts by the Reserve Bank of India (RBI) this quarter. It is expected the profits of banks in the fourth quarter will be driven by treasury gains. This year, the central bank has cut the policy rate twice — in January and March, by 50 basis points each. After both rate cuts, the bond market had rallied. Since the beginning of this year, the yield on the 10-year benchmark bond has dropped by six basis points to 7.79 per cent. As of February 2, the yield stood at 7.65 per cent. “Traders maintain very less positions in March. They are making whatever profits they can make. Now, the bond market is awaiting the outcome of a two-day meeting of the US Federal Reserve. If the Fed’s outlook is hawkish, chances are the yields will rise from current levels,” said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank.
SEBI PLANS IPO RULE CHANGES TO LURE HOMEGROWN START-UPS
MUMBAI: The capital market regulator is planning rule changes that will make it easier for homegrown start-ups to list their shares on local bourses, sources involved in the process said, helping domestic investors to bet on the country’s booming online economy. While many of India’s largest online players are set to list in the coming year or two as they mature, none is currently expected to make its market debut at home. That could mean a significant loss for local exchanges and investors: marketplace Flipkart has prompted valuations of as high as $11 billion. To remedy this, sources said, the Securities and Exchange Board of India (Sebi) is considering easing rules on mandatory disclosure for the draft prospectuses of Internet-based firms. One of the main items that could be scrapped is the need to detail the use of proceeds from the initial public offering (IPO) of shares, they said. This is an obstacle particularly for technology start-ups, that don’t usually use the cash to invest in plants, factories or mines. “A lot of them operate without any tangible assets,” said one of the sources directly involved in the process. “That creates an issue when declaring the use of proceeds (in the draft prospectus).” The source said other issues including accounting and financial reporting practices used by the e-commerce firms were also under review to ease pre-IPO disclosure requirements. An official at Sebi said separately the regulator’s chairman, U K Sinha, had held meetings with start-up executives and bankers to discuss the proposed changes.
JP MORGAN AMC ROLLS OUT OPEN-ENDED BALANCED FUND
MUMBAI: JP Morgan Asset Management India Pvt Ltd has launched the opened-ended Balanced Advantage Fund with an investment objective of generating long-term capital appreciation and current income from equity-related and fixed income securities. The new scheme aims at capitalising on the positive outlook in both equity and fixed income markets while maintaining tax advantage. The fund will invest 30-60 per cent of the assets in equity, 30-60 per cent in fixed income, and 5-10 per cent in fully-hedged arbitrage exposure. The new fund will remain open from March 18 to April 15 and will be benchmarked against the Crisil Balanced Fund Index. The minimum initial application amount is Rs. 5,000 and the fund has an SIP option. There is an exit load of 1 per cent if units are redeemed or switched within 18 months of allotment. Nandkumar Surti, MD and CEO of the AMC, said: “The relevance of balanced funds has increased because of the tax treatment of debt funds. Hence, we have introduced the Balanced Advantage Fund to provide our investors with an option of optimal returns and tax advantage as the fund is less volatile and may provide better risk-adjusted returns.”